Specialization and Trade Create Wealth

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It is uniquely Human to “Trade, not Take”.

Of all of the life forms on this planet, only Man has the ability to decide, consciously, to trade for his wants and needs rather than taking what he can from others.

Obviously not everyone chooses that path. But, the path exists.

The next question is “Is there a real-world benefit to trading, or is it solely a morality issue?”.

As it turns out, the beauty of trading is that beyond providing the key to being truly Human, trading also creates additional prosperity for the whole community.

Some simple (I promise) numbers will illustrate this point.

Imagine a primitive community that is just beginning to add farming to its food gathering efforts. Assume that they have just figured out how to use a harness to have a cow or ox help plow a field.

The plow and harness mechanism is simple enough that the two village farmers are able to make both the plow and harness themselves.

Now, you might think that if one farmer was better at plow-making and one farmer was better at harness-making, then they would benefit from specializing in making one or the other and trading with each other. And that would indeed be true.

But what if one of the farmers was actually better than the other at both plow-making and harness-making? Would it make sense to trade then? Would it make sense for one farmer but not the other? (Remember, a trade only happens when both parties feel like they are gaining from the trade.)

In fact, even if one farmer is better than the other farmer at both plow-making and harness-making, both farmers will be better off if they still trade.

Sounds a little iffy? That’s why I promised you numbers.

Let’s assume it takes farmer Ed 3 hours to make a plow and 4 hours to make a harness. That’s a total of 7 hours for the whole apparatus.

And let’s assume that it takes farmer Jake 6 hours to make a plow and 5 hours to make a harness (a total of 11 hours to make one complete set).

How can farmer Ed benefit from a trade, when he can build all of the parts so much faster than farmer Jake can?

The key is for farmer Ed to focus on the part with the biggest time advantage. He can make a plow 3 hours faster than farmer Jake, but can make a harness only 1 hour faster.

It takes Farmer Ed 7 hours to make a whole plow and harness set, but he can make two plows in just 6 hours.

Farmer Jake takes 11 hours to make a whole set, but he can make two harnesses in just 10 hours.

So by trading, farmer Ed gets a plow and harness for 6 hours of work instead of 7, and farmer Jake gets his plow and harness for 10 hours of work instead of 11.

And, as a whole, the farming community only had to spend 16 hours of labor to get two plow and harness sets instead of 18 hours, making 2 extra hours available for other valuable activities.

Man can decide to trade, and the trade not only benefits each of the participants (or they wouldn’t participate), but trade also enables and rewards specialization, which makes the whole community more efficient, raising its standard of living.

 

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