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Thursday, September 18, 2014

Where’s My Quid?

Exchange value is inherently unequal

The Latin phrase quid pro quo has had a pernicious effect on our understanding of voluntary exchange.

It translates as “something for something” or “this for that,” and could apply to virtually any sort of exchange or trade. Its usage has been so common for so long that it may be responsible for quid as slang for a British pound sterling, perhaps from an expression for living up to voluntary agreements, such as “Here’s your quo; where’s my quid?”

However, the phrase has taken on added meaning by way of the law, because a legal contract is binding only if it is quid pro quo, involving an exchange of goods or services of comparable value. In addition, in the 1700s, apothecaries used the phrase to describe the substitution of one medical substance for another, suggesting functional equivalence. Those uses are now reflected in the American Heritage Dictionary, which defines quid pro quo as “an equal exchange or substitution.”

This added implication that a legitimate exchange involves a transfer of effectively equal values between parties muddies our understanding of both the voluntary arrangements of markets and the involuntary arrangements of government.

Using quid pro quo to describe market exchanges ignores the fact that in all voluntary exchanges, every party whose property rights are involved is made better off than before—not just as well off, as would be implied by an equal exchange. People searching to improve their circumstances (i.e., all of us) would not agree to exchanges unless they believed that what they got was worth more to them than what they gave up.

Viewing voluntary exchanges as involving equal values leaves people blind to the mutual benefits created by even “unequal” exchanges. This mistake has also fathered a cornucopia of damaging restrictions on voluntary arrangements. It defames voluntary market arrangements. And it falsely inflates coercive government arrangements by ignoring the harm inherently imposed on unwilling parties when an outside authority presumes to know more about the value of the items exchanged than do the parties who agreed to the exchange in the first place.

The misunderstanding created by the idea of “equal value” produces the opposite of a beneficial quid pro quo from society’s perspective: It destroys vast amounts of wealth in exchange for enabling theft. 

  • Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network.

    In addition to his new book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).