Trade and Production

Over at Cafe Hayek, Don Boudreaux posts a helpful thought experiment as a way of thinking about trade:

A reliable mental experiment when discussing jobs and trade or innovation is to imagine that you’re Robinson Crusoe stranded alone on a desert island.  You have to work very hard to supply yourself with the bare necessities of survival.  Would you regard yourself as being blessed or cursed if, upon awakening one morning, you discover that some friendly natives from a nearby island have deposited on your island – as a gift to you – a year’s worth of food along with a promise to annually provision you with food in this way?  Of course you would regard yourself as blessed.  It’s clear that these generous foreigners have enriched you even though they have “destroyed” the jobs that you would otherwise have performed to supply yourself with food.  You are clearly and unconditionally made richer by this job destruction.

What holds true for Crusoe who occupies an island alone holds true for, say, the 325 million of us Americans who occupy the landmass that cartographers call “the United States.”

Protectionists tend to object to this thought experiment by complaining such “presents” would destroy the nation’s productive capabilities; the nation would become dependent on these gifts and be unable to produce anything for themselves should the need arise.

However, this objection falls flat because it forgets what, exactly, these “productive capabilities” are.  They are, above all, human.  Factors of production, labor, capital, land, etc are all inert until human action is taken.  A tractor is only as good as the person behind the wheel.

Productive capabilities are never truly destroyed. Resourses shift around, and so do productive capabilities. The factors of production that once went to making food, to stick with the Crusoe example above, now go to making a raft or shelter. If the resource supply is disrupted (the friendly natives stop sending shipments), those productive capabilities are then shifted back into the production of the suddenly-scarce good.  Ultimately, it is Crusoe who is the productive capability, not his farm or fig tree.  In other words, the only way the productive capabilities of an economy could be destroyed is if the people are destroyed.

One thought on “Trade and Production

  1. A tractor is only as good as the person behind the wheel.

    That’s no longer entirely true.

    Julian Simon (and you) are absolutely right. People are the productive capability and the ultimate resource. Why waste them on the trivial task of operating farm machinery?

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