Central to the reason that we trade is the fact that other people own things that we want. These things consist of physical items, such as apples and automobiles, and services, such as repairing leaky pipes and cutting hair. But the fact that other people have things that we want does not alone explain trade. Other means of acquiring desired things include theft, fraud, and begging. Yet another means is to produce those desired things ourselves.
In reality each of these means of acquiring things is used. But the single most commonly used means of acquiring desired things is trade. Trade occurs whenever two individuals voluntarily exchange ownership rights: Jill voluntarily transfers her ownership of an apple to Jack in exchange for Jack’s voluntary transfer of his ownership of a grapefruit to Jill.
By its nature, trade is peaceful and voluntary. This fact implies that each party to every trade expects to be made better off by that trade. Anyone offered a deal that she believes would make her worse off simply rejects the offer. Of course, there’s always the possibility of fraud or error. But fraud and error mar only a small fraction of actual trades, and neither plays a role in any of the chief arguments against free trade.
So the elemental motive for trade is simple and obvious: trade is a means for each individual to improve his or her well-being. This outcome is achieved by giving up something valued less intensely in exchange for something valued more intensely. And because each party to every trade is similarly motivated, each trade improves the well-being of each party to it.
At its simplest level – such as the exchange of an apple for a grapefruit – trade improves human well-being even though nothing new is produced. Merely changing, through trade, the pattern of ownership of existing goods increases human welfare. While this truth should never be overlooked, it’s obvious that significant increases in human well-being require far more than merely rearranging property titles to existing goods. The stock of existing goods must be increased, as must the capacity to render services. And trade is inseparable from the social cooperation that is necessary to produce new goods and services.
Adam Smith’s Coat
In the first chapter of An Inquiry Into the Nature and Causes of the Wealth of Nations, Adam Smith remarked on the unfathomable amount of social cooperation that is required to produce an ordinary woollen coat:
The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join 15 their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many shipbuilders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen!
An ordinary coat is made of countless different materials from many different places, and is produced only because each of a multitude of individuals, today spread out across the globe, contributes to the production process his and her creativity, knowledge, effort, and willingness to bear risks. And each of these producers does so – can do so – only because he and she trades with others.
Most obviously, because you did not make your coat, you bought it – that is, you traded for it. On the other end of that bargain were the multitude of individuals whose combined productive efforts resulted in the physical production of your coat as well as its delivery to the retail store at which you purchased it. Each of these persons – persons such as the sheep farmer, the textile-mill worker, the delivery-truck driver, and the actuary employed by the insurance company whose services are essential for the economically feasible operation of the retailer – traded his productive efforts in exchange for money that he then used to buy goods and services for himself and his family. Had none of these people been able to trade with others for the goods and services that they wish to consume, none would have willingly contributed his time and effort to produce components of a coat destined to be worn by you.
Likewise with you. You earned the money that you spent to purchase your coat by working for a productive enterprise. You might truly love your job, but you’re unlikely to continue working at your job if your employer stops paying you. You continue to work because doing so is a means for you to trade your time and effort in exchange for money that you then trade away to others in exchange for the goods and services that these others have produced for you to consume. Ultimately, you work not for money but for what money can buy.
And note that you’re a complete stranger to nearly everyone who worked to produce your coat. You’re a complete stranger also to nearly everyone who benefits from your productive efforts. Strangers helping strangers, day in and day out. What unites all of these strangers in this worldwide web of production and mutual assistance is trade.
Exchanging a Few Hours of Work for the Fruits of Millions of Hours of Work
It’s important to appreciate just how marvelously productive is today’s globe-spanning system of economic cooperation. In July from my office in Virginia, I used the Internet to survey the retail prices of new woollen coats available for sale in the United Kingdom. A representative price is £200. The median hourly wage of full-time workers in the UK is today £13.94. Thus, an ordinary worker today in the U.K. must toil only 14.3 hours in order to earn enough income to buy a new woollen coat. That is, for a mere 14.3 hours of his time, the typical worker can command one of the fruits of the labours of literally millions – perhaps of hundreds of millions – of strangers. Truly amazing!
Of course, what’s true for a coat is true also for every other good and service that we routinely consume. Each one, with rare exception, costs us only a few minutes or a few hours of our time. Yet in each case what we acquire in exchange for such a small amount of our own time and effort is a good or service the production of which requires the efforts of millions. Indeed, it costs us so little precisely because its production drew on the efforts of millions of individuals, each of whom contributed his and her own highly specialised talents.
And the greater is the number of persons participating in the trading network of which you are a part, the greater is the amount of human creativity, skill, information, and effort that you tap into daily. Those who oppose free trade, therefore, oppose your freedom to cooperate to maximum mutual effect with your fellow human beings. Opponents of free trade wish to prevent you and your fellow human beings from rendering to, and receiving from, each other the greatest possible amount of mutual assistance at improving your lives.
This essay is adapted from Boudreaux’s newly published paper, “Free Trade and How It Enriches Us” (Discussion Paper No. 94, Institute of Economic Affairs, London)
Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.
Source: American Institute for Econ