Trade is not about ‘winners’ and ‘losers’

When people talk about ‘winners’ and ‘losers’ in trade, they are usually wrong. To see why, think of baseball cards.

When I was a kid in England, I collected these one year. Sometimes you got duplicates and I’d end up with a stack of Billy Hatcher while Roger Clemens remained elusive. I’d ask around the few other kids who were collecting them and, with luck, I’d find one in the reverse position: he’d have a pile of Roger Clemens and be in need of a Billy Hatcher. So we’d trade, ‘swapsies’ we called it, and we were both better off.

In this situation, I valued my second Billy Hatcher card at less than I valued my first Roger Clemens. And, for the other kid, my first Roger Clemens was his second and he valued that less than his first Billy Hatcher, which was my second.

What this illustrates is the economic principle of declining marginal utilities. It applies to all sorts of things. You will get a lot of utility out of your first car. Maybe your second if you’re sharing with a partner. After that, you might still get some new benefit from additional vehicles, but it will not be as great as was the benefit of getting the first car. And, by the time I had seven Billy Hatcher cards, I was about ready to throw them out of the window.

It also illustrates that value is subjective. There is no reason inherent in my second, third, or nth Billy Hatcher card that I should value them any less than the first one. They cost me the same money, they contain the same amount of card, printers ink, statistical information on the back. But I was prepared to get rid of any I had additional to that first one. And I was eager to swap them for a Roger Clemens containing the same amount of card and printers ink. In the same way that a man in a desert will value a glass of water more highly than will a man on the west coast of Ireland, so my valuation of Roger Clemens cards was higher than that of the kid with a pile of them.

But the notion that value is somehow objective persists. Perhaps it goes back to Aristotle who thought that all things should balance. So, if my and my friend swapped cards these cards should be worth the same somehow. If they did not, things would become unbalanced between us.

But, of course, if these cards are all of equal objective value, why would we bother exchanging them? The very act of trading one thing for another shows that the different parties to the trade value the traded things differently.

And this illustrates how trade makes us better off. After swapping my second Billy Hatcher (his first) for his second Roger Clemens (my first), both me and my friend were better off. Via mutual trade, we had both increased our utility, the economists clunky terms for satisfaction (although Barry Bonds eluded me until the advent of eBay a decade later). Trade is not a zero sum game, unlike baseball. Both players can win.

John Phelan is an economist at the Center of the American Experiment.