Trade’s – that is, Competition’s – Costs are Not Losses

by Don Boudreaux on January 2, 2019

in Myths and Fallacies, Trade

In my most-recent column for AIER I argue that to pay the price of admission to the riches of a market economy – part of which consists of us in our role as producers adjusting to the demands of us in our role as consumers (rather than vice-versa) – is not to incur a loss. Here are my concluding paragraphs:

Identical logic applies to the obligation of each of us in market economies to adjust our actions as producers to the demands of consumers. Making such adjustments is unquestionably costly, sometimes enormously so. But the making of each such adjustment is no more appropriately described as a loss than is the making of a payment on a car loan.

Words matter. The popular practice of calling producers’ adjustments to consumers’ changing demands “losses” imparts the mistaken impression that competition, or trade, takes from producers something — particular jobs, profits, businesses — to which producers are entitled. The inaccurate notion is conveyed that producers suffer an injustice.

But because no one in a market economy is entitled to his or her particular source of income, whenever competition obliges producers to adjust to the demands of consumers, producers — while paying the costs of participating in a market economy — suffer nothing that ought to be described as losses.

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