Specialization and Trade: Because We Can't Be Good At Everything

Release Date
July 8, 2013

Topic

Basic Economics
Description

Professor Art Carden is able to mow his yard, build a fence, and install a faucet all at the same time. How? He does this by specializing through trade. Rather than try to do those things himself—especially since he isn’t very good at doing them—he uses the money he earns doing what he specializes in to pay others to mow his yard, build a fence for him, and install a faucet.
By employing others to do this work, Prof. Carden benefits because he can spend more time doing what he does best. He may also have more free time available because he does not have to use his spare time to mow his lawn, for example. At the same time, the people he hires to do the work around his house also benefit. They earn money working for him and are able to do what they specialize in, instead of having to spend too much of their time doing other things.
Even if Wes, the man who mows Prof. Carden’s grass, is able to mow lawns and prepare economics lectures faster than Prof. Carden is able to do them, it still may be beneficial to trade. In the example that Prof. Carden uses to illustrate this, both he and Wes save thirty minutes by trading instead of each doing the same work. This frees up valuable time for them to spend as they please. This is a small example to show some of the logic behind a key principle in economics: Trade creates wealth.

I, Pencil [article]: A short story about the life of a pencil and how its creation came about only through the miracle of specialization
Desert Island Game (game, beginner): Can you learn something about trade and cooperation by being marooned on a desert island?
Trade Ruler (game, advanced): As the Supreme Ruler of an island, you want the country to prosper. By engaging in international trade, you can achieve this goal.
I, Pencil Extended Commentary: Specialization and Trade (video): More from Art Carden and other economics professors on the magic of specialization and trade!
Mike Munger on the Division of Labor [podcast]: Mike Munger of Duke University and EconTalk host Russ Roberts talk about specialization, the role of technology in aiding specialization and how the division of labor creates wealth.
Specialization and Wealth [article]: Dwight Lee at the Freeman explains the relationship between specialization, exchange, and productivity

Specialization and Trade: Because We Can’t Be Good At Everything
Gather ’round everyone and watch as I work to mow my lawn, build a fence, and install a faucet—all at the same time. How am I going to mow my lawn, build a fence, and install a faucet all at the same time? Through specialization and trade.
In another set of videos, we discussed how trade is made of win, and it is. In this case I’m able to specialize in what I do best, which is teaching, writing, speaking, and making LearnLiberty videos. I’m able to take the money I earn from all this and then pay people who are better at mowing grass, building fences, and installing faucets than I am. Everybody is better off.
Now I’m sure someone in the comments section is going to say, yeah, but you’re terrible at this. He might be right. It just so happens that I’m even worse at cutting grass, building fences, and installing faucets. Don’t believe me?
Ask whether you’d like to hire me to swing a hammer at your house. Or even whether you’d just let me without having to pay. I’m not so sure you would like the results.
What’s cool is it this works even if one person is absolutely better at everything than his or her trading partners.
Let’s illustrate with a simple example. Let’s imagine that Wes, my yard guy, has an awesome lawn mower and can mow a lawn in 30 minutes or prepare a 75-minute economics lecture in an hour. I, on the other hand, take two hours to mow a lawn and an hour and a half to prepare the same economics lecture. If we don’t specialize in trade, my yard guy Wes spends a total of an hour and a half cutting grass and prepping economics lectures. I, on the other hand, spend three and a half hours cutting grass and preparing economics lectures.
What happens after we specialize?
If Wes cuts both lawns and I prepare both economics lectures, he spends an hour cutting grass and I spend three hours prepping economics lectures. We both save 30 minutes. That’s extra time we can spend doing pretty much anything we want.
Here’s a true story. We used some of that spare time to have lunch together one day. And Wes, who has a master’s degree in philosophy, then used some of his free time to attend one of my lectures and make comments and suggestions. That’s just a simple example of the logic behind a simple but profound idea in economics: trade creates wealth. And thanks to trade, I can cut grass, build fences, and install faucets without hurting myself. Well, not too badly anyway.