Adam Smith gave us an excellent metaphor when he compared free market forces to an “invisible hand” that guides each of us — in the pursuit of our own interests — to promote the interests of others.
But Smith, in some ways, set economic thinking back by embracing some mistaken ideas. For example, Smith believed that the value of a thing sprang from the amount of labor that went into its making. Before Smith, several economic thinkers realized that a thing’s value was in the eye of the beholder, but Smith stepped into this mistake nonetheless.
Smith also erred in believing trade springs from an inclination among men to “truck and barter.” In other words, Smith argued that people exchange with each other because of some innate human tendency to swap.
More convincing is Austrian economist Ludwig von Mises’ explanation for why people trade; namely, they recognize that the expanded division of labor made possible by trade makes them better off. As Mises wrote:
“The fundamental facts that brought about cooperation, society and civilization and transformed the animal man into a human being are the facts that work performed under the division of labor is more productive than isolated work and that man’s reason is capable of recognizing this truth. … In a hypothetical world in which the division of labor would not increase productivity, there would not be any society. There would not be any sentiments of benevolence and good will.”
Trade, therefore, promotes human civilization itself.
Many people misunderstand trade and — especially when trade takes place with people of another political jurisdiction — distrust it. Yet trade is always viewed by the trading partners as beneficial. It always involves giving up a state of affairs we value less for a state of affairs we value more.
If I agree to trade you a baseball card for a magazine, I clearly believe I will be better off as a result of the trade. A mutually agreed-to trade then benefits us both. It’s true one or both of us may regret the trade after we make it, but, at the moment of the trade, we both believed we would benefit more from trading than not trading.
For this reason we can see that trade promotes human well being. Even with no increase in production or physical things, a trade can leave the trading parties feeling better off.
Some believe we should only trade with our neighbors, fellow Hoosiers or fellow Americans. Yet this attitude sacrifices one of the key benefits of trade, namely, allowing us to have more goods at lower cost.
For instance, we could make a law that all Hoosiers must only buy gasoline made from oil drilled in Indiana. This would be a boon to Hoosier oil producers and would shift resources from other productive endeavors to oil production. Yet, oil is not an easy thing to produce in Indiana. It is much more costly than, for example, buying oil from Venezuela, Russia or the Middle East. In the end, the law would make Indiana less well off by forcing Hoosiers to pay more for oil and gasoline than they would have to pay on the world market.
We also could make a law that families must only hire their own members for jobs around the house. For instance, we could make it illegal to hire a neighbor kid to mow our grass. It must be done by someone in the household. This would promote employment of our family members, but would not necessarily be the best, least costly, use of our time and energy.
Free trade allows us to find the least costly way of doing things. This increases overall productivity and raises overall standards of living.
Nor is international trade something to fear. It not only increases productivity and standards of living, but it also promotes cooperation among people of different countries. Trade promotes a sort of mutual dependence that promotes peaceful cooperation.
In short, free trade is merely an exercise in the freedom to use our resources, our time, our labor and our energy as we see fit. Free trade promotes wealth creation, cooperation and peace. We should not want to avoid international and other trade; we should want more of it.
Arthur Foulkes is a Terre Haute native and longtime resident. The Tribune-Star reporter writes a column on business and economics. He can be reached at (812) 231-4232 or arthur.foulkes@tribstar.com.
Business
Arthur Foulkes: Many people misunderstand free trade, and so they don’t trust it
- Business
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Leslie leaving Terre Haute Chamber
The Terre Haute Chamber of Commerce today notified members that Rachel Leslie, Chamber executive vice president, has accepted a position as director of advancement operations for St. Mary-of-the-Woods College.
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Toyota to increase Highlander output in Indiana
Toyota will increase production of the Highlander mid-size SUV in late 2013 at the company’s Princeton, Indiana plant. Hybrid and export versions will be included. The project is expected to create about 400 new jobs at Toyota Motor Manufacturing Indiana Inc.
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AT&T expands mobile broadband network
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ON THE MOVE: Feb. 5, 2012
• Debbie Dillow
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Nominate someone for HR Professional of the Year
Nominations are currently being sought for the 2012 Ogletree Deakins/HR Dimensions Human Resources Professional of the Year.
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Time Warner offers new levels of Internet service
Time Warner Cable is expanding the next generation of Internet service to customers across the Midwest using DOCSIS 3 equipment and its advanced fiber network.
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NEWSMAKERS: Feb. 5, 2012
Irving Haber at 1818 N. Third St. in Terre Haute announces that he is the first physician in the Wabash Valley to offer on-site digital imaging with the new Sonosite Sonogram machine.
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First Financial Corp. reports 2011 results
First Financial Corporation announced results for the year and the quarter ended Dec. 31.
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Terre Haute Chevrolet to incorporate new GM image elements
Terre Haute Chevrolet, a division of the Romain Automotive Group of Evansville, has announced a new look coming to the dealership in 2012.
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SOCIAL SECURITY: Social Security FAQ on disability
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MORTON MARCUS: State government increasingly decides how we live in our cities
The ongoing trend in state-local government relations in Indiana is increasing paternalism.
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Innovative Staff Solutions offers job openings
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Free career advancement workshop scheduled
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Verizon Wireless invests $159 million in Indiana
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Rose-Hulman Winter Career Fair experiences 37 percent gain in company attendance
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Gordon Chiropractic celebrates grand opening of new location
The Terre Haute Chamber of Commerce in partnership with Gordon Chiropractic Family Health and Wellness celebrated the grand opening of its new location on Feb. 4.
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Magnolia gives in on rezoning
A potential $20-million investment in Terre Haute’s east side has been blocked by public opposition.
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Magnolia drops retirement complex plans for Ohio Boulevard
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Pfizer recalls 1M birth control packs after mix-up
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Status update: Facebook to go public, raise $5B
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Greene County General Hospital announces expansion, renovations
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Ethics in business: SmartMoney magazine editor to speak at ISU
James B. Stewart, author and editor-at-large of SmartMoney magazine, will take the stage Feb. 2 in Indiana State University’s Tilson Auditorium in conjunction with the University Speakers Series.
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Meeting to discuss Internet development
The University of Illinois Extension, Illinois Century Network and Broadband Illinois are hosting a meeting to discuss high speed Internet development at 6:30 p.m. Feb. 8 at the Edgar County Extension office, 210 W. Washington St., in Paris.
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Local foods workshop planned
Ready, Set, GROW!
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SOCIAL SECURITY: Earn (and keep) more Social Security money
You probably already know that there was an increase in Social Security and Supplemental Security Income monthly payments at the beginning of the year.
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Hospital nurse anesthetists celebrate 150 years
Paris Community Hospital/Family Medical Center recognized the Certified Registered Nurse Anesthetist profession by celebrating the 13th annual National Nurse Anesthetists Week, Jan. 22-28, with this year’s theme of “Quality and Excellence in Anesthesia Care.”
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Terre Haute facility contributes to record year for GE Aviation
For CFM International, the joint venture between GE Aviation and France’s Snecma, 2011 was a record year with 1,500 orders for the CFM56 engine and 3,056 commitments for LEAP engines.
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Downtown bookstore announces final day is Saturday
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Event set on employing people with disabilities
Wabash Valley Business Leadership Network presents Facilitate the Employment Process for persons with disabilities, from 8:30 to 11:30 a.m. Feb. 15 in second floor meeting room at Clabber Girl, at 900 Wabash Ave.
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BUSINESS CENTS: Are your business books in a shoe box?
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