"Trade Is Made of Win," Part 3: Conservation

Release Date
April 26, 2011

Topic

Free Markets and Capitalism
Description

Prof. Art Carden explains how trade not only creates wealth, but conserves both wealth and resources. When people have access to trade, they can produce the things they make efficiently, and then trade for the things they can’t produce as efficiently. This means they are able to meet their needs while consuming fewer resources. Part 3 of 3 in the “Trade is Made of Win” series.

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.

“Trade Is Made of Win,” Part 3: Conservation
We know that trade creates wealth. Trade allows us to produce more stuff with a given quantity of resources. Also, trade conserves wealth. If we want to produce a given quantity of output, we can produce it using fewer inputs, using fewer resources, if we have an opportunity to trade.
Consider Fritz and Lou. Fritz and Lou can grow wheat, and they can grow corn. They need a certain amount of wheat and a certain amount of corn to feed their families. Fritz could produce 1,000 bushels of wheat per acre, or 500 bushels of corn per acre. Lou could produce 500 bushels of wheat or 1,000 bushels of corn per acre.
Fritz and Lou can produce wheat and corn under two different sets of circumstances. They could produce in autarky, which means that they don’t trade with each other. In autarky, Fritz is going to need one acre to produce 1,000 bushels of wheat and two acres to produce 1,000 bushels of corn. Lou is going to need two acres on which to produce 1,000 bushels of wheat and one acre on which to produce 1,000 bushels of corn. In total, they’re going to use six acres of land to produce the wheat and the corn that they need to feed their families.
There’s a second scenario. They could trade. Now let’s see what happens if Fritz specializes completely in wheat and Lou specializes completely in corn. In this case, Fritz produces 2,000 bushels of wheat on two acres, and Lou produces 2,000 bushels of corn on two acres. Let’s suppose that they trade. Fritz trades 1,000 bushels of wheat for 1,000 bushels of corn. Now, they each have the 1,000 bushels of wheat and 1,000 bushels of corn that they need to feed their families, but they’ve only used four acres to produce it rather than six. They’ve saved two acres of land. They’ve saved resources that can be used to produce parks, that can be used for anything. They’ve saved resources; they’ve conserved wealth, solely through the opportunity to trade.