American Consequences - January 2019


I t’s “International Trade” that gets all the headlines. We think, in our imaginations, that we could do without it – drive Buicks, use old Motorola flip phones, and own one T-shirt made in America instead of two dozen made in Bangladesh. But the real meaning of trade is more basic than global commerce. Trade is so basic that we don’t think about it at all. Or, if we do think about it, the thinking gets hard. Trade is such a fundamental truth – like the fact that the universe exists at all – that our imaginations have trouble grasping it.

The meaning of trade is that a single human is almost incapable of making or doing anything without exchanging goods and services with other humans. Robinson Crusoe would have come a cropper if not for the shipwreck from which to “import” goods and his man Friday to perform the minimum-wage services. The Swiss Family Robinson would have been the Dead Family Robinson if they hadn’t had a big family full of people swapping their various skills, abilities, and knowledge. It took the greatest thinker about economics ever, Adam Smith, to discover the real meaning of trade. And even he only touched on it in his discourse about what we would call specialization. Specialization is a vital part of trade, but not its essence. In The Wealth of Nations , Book I, Chapter 1, “Of the Division of Labor,” Smith says: To take an example from a very trifling manufacture, the trade of a pin-maker; a workman not educated to this business nor acquainted with the use of the machinery employed in it could scarce, perhaps, with his utmost industry, make one pin in a day. What Smith was getting at is actually stated more clearly in an early draft of TheWealth of Nations :

...if all the parts of a pin were to be made by one man, if the same person was to dig the metal out of the mine, separate it from the ore, forge it, split it into small rods, then spin these rods into wire, and last of all make that wire into pins, a man perhaps could with his utmost industry scarce make a pin in a year. In the book and accompanying PBS documentary Free To Choose , Milton and Rose Friedman used the example of a pencil. They cited a wonderful 1958 pamphlet, I, Pencil – My Family Tree , written for the Foundation for Economic Education by its president Leonard E. Read. The story is told by the pencil itself and begins, “Simple? Yet, not a single person on the face of this earth knows how to make me .” To make a pencil you’d have to go to a graphite deposit in India, Brazil, or China and get a job as a miner and then get jobs as a railroad engineer, stevedore, and ship captain to bring the graphite back. After that you’d need to become a chemical engineer to turn the graphite into pencil lead, a lumberjack to cut the cedar trees, and a carpenter to shape the pencil casing. You’d have to learn how to make yellow paint, how to spray it on, and how to make a paint sprayer. You’d have to go


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