Introduction

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Introduction

Overview

It takes skill to drive a car, or to be a quarterback. It likewise takes skill to be a successful, responsible citizen, and to assemble the ingredients of a great life. Skills cannot simply be handed to you. In science fiction, characters can download programs that make them instantly and effortlessly able to play a piano, or fly a helicopter, or speak Russian, but in real life, having a skill takes work.

The human condition is that we each arrive as newborn babies to a world that does not need us. The greatest and most joyful challenge of adult life is to develop skills that make the people around you better off with you than without you. It is within your power to show up at the marketplace with something to offer that will make others glad to know you.

There is almost nothing you do in a day that doesn’t give you a reason to be grateful to a million people you will never meet. Imagine waking up tomorrow morning deciding that you want to do something yourself, without help from anyone. So you decide that you will make a pizza all by yourself. What would that mean? You might decide that if you are going to make a pizza all by yourself, you should start by making your own dough. What would that mean? You might think you need to start by going to the supermarket to buy some flour, but imagine that you realize that you don’t want anyone’s help in making the flour, so you decide to grow the grain and mill the flour all by yourself. So, how would you do that? You may decide that you had better buy a plough, but then realize that you don’t want anyone’s help growing the grain, so you decide that you need to make your own plough too. And of course, if the plough is going to be made of metal, then you don’t want anyone’s help in digging up the ore (with your bare hands because you would need the metal to make a shovel) building the smelter with handmade tools, and so on. So, you give up on the idea of spending ten thousand years making a pizza without anyone’s help, and instead work for wages for one hour. Then you use your wages to reward hundreds of thousands of strangers around the world to do all those things for you, culminating in the delivery of a pizza that no one who ever lived could ever have made on his or her own. And everything you helped to produce in the process of working for one hour will help multitudes of strangers to assemble the ingredients of their own hopes and dreams in turn.

WHAT IS TRADE?

Homo sapiens became the wisest of primates around forty thousand years ago when we learned to make deals with strangers. Many of the steps in our evolution as social animals involved expanding the spheres of mutually advantageous cooperation. Inventing ways to be of service to each other, and even to distant strangers, is our distinctively human survival mechanism. That’s humanity’s super-power: not wings, fins, or fangs but our ability to make deals.

Human beings have many striking characteristics. We have opposable thumbs, which make us better at building tools. We are social animals. That opens us up to a world of benefits. We can share tools. We can teach friends and children how to use tools. And we can become so skillful that we can do favors for other people by manufacturing tools for them in return for tools that they have the skill to manufacture for us. We also have vocal chords that make us able to make a range of complicated sounds that enable us to communicate subtle ideas. (We can offer to pay a partner back next Tuesday for services rendered now—an incredibly complex idea when you think about it). We have the intelligence to pick up ideas from people older and wiser than us. We also have the intelligence to notice when someone in our group has a new idea. (We pick up new ideas during our travels as we observe other groups solving problems in different ways.) If human beings had been hermits rather than social animals, none of these special characteristics would be all that special. If we were hermits, we would live and die like any other large mammal. Our distinctive features are far more valuable by virtue of our being social animals, willing and able to cooperate.

Adam Smith noticed: our ability to communicate is a precondition for voluntary exchange. As human society grew, cooperation became a matter of working with strangers. The capacity and the need for gossip evolved together, and together they created the possibility of developing a reputation. One needs to send and receive information about whether particular partners play fair. As the possibility of reputation evolves, so does the possibility of extended trading networks. At human excavation sites, archeologists find tools made hundreds of miles away. To see how other groups do things is to see new, sometimes better, ways of doing things. This simple idea that there might be better ideas out there may have been the most inspiring idea of all.

Indeed, it is in these terms that twentieth-century philosopher John Rawls defined society. To Rawls, society is a cooperative venture for mutual benefit. This definition is not a simple description. Rawls was inviting us to think of society at its best: People at their best cooperate for mutual benefit.

Another word for cooperation—natural to an economist, less so to a philosopher—is trade. To trade is to exchange services. When we cooperate, we are working together, so in a way the whole idea of cooperation can be thought of as an exchange of services.

When society is working, people have services to contribute and are happy to be of service to each other. Indeed, in society at its best, people are so eager to be of service to each other that they literally compete to be of service. They compete to offer ever more valuable services to their community. The more valuable the service that they can provide, the more valuable the services that their trading partners will offer them in return. And of course, some people are more clever than others when it comes to seeing, and delivering, what their trading partners value.

