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On the Importance of the Extent of the Market

James Gwartney's 2008 Presidential Address to the Southern Economic Association is outstanding.  It's entitled "Institutions, Economic Freedom, and Cross-Country Differences in Performance" and is published in the April 2009 edition of the Southern Economic Journal (Vol. 75, pages 937-956).  Here's an especially important paragraph (from page 946):

Our modern living standards are almost entirely the result of investment, entrepreneurial discovery, and gains from depersonalized trade – trade between people who do not know each other and often never meet.  As Adam Smith noted long ago, the division of labor is limited by the extent of the market.  Much like a telephone or an Internet system, a market economy is a network good.  As the size of the market expands from the local town or village to the region, nation, and beyond, network participants derive larger and larger benefits from trade, specialization, and economies of scale.  For those connected to the global market, this system generates employment opportunities, high productivity per worker, and a vast array of consumer goods that are available at almost unbelievably low prices.  This network system makes high-income levels and living standards possible.


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