The Benefits of Trade
OCTOBER 01, 1981 by TODD S. HULTMAN
Mr. Hultman assisted with the 1981 Summer Seminar program at FEE, He is a senior at the University of Nebraska at Omaha.
Free trade affords benefits often overlooked. At the heart of free trade lies the law of comparative cost: an individual stands to gain by concentrating his efforts and exchanging with others rather than trying to produce all types of goods. This is why individuals of various abilities are able to trade peacefully for mutual gain.
For example, Jones lives next door to Smith. They have similar lawns and gardens. Jones mows his lawn in two hours and hoes his garden in one. Smith mows his lawn in three hours and hoes his garden in four. Thus, each Saturday Jones spends three hours working in his yard while Smith spends seven hours.
One Saturday Jones, observing these differences, offers to hoe Smith’s garden if Smith will mow Jones’ lawn. Smith agrees and both find they benefit from this exchange. Jones now works only two hours instead of three, while Smith works only six instead of seven. The same results are accomplished, but each man gains one hour of free time.
When Smith and Jones each focuses on his more productive skills, they are able to cooperate peacefully for mutual benefit. Each receives a free hour in his day he would not otherwise have had. Depending on their time preferences, the men may consume their extra time in enjoyment or use it to engage in further production and exchange. Smith may go for a walk, enjoy his family, or watch television while Jones may hoe another garden for more benefits. The goal is not necessarily to accumulate goods and services, but to enlarge the opportunity to engage in the peaceful activities of their choice (which often requires goods and services).
This example of comparative cost also shows that the unskilled, as well as the skilled, can benefit from free trade. Jones was the more skillful at both mowing and hoeing, yet Smith could still offer his aid to Jones for mutual benefit. Smith’s lack of skill as a mower and hoer didn’t make him subservient to Jones; both were dependent on the other to get the work done and acquire their free time. It is true that Smith would be working several hours after Jones was done, but both were better off after the exchange than before. Any attempt to force Jones to help Smith would have destroyed the basis for future exchange. This would have made it more beneficial for Jones to return to his self-sufficient lifestyle, leaving Smith once again with his long workday. Let the exchange take place free from coercion and both parties will gain.
Free trade also promotes a greater awareness of the needs of others. When Smith and Jones were self-sufficient, there was no need for communication or understanding; each was an island unto himself. However, that first Saturday when Jones was looking for a way to help himself by trading with Smith, he had to make a conscious effort to understand Smith’s needs. As Jones continues to enrich himself by trading with others in society, he will become more useful to others, enhancing his cooperative ability. Smith, likewise, will grow.
As they become more aware of the needs of others and more dependent on trade for their higher standard of living, they will also tend to behave more peacefully toward their fellow men. When Smith and Jones were self-sufficient, it was of little concern to either of them what hap pened to the other. Now that they are exchanging labor and thus enjoying a higher standard of living, injuring one would also hurt the other. Just as peaceful exchange brought benefits to both, violence would bring injury to both. Thus free trade encourages peaceful cooperation and discourages violence.
The final lesson to be gleaned from this example is the importance of freedom for the increase and enjoyment of wealth. Obviously, had Smith and Jones been prevented from exchanging their services there would have been no resulting benefits. Nor can anyone else make exchanges for them. Only they know if an exchange will be beneficial since value and wealth are matters of personal judgment. What if Smith had enjoyed hoeing his garden more than anything else? It would have been wrong to force him into the exchange “for his own good.” Both his freedom and his satisfaction would have been diminished, resulting in loss rather than gain. Mutual benefits can only occur when individuals are left free to exchange according to their own values.
These often overlooked benefits of free trade remind us: individuals can cooperate for their mutual gain; the unskilled, as well as the skilled, havethe opportunity to advance; free trade promotes greater awareness of the needs of others; and freedom is necessary for this whole process of trading for mutual benefit . . . the ends of man not necessarily being in the pile of goods and services he accumulates, but in the opportunity to engage in the peaceful activity of his choice.