Doesn't "an eye for an eye" make the whole world blind?

Eye see what you mean. ;-)

According to Jewish tradition, this verse was never understood or applied literally. Rather, according to the Oral Law, this injunction is a call for commensurate monetary compensation for damage inflicted on another's person.

All the Biblical commentators, starting from Rashi to Targum Yonatan interpret the verse as such. This interpretation is based on a discussion in the Talmud, tractate Bava Kama 84, and in the Mechilta, ad loc.

The Ibn Ezra discusses this verse at length, and explains how even according to simple logic, the verse could not possibly be understood literally. For it is impossible to ever exact precisely the same damage on the other person. Like the argument employed against Shylock as to why he could have his pound of flesh, but not an iota more.

Rabbi Eliezer Danzinger for Chabad.org