Economies of scale—it’s probably easier to produce a lot of steel from a lot of iron, per unit kg of steel, than with a little bit of iron. So you want there to be concentration of raw materials.
Diminishing marginal returns—so this pushes towards a uniform distribution of everything
I’m confused. Why would diminishing marginal returns incentivize trade? If the first unit of everything was very cheap then I would rather produce it myself than produce extra of one things (which costs more) then trade.
Yes, diminishing marginal utility plus increasing marginal production capability is the recipe for specialization and trade.
I think I agree with Eliezer (if I read correctly) that scarcity is the underlying motive—trade is only valuable if you want something and you can trade for it more easily/cheaply than you can produce it.
I agree with both, but claim that they are, in a sense, the same problem: if you solve the economy of scale issue, along with the parameters above, people would simply produce the amount desired with no diminishing marginal return problem on consumption.
“Diminishing marginal returns” is underspecified. Is this diminishing marginal returns of productivity or utility? Is it in money? Goods? Some other thing? I think it’s diminishing marginal utility in goods, but I’m not sure. Some types of diminishing marginal returns do imply gains from trade, but others don’t.
My guess for missing things:
Economies of scale—it’s probably easier to produce a lot of steel from a lot of iron, per unit kg of steel, than with a little bit of iron. So you want there to be concentration of raw materials.
Diminishing marginal returns—so this pushes towards a uniform distribution of everything
I’m confused. Why would diminishing marginal returns incentivize trade? If the first unit of everything was very cheap then I would rather produce it myself than produce extra of one things (which costs more) then trade.
I think this is diminishing marginal returns of consumption, not production.
Yes, diminishing marginal utility plus increasing marginal production capability is the recipe for specialization and trade.
I think I agree with Eliezer (if I read correctly) that scarcity is the underlying motive—trade is only valuable if you want something and you can trade for it more easily/cheaply than you can produce it.
I agree with both, but claim that they are, in a sense, the same problem: if you solve the economy of scale issue, along with the parameters above, people would simply produce the amount desired with no diminishing marginal return problem on consumption.
“Diminishing marginal returns” is underspecified. Is this diminishing marginal returns of productivity or utility? Is it in money? Goods? Some other thing? I think it’s diminishing marginal utility in goods, but I’m not sure. Some types of diminishing marginal returns do imply gains from trade, but others don’t.
See Dagon’s comment above.