Sunday, June 05, 2011

Gains from trade

I am not the first to suggest that specialization and the gains from trade constitute the most important insight of economics.  And it is beyond depressing that politicians of all stripes and their acolytes either miss the point or purposefully misrepresent it.

I am reading Adam Hochschild's To End All Wars: A Story of Loyalty and Rebellion, 1914-1918 which offers many more grounds for depression.  Most readers already know about the spectacular losses, blunders, cruelties and tragedies of the Great War, but Hochschild's narrative is probably a must-read even to those who have been over this ground before.

Here is the author's report of British-German trade at the height of the slaughter:

More than any previous war, this one depended on huge quantities of industrial products and the raw materials to make them ... Among the more important goods was precision optical equipment ... The British military however was running disastrously short of binoculars. An appeal to the public brought in some 2,000 pairs (including 4 each from the King and Queen), but not the tens of thousands needed ... And so, in mid-1915, just as preparations were getting under way for the big attack at Loos [France], British authorities turned to the world's leading manufacturer of precision optics: Germany ... From London, an agent of the Ministry of Munitions was quietly dispatched to neutral Switzerland to propose a deal. The answer from Germany was prompt and positive, and the outlines of an agreement were sketched out. The German War Office would immediately supply 8,000 to 10,000 each of two types of binoculars, one for infantry and one for artillery officers ... And what did Germany want in return for this astonishing bounty of tools that would better aim British rifles and howitzers at German troops? One treasured commodity, vital for everything from telephone wires to factory machinery to the tires and fan belts of motor vehicles, a commodity unnavailable to Germany because of a tight blockade imposed by the Royal Navy, but abundant in the Allies' African and Asian colonies: rubber ... The rubber, it was agreed, would be delivered to Germany at the Swiss border. During August 1915, the first month of the top-secret devil's bargain, the Germans delivered to the British even more than first agreed to: some 32,000 pairs of binoculars, 20,000 of them the higher-quality types for officers ...

The gains from trade are, of course, a no-brainer.  But listen to all the mercantilists at all levels of government, starting of course in the White House.  In fact, the foolishness is compounded.  We want to make sure that those solar panels and windmills are Made in America.