Building Wealth Doc's note: Today, I'm continuing guru week with an essay from famed political satirist P.J. O'Rourke. In a recent issue of his online magazine, American Consequences, P.J. explains why trade is an essential part of our daily lives... and not just in terms of attention-grabbing trade war headlines.
American Consequences is edited by P.J. and written by some of the smartest contrarian market analysts in the world. The best part is... it's 100% free. There's no subscription fee, "paywall," or anything like that. Sign up to start receiving issues right here.
It's "International Trade" that gets all the headlines. We think, in our imaginations, that we could do without it – drive Buicks, use old Motorola flip phones, and own one t-shirt made in America instead of two dozen made in Bangladesh. But the real meaning of trade is more basic than global commerce. Trade is so basic that we don't think about it at all. Or, if we do think about it, the thinking gets hard. Trade is such a fundamental truth – like the fact that the universe exists at all – that our imaginations have trouble grasping it.
The meaning of trade is that a single human is almost incapable of making or doing anything without exchanging goods and services with other humans. Robinson Crusoe would have "come a cropper" if not for the shipwreck from which to "import" goods and his man Friday to perform the minimum-wage services. The Swiss Family Robinson would have been the Dead Family Robinson if they hadn't had a big family full of people swapping their various skills, abilities, and knowledge.
It took the greatest thinker about economics ever, Adam Smith, to discover the real meaning of trade. And even he only touched on it in his discourse about what we would call specialization. Specialization is a vital part of trade, but not its essence.
In The Wealth of Nations, Book I, Chapter 1, "Of the Division of Labor," Smith says:
To take an example from a very trifling manufacture, the trade of a pin-maker; a workman not educated to this business nor acquainted with the use of the machinery employed in it could scarce, perhaps, with his utmost industry, make one pin in a day.
What Smith was getting at is actually stated more clearly in an early draft of The Wealth of Nations:
... if all the parts of a pin were to be made by one man, if the same person was to dig the metal out of the mine, separate it from the ore, forge it, split it into small rods, then spin these rods into wire, and last of all make that wire into pins, a man perhaps could with his utmost industry scarce make a pin in a year.
In the book and accompanying PBS documentary Free To Choose, Milton and Rose Friedman used the example of a pencil. They cited a wonderful 1958 pamphlet, I, Pencil – My Family Tree, written for the Foundation for Economic Education by its president Leonard E. Read. The story is told by the pencil itself and begins, "Simple? Yet, not a single person on the face of this earth knows how to make me."
To make a pencil you'd have to go to a graphite deposit in India, Brazil, or China and get a job as a miner and then get jobs as a railroad engineer, stevedore, and ship captain to bring the graphite back. After that you'd need to become a chemical engineer to turn the graphite into pencil lead, a lumberjack to cut the cedar trees, and a carpenter to shape the pencil casing. You'd have to learn how to make yellow paint, how to spray it on, and how to make a paint sprayer. You'd have to go back to being a miner to get the ore to make the metal for the thingy that holds the eraser and build a smelter, a rolling plant, and a machine-tool factory to produce equipment to crimp the thingy in place. You'd also have to grow a rubber tree in your backyard. And a pencil sells for 19 cents.
The difference between the thousands, if not millions, of dollars in materials and labor that it would cost you to make a pencil and the fact that a pencil costs 19 cents – that's the real meaning of trade.
(Copies of I, Pencil are still available from the FEE for $4.95 – a perfect gift for any economic ignoramus you happen to know.)
My own example of "trade truth" would be the power cord for my laptop. This dumb and droopy little contraption presents only a few of the manufacturing problems entailed in pins and pencils. The wire core is copper, but I should be able to smack some Williams-Sonoma cookware into what's needed using tin snips and a claw hammer. The copper wire is braided. I've watched my wife braid my daughter's hair plenty of times. I'll give it a try for practice. The power cord is coated with plastic. You can make plastic at home on the stovetop using common household materials. (I Googled it.) The laptop has a socket, I'll stick one of the Williams-Sonoma stuff in there. And a power brick is just a plug, right? I'll stick the other end into the baseboard outlet...
The number of people it takes to make my laptop power cord is not what convinces me of the real meaning of trade. What convinces me is the number of people it takes to find my laptop power cord – which is everybody. I've got the whole house and the entire office looking for it.
And considering the way everybody is feeling about me at the moment...
My wife is furious because I ruined her favorite omelet pan. My daughter went to school looking like Rapunzel had hired a hairdresser on crack. When I searched the web for "homemade plastic" I misspelled it and Homeland Security thinks I was trying to make plastique explosives and now I'm on a terrorist watch list. The cleaning lady wants to kill me because of the mess in the kitchen. (Turns out making plastic on the stovetop can cause explosions too.) And my co-workers, due perhaps to all the ceiling sprinklers going off after I started the electrical fire...
Therefore, I'm about to go out and personally engage in trade. I need to buy a new laptop power cord. $32.95! Geez! And all that money going straight to China! No wonder it's "International Trade" that gets all the headlines.
Sincerely,
P.J. O'Rourke