Trade Allows Each of Us to Take Advantage of the Unique Talents Of All of Us

by Don Boudreaux on October 5, 2010

in Trade

I am taking the liberty of posting here Bryan Caplan’s latest EconLog entry in full, for the point it makes is important and profound:

A Solipsist’s Guide to Comparative Advantage

Bryan Caplan According to extreme solipsism, you’re the only person who really exists.  Suppose this strange position were true.  What would it imply for the Law of Comparative Advantage?

Consider a standard textbook problem with two agents: you and me.  By hypothesis, I’m a mere illusion, but I’m still a useful resource.  Suppose that an hour of time yields the following output.

Wheat Steel
You 10 1
Me 1 5

Now suppose that the wheat:steel price ratio is 1:1.  Ordinarily, we’d say that you could just trade with me, making us both better off.  But on the solipsistic assumption, you can correctly regard me as a mere tool for converting one unit of wheat into one unit of steel.  For all practical purposes, then, you can forget about my existence, and simply recalculate your own productivity:

Wheat Steel
You 10 10

Now suppose I’m the solipsist, and you’re illusory – a mere tool for me to convert one unit of steel into one unit of wheat.  Then I can forget about your existence, and simply recalculate my own productivity:

Wheat Steel
Me 5 5

Of course, solipsism is false.  But we two solipsists can still teach the world a lesson.  Namely: in a deep sense, trade increases productivity:

Without Trade With Trade
Wheat Steel Wheat Steel
You 10 1 10 10
Me 1 5 5 5

You might object, “We already know that trade increases productivity via shared knowledge, increasing returns, etc.”  But these are all empirical claims.  My point is stronger: Trade tautologically increase productivity.  And if a solipsist can see this, so should everyone.

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