The Point of Trade
(Content warning: econoliteracy. Dialogue based on an actual conversation, but heavily idealized and simplified and stripped of surrounding context.)
Myself: - seems unreal because it is unreal. But there’s a river of reality running through it. If somebody reports that something complicated feels unreal and difficult to get a handle on, usually the first thing I prescribe is going back to the very very basics, and playing around with those to solidify the grasp there. If mathematics seemed unreal to someone, I’d take somebody back to premises-and-conclusions. In the case of complicated modern economical structures, I’d maybe start with trade. What’s the point of trade? What does it do?
Them: The point of trade is that sometimes people get different amounts of value from things, so they can get more value by trading them. Like, if I have an apple, and you have an orange, but I like oranges more than apples, and you like apples more than oranges, we can trade my apple for your orange, and both be better off.
Myself: Yes, that is the horrible explanation that you sometimes see in economics textbooks because nobody knows how to explain anything. But when you are trying to improve your grasp of the very very basics, you should take the basic thing and poke at it and look at it from different angles to see if it seems to capture the whole truth.
In the case of the “people put different values on things”, it would seem that on the answer you just gave, trade could never increase wealth by very much, in a certain basic sense. There would just be a finite amount of stuff, only so many apples and oranges, and all trade can do is shuffle the things around rather than make any more of it. So, on this viewpoint, trade can’t increase wealth by all that much.
Them: It can increase the utility we get from the things we have, if I like oranges a lot more than I like apples, and you like apples a lot more than oranges.
Myself: All right, suppose that all of us liked exactly the same objects exactly the same amount. This obliterates the poorly-written-textbook’s reason for “trade”. Do you believe that, in an alternate world where everybody had exactly the same taste in apples and oranges, there’d be no further use for trade and trade would stop existing?
Them: Hmm. No, but I don’t know how to describe what the justification for trade is, in that case.
Myself: Modern society seems very wealthy compared to hunter-gatherer society. The vast majority of this increased utility comes from our having more stuff, not from our having the same amount of stuff as hunter-gatherers but giving apples to the exact person on Earth who likes apples most. I claim that the reason we have more stuff has something to do with trade. I claim that in an alternate society where everybody likes every object the same amount, they still do lots and lots of trade for this same reason, to increase how much stuff they have.
Them: Okay, my new answer is that, through trade, you can get strawberries from far away, where they wouldn’t be in season at all, where you are… no, that doesn’t actually make more stuff. My new answer is that you can build complicated things with lots of inputs, by trading to get the inputs. Like if it takes iron and copper to build circuits, you can trade to get those.
Myself: If it takes 1 unit of effort to get 1 unit of iron either way, how can you get any more stuff out, at the end, by trading things? It takes 1 unit of effort to make 1 iron ingot, so go to the iron mines and mine some iron, then chop down the wood to prebake the iron ore for grinding before you put it into the bloomery. All of that has to be done either way to get the iron ingot. How can trading for somebody else’s iron, instead, cause there to be more stuff in the economy as a whole?
Them: Because task-switching has costs.
Myself: Okay, suppose an alternate society of people who are really good at task-switching. They can just swap straight from one task to another with no pause. They also all have exactly the same tastes in apples and oranges and so on. Does this new society now have zero use for trade?
Them: Um… hm. (Thinks.) But they’re not actually in the same place as the iron mines. So if they have to walk around a lot -
Myself: Suppose a society in which everyone has exactly the same taste in apples and oranges; everybody is really really good at switching tasks; and furthermore, the society has Star Trek transporter pads, so you can get to the iron mine instantly. Is there now no more use for trade?
Them: Some people are better miners and others are better fruit-growers?
Myself: Suppose a society with identical fruit tastes, and perfect task-switching, and Star Trek transporters, and furthermore everyone has identical genetics, as if they were all identical twins; which, as we know from identical-twin studies, means that everybody will have around the same amount of innate talent for any and all jobs. Like that case where two identical twins, separated at birth, who never knew each other, both ended up as firefighters. As we all know, studies on separated identical twins show that happens every single time, with no exceptions. I claim that even this society still has to do a lot of trade in order to end up with modern levels of wealth.
Now, do you think I’m trolling you and that we actually did get rid of the basic reason for trade, at this point, or that there’s still something left over? Identical fruit tastes, perfect task-switching, Star Trek transporters, everyone is born with the same genetics and therefore identical innate talents. Do people now mine their own iron, or do they still trade for it?
Them: (Thinks for a while.)
Me: If the Sequences have taught you anything, I hope it’s taught you that it’s okay to state the obvious.
Them: …people learn to do their jobs better with practice?
Myself: Human capital accumulation! Indeed! So now let us suppose identical fruit tastes, perfect task-switching, Star Trek transporters, identically cloned genetics, and people can share expertise via Matrix-style downloads which are free. Have we now gotten rid of the point of trade? As far as you can tell.
Myself: Do you believe I’m going to say that we’ve gotten rid of the point of trade?
Myself: Well, I agree with your object-level answer, so your meta-level answer was wrong. I think we’ve now gotten rid of the point of trade.
Them: Darn it.
(Note: While contemplating this afterwards, I realized that we hadn’t quite gotten rid of all the points of trade, and there should have been two more rounds of dialogue; there are two more magical powers a society needs, in order to produce a high-tech quantity of stuff with zero trade. The missing sections are left as an exercise for the reader.)