On Sun, 23 Aug 2009 01:08:33 -0600 Alex Esplin <[email protected]> wrote:
> On Fri, Aug 21, 2009 at 15:48, Stuart Jansen<[email protected]> > wrote: > > On Fri, 2009-08-21 at 14:13 -0600, Alex Esplin wrote: > >> Even in a straight across trade, from my point of view I have to be > >> better off than the person I'm trading with, or there is no > >> incentive to trade. Granted, this example is entirely dependent on > >> point-of-view, but much of the economy is. > > > > Whoa, whoa, whoa. This is very much not true and will lead to some > > pretty poor decision making if you attempt to apply your theory. I > > suspect that such fundamental misunderstanding of the advantage of > > trade is at the heart of many people's desire to enact stupid > > protectionist laws. > > > > The law of Comparative Advantage shows that when two people trade, > > both can benefit even if one is much more productive than the other. > > Allow me to rephrase and clarify. In saying I have to feel like I'm > better off than the person I'm trading with I'm not saying I have to > be (or feel like I am) ripping the other guy off. I'm saying that in > order to enter into a trade, I have to come out ahead _from my point > of view_. Ah. I think that is entirely different. If you come out of a trade thinking that you are better off than before, how you come out compared to the other party is irrelevant. Austrian economists like Rothbard and Mises point out that for a trade to occur, both parties have to believe they will come out better after the trade. If we agree that I will buy an ear of corn from you for $1, I have to believe that I am better off at the time with an ear of corn than with a dollar bill. And you have to believe that you are better off with a dollar bill than with an ear of corn. Comparative advantage Helps explain why this is possible. It may cost you $.25 to produce an ear of corn. This is irrelevant to me. I, on the other hand, may know perfectly well that I can sell that ear of corn to a five star restaurant for $2. Again, this is irrelevant to you. Both of us come out of the trade thinking, "Boy did I get a good deal! Har, har!" Another factor here is specialization: the farmer knows how to grow the stuff: when to plant, when to harvest, etc. The wholesaler knows where he can sell the stuff and how much he can likely get. > If I come out of a trade feeling like I got ripped off then > I didn't gain from the trade. Comparative Advantage is entirely > dependent on gain (for both parties) from trade, and I won't trade > unless I can gain from it. In which case, no matter which party is > more productive, each party from their own point of view got the > better end of the deal. Not necessarily the better end of the deal, but they must both feel better off. -- Charles Curley /"\ ASCII Ribbon Campaign Looking for fine software \ / Respect for open standards and/or writing? X No HTML/RTF in email http://www.charlescurley.com / \ No M$ Word docs in email Key fingerprint = CE5C 6645 A45A 64E4 94C0 809C FFF6 4C48 4ECD DFDB /* PLUG: http://plug.org, #utah on irc.freenode.net Unsubscribe: http://plug.org/mailman/options/plug Don't fear the penguin. */
