MCEE COMMENTARY:

VOLUNTARY TRADE CREATES WEALTH

By Brooks Hull, Center Director, University of Michigan-Dearborn (2007)

      In grade school in Walla Walla, Washington, I do not remember which year, we students made small (maybe six by six inch) trivets. For those who don’t know, a trivet is an object placed between a serving dish or bowl and a dining table to protect the table from heat damage

      We made the trivets using a piece of thin particleboard as the base. On the particleboard, we arranged and then glued a number of small ceramic tiles. After the glue dried, we filled the gaps between tiles with grout. The trivets were gifts to our mothers. 

      Before beginning the project, our teacher went from student to student and placed on each of our desks a handful of tiles she took from a paper bag until the bag was empty. The tiles came in various shapes: large and small squares, rectangles, rounded squares, and teardrops. The tiles came in even more various colors: many single colors, multiple colors, colors with flecks of gold or silver. 

      Because our teacher scooped out each handful of tiles at random from the bag, each of our collections of tiles was somewhat different. What’s more, each of us had a different idea of the trivet design we preferred.

      You can guess what happened. We spent a good portion of the time allocated to the project, trading tiles with one another to get our preferred mix of tiles. Some tiles were more common than others. Some were more prized than others. The tile trade rates depended on the relative scarcity and relative values of tiles to different students. Eventually we stopped trading. I do not remember whether we stopped trading because the teacher wanted us to get to work on the trivets or because each of us was satisfied with our selection. No matter.

      The key point here is that all of the students were wealthier after trading tiles than before trading tiles even though the total number of tiles in the room had not changed. Whether it is grade school students gaining greater satisfaction acquiring trivet tiles, or international trade improving the lives of people in different countries, voluntary exchange improves the well being of both parties. Wealth can be material, or intrinsic, but either can be improved through voluntary trade. Voluntary trade creates wealth. 

      Voluntary tile trading in that classroom occurred because each party in the trade was better off (and the students in the class were well-behaved so trades were voluntary). For example, if I was willing to give up two gold-flecked squares in order to get the teardrop tile I prized and the other student was willing to give up a teardrop to get two prized gold-flecked squares, both of us made a good deal. Both of us gained even though the number of tiles remained the same. Trade does not take place between items of equal value. Trade takes place and wealth is created because each party to the trade is getting back an item of greater value than the item traded away.

      Think of E-Bay as an example. Much of what happens with E-Bay is that used stuff (which many would call junk) gets moved around the country. The amount of used stuff stays the same, but both sellers and buyers are better off. Sellers get money more valuable to them than the stuff. Buyers get stuff more valuable to them than the money.

      In part, a market economy generates wealth by moving stuff around. Entrepreneurs, intermediaries, merchants, and speculators help all of us by both specializing in redistribution and facilitating trade.

      My mother still uses the trivet I made for her. It lies on the kitchen counter in her home in Walla Walla, Washington.

      

 

The author would like to thank Center Directors Patrik Hultberg (Kalamazoo College) and David Dieterle (Walsh College/CMU) for their assistance with this Commentary.

 

Brooks Hull, Center Director, University of Michigan-Dearborn