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The Logic of Trade

When I talk about the idea of “buying local” I often say that we’ve tried the “buy local” experiment, it’s called the Middle Ages. In the Middle Ages, we mainly bought local and pretty much everyone was poor. This isn’t a proof that buying local is impoverishing. A lot of things have changed since the Middle Ages so it could be that we’re richer now than we once were because of those things, not because we trade with a wider slice of humanity than we did then. But I’m trying to get people to think about the logic of buying local. Even if we had the technology we have now and traded with only a few thousand people who lived near us (as was the case in the Middle Ages for the most part), we’d be desperately poor. We couldn’t sustain the division of labor that creates our current level of prosperity.

Even if we traded with a few million others, the people just in our city or our state, we’d be much poorer than we are now. Even with current technology.

Having said that, I believe that we would not have the technology we have today if we lived as we did in the Middle Ages. It is the opportunity to trade with billions of people that makes technology so powerful and so profitable.

There are of course many studies of “buy local” that find that the movement creates jobs, makes us richer and so on. These studies are poorly done. They leave out many factors that cannot be measured.They are done by advocates, sometimes misguided but sometimes trying to enrich themselves by making others think that buying local is good for everyone rather than just themselves.

I’ve been thinking about this while I read recent posts like this one. by Don, and the comments. It’s very difficult to provide convincing empirical evidence on either side of this debate. The world is a complicated place. It’s hard to hold everything else constant and isolate the impact of one variable, trade policy.

So I find it useful and more compelling to think about the logic of trade. The logic of trade is why I reject the idea that buying local, writ large, creates prosperity. The Middle Ages thought experiment helps me see that. Maybe you disagree. Happy to hear how a small group can produce the wealth of stuff we enjoy from mint-flavored dental floss to heart pumps and antibiotics…

The logic of trade (and protectionism) has many facets. It, too, is complicated. You can’t explain it in one post. But both Don and I have written books on the logic of trade and you can read them if you want to understand the arguments in their fullest form. My book is here. Don’s is here. And I like this podcast on how the division of labor creates prosperity.