2013-02-25

Trade Makes Life Better

This morning's particularly excellent Cafe Hayek post from Donald Boudreaux is a glorious exposition on what it means to succeed in the export business. It really got my gears cranking, as Boudreaux's posts tend to do. Here is a small sampling (all emphases in the original):
Fifth scenario: American producers employ labor, capital goods, and raw materials to produce goods that are routinely loaded onto big cargo ships.  These ships sail safely to foreign ports.  The American-made goods are unloaded, and in exchange Americans receive money – Australian dollars, euros, yuan, yen, rubles, you name it.  When this money is sent to America, Americans eventually spend it in Australia, Europe, China, Japan, Russia, you name the foreign location.  The more Americans export, the more Americans can import.  And that – the ability to import – is the point of trade.  In the ability to import lies the purpose and value of exporting.
So when, for example, historian Chris Wickham writes that some late-empire-period economies ”depended substantially on exports for their prosperity,” what he must mean (whether he knows it or not) is that those economies depended substantially on trade for their prosperity.  Trade, not exports.  Mr. Wickham could just as accurately – indeed, more accurately – have written about these economies that they “depended substantial on imports for their prosperity.”  To the extent that exports played an important role in creating prosperity for denizens of those economies, exports played that role only insofar as exports enabled the denizens of those economies to enjoy more imports.  The prosperity is found in the increased consumption made possible by greater imports.
Exporting isn't good because "we" are selling "them" stuff. Exporting isn't good because "they" are buying "our" stuff. Exporting is good because people are engaging in trade.

Why is trade good? Because when you trade, you get more of what you want. Period, end of story. There is no such thing as "fair" trade versus "free" trade. There is only trade. Trade is a voluntary (emphasis on the voluntary part) exchange of X for Y, made by two or more parties. By definition (i.e., not by supposition or by conjecture or by philosophical assumption), all parties who engage in trade walk away with more of what they want.

We can argue all day about whether $4 per gallon of gasoline is a "fair" price, but in the end, the only thing that matters is whether you bought it willingly from a willing seller. If this fact is true, then (again, by definition), you end up with more of what you want, and so does the seller.

In the abstract, this all seems so terribly obvious: "Of course, of course! Everyone knows that free trade enriches both parties to the transaction! We all know how it works in textbooks!" But allow me to demonstrate how some of you are not quite following along...

What if I were to say, "Rob over-payed on a gold ring by $500!" Most people would not be particularly impacted by a statement like this. Gold rings can be $2000 or more dollars, and they are a luxury. Anyone who over-pays by $500 is still getting an expensive chunk of gold.

Now, consider this alternative statement: "Monique over-payed on her hospital charges by $500!" Suddenly, people are of the opinion that a tragedy has befallen poor Monique. Like a gold ring her hospital charges can be $2000 or more dollars. And yet, because it is "health care," then suddenly everyone believes that Monique "ought" to pay very little money. Because, after all, isn't health care a noble good and a human right?

People who fall for this kind of rhetoric are unaware of the fact that Rob and Monique both walked away from their situations with more of what they wanted. Rob wanted a gold ring more than he wanted the $500; had he not, he never would have paid. Monique wanted whatever treatment she received at the hospital more than she wanted the $500; had she not, she never would have paid.

Trade always results in a surplus for both parties. This is because trade is voluntary. Unless someone sets his mind on undermining his own interests, he will always be made better off from trade.

It is an unavoidable fact.