ARE THERE GAINS FROM TRADE?

We have various ways of getting what we want. We can divide them into two categories. First, we can get what we want in ways that make others worse off (by stealing from them, for example).

Second, we can get what we want in ways that make others better off, or at least not worse off. For example, we can trade. In other words, we can bring services to market that other people want, and offer those services at a price they can afford. In that way, we aim to make our customers better off, and to be better off ourselves as a result. In other words, we can aspire to be a community that is a cooperative venture for mutual benefit.

Market society is sometimes described as a tide that lifts all boats. The metaphor is a nice reminder that the standard path to prosperity in market society is to produce what other people value. People get rich when they market the light bulb, telephone, or computer not because such inventions make customers worse off, but because they make customers better off.

However obvious this fact may seem, it is also easy to overlook. People often see trade as a zero-sum game—a game such as poker in which wealth can be won or lost but cannot be created. The only way to win the pot is to make other players lose.

If society were a zero-sum game, though, we would be born in caves. We would grind seeds between stones, resulting in a balanced diet of seeds and stone that ruined our teeth before the age of thirty. Without teeth, we would starve shortly afterwards, as our ancestors did when human society was in its infancy. We fare better than that today because human commerce is not zero- sum. Market society is a tide. It is lifting boats. In principle, it could lift them all. Everyone can make progress, even if there is no such thing as everyone making progress at the same rate.

There is no guarantee that a society will be a rising tide that lifts all boats. Trade is cooperation for mutual benefit, and there are gains from trade, but there is no guarantee that every member of society will be involved in mutually beneficial trade. Both ethically and economically, it pays for a community to do what it reasonably can do to make sure that everyone at least has a decent chance to make meaningful contributions to cooperative ventures. Everyone wants to live in a land of genuine opportunity.

WHAT IS THE ECONOMIC QUESTION?

In medieval times, the phenomenon of motion was thought to need explaining. (Scholars asked: Why do objects such as planets remain in motion, when no force is keeping them in motion?) The scientific revolution was launched and what we call the Enlightenment began when Galileo and Newton realized that medieval scholars were asking the wrong question. It is when things change that we need explanations, not when things stay the same.

The same point applies to social science. To say “no man is an island” is to say that without trade, we would live and die like any other large mammal. Prosperity is not natural. The human race once lived in caves. The economic question is not why do some people still live in caves, but rather, why doesn’t everyone? What changed? Why did it change? Why is there such a thing as material progress in the first place? Rising wealth requires an explanation.

What explains the explosion of wealth since Adam Smith’s time? The answer is that there has been an explosion of trade. Trade is not only positive-sum, but also win-win. Everyone can win, and in some communities it is a close approximation of observable reality that everyone does win. Some communities are indeed cooperative ventures for mutual benefit. As recently as a century ago, staggering numbers of children (staggering to us, that is) died before reaching the age of five. Yet they were not “born losers.” At any time, everyone has had better life prospects than if they had been born a century earlier. Moreover, it is not only a privileged class whose life expectancy nearly doubled over the course of the twentieth century. For example, no group was more notoriously left behind than African-Americans. Yet, despite grossly unfair treatment, there is this stunning statistic: Between 1900 and 2010, African-American life expectancy went from 33 to 75 years. (See http://www.cdc.gov/nchs/data/hus/2012/018.pdf)

It is often said that “The rich get richer, and the poor get poorer.” To say this as if it were a law of nature is to assume society is zero sum in the same way that poker is zero sum. (In poker, the only way to win to make other players lose.) To believe this is to assume that our neighbors get richer only if they can find a way to make us poorer, and we are in the same boat: If we aim to get richer, then we had better aim to make our neighbors poorer. A more constructive attitude would be to treat “the rich get richer, and the poor get poorer” as a testable hypothesis. Is there any reason to believe it? Where is the evidence?

There are places where this cliché appears to be true, and other places where it clearly is false. What if we find places where the life expectancy of everyone is rising? In that case, everyone is getting richer along the most important dimension of measurable welfare there is. In those places, the cliché is false. By contrast, if there are places where rich people’s life expectancy rose while that of poor people fell, then the cliché is true in those places: The rich are getting richer even as something terrible happens to the poor.

And we would want to know why. Have the poor lost the health care they once had? Have they lost the jobs they once had? Do they no longer get the kind of education that their parents got?

 

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