Developing Production in areas with greater than Minimal Production Costs Can Enrich the World

Suppose that nation A develops alternative energy supplies Y, which are twice as expensive as the cheaper energy of type Y2 that nation A used to previously import from nation B. The end result of this is: the world now contains Y + Y2 + (other world energy supplies) whereas previously it contained only Y2 + (other world energy supplies). The world becomes richer through the development of the alternative more expensive energy. As nation A develops Y, Y2 is freed up so that: Y2 is used by nations other than A allowing nations other than A to increase productivity, wealth, income, and trade of the type that truly increases the wealth and income of the world (such as a type of trade neglected by free-trade enthusiasts, trade that would be advantageous to both sides even if wage rates were the same on both sides); traditional Y2 supplies that are not consumed due to their partial replacement with the consumption of the new alternative Y, become a source of scarce credit that can be used to fund consumption, increases in productivity per hour (as opposed to free-trade type productivity per dollar paid), increases in production capacity.

In this alternative Y vs Y2 example the world through the use of more expensive alternative Y is more able to further enrich itself through trade, compared to the poorer old free-trade world. The nations of the new smart-trades world use more energy, the energy they use is cleaner, they produce more, they have more to export, they have a better ability to trade what they produce for imports, compared to the old free-trade world. Such is not an implausible scenario. Similar results are imaginable if in the equation Y represents alternative manufactured or non-energy agricultural output, and Y2 represents traditional cheaper manufactured or agricultural output.

Put it this way, imagine having, a quarter ounce of pot that cost $60. Now compare that to having a quarter ounce of put that costs $60, plus having a quarter ounce of put that cost $120. The guy with the two quarter ounces is richer, has twice as much pot, as the guy who has only one quarter ounce. Similarly the world grows in wealth and income, when the world produces in areas of the world where production costs are more than minimal.

Imagine the nations of the world as individuals who own property, such as backyards. If the individuals with the backyards are forced to buy what can be produced in a backyard, from the men in town whose cost of production in their backyards is the cheapest, then what you end up with, is lots of woefully underdeveloped backyards. Although all kinds of productive things can be done in places like backyards, you end up with the backyards and garages and tool-sheds not being used to produce any energy or manufactured output or agricultural output.

You end up with the hypothetical Mr. Sloth saying, "Ah's not a-gonna grow enny tangerines in mah backyard, on account o' Mr Citrus on Grove Street has a backyard whar th' condishuns fo' growin' tangerines is purffeckt, he kin prodooce them fo' ha'f th' cost Ah can, so Ah's not a-gonna prodooce enny tangerines mahse'f...as a matter of fack, Ah reckon it'd be illegal fo' me t'grow an' cornsoom mah own tangerines, on account o' legally Ah's required t'consoom th' tangerines thet is th' cheapess an' them is grown by Mr. Citrus on Grove Street".

As a result people like Mr. Sloth and his family spend time that they could have spent doing things like growing tangerines in their backyard, doing nothing. The result is that: Mr Sloth never develops any skill growing tangerines; Mr. Sloth suffers loss in that a son of his with great talent as a gardener never even discovers this talent; Mr Sloth's family's performance at school and work is impaired due to nutritional deficiencies; the ability of Mr. Sloth to trade with other families including the Mr Citrus family is impaired.

One could say that in the areas of the world A where production costs of B are not minimal, the percent of persons who have special ability or talent when it comes to the production of B, is the same as is the case in the areas of the world C where production costs of B are minimal. Thus restricting production to areas where production costs are minimal, results in the failure to to utilize talent and ability.

Imagine a certain tribe that due to force of circumstance must settle on a harsh land. Wheat can be grown on this land, the land produces 1000 pounds of wheat per acre, the price of wheat per pound varies from $1 to $10 per pound, there are 100 acres where the wheat can be grown at $1 per pound, 100 acres where it can be grown for $2 per pound, 100 acres where it can be grown for $3 per pound, and so forth on up to 100 acres where it can be grown for $10 per pound. The tribe decides based on economic theories they have developed that the wheat should only be grown on the 100 acres where it can be grown for $1 per pound. The members of the tribe who have the bad luck to be settled in areas where wheat can be grown for more than $1 per pound are, on the grounds of the economic theory, not allowed to grow wheat. As a result: production of wheat falls from 600,000 pounds; wheat reserves that used to be used as credit disappear; the members of the tribe degenerate in terms of productivity, energy, intelligence, and skill; the tribe members unlucky enough to be settled where the wheat production is more expensive, decline in their ability to produce and trade with each other and become incapable of trading for cheap wheat from the chosen ones settled on the land where the production cost of the wheat is the cheapest.

Common sense declares that generally, when two rich men trade with each other, the financial advantages (if not in respect to the poor the actual personal advantages) to both of them produced by the trade will outweigh the financial advantages either of two beggars trading with each other would derive from trading with each other. Free-trade fanaticism points in the direction that a rich man trading with a poor man, and a poor man trading with a poor man, is better than two rich men trading with each other, so long as the doctrines produced by the theories of free-trade are scrupulously adhered to.


@2009 David Virgil Hobbs