Trade is Mutually Beneficial

Let me begin by precisely defining what I mean by trade: trade is the voluntary exchange of resources between two or more parties.  Note that we are discussing voluntary exchange.  That means involuntary exchange (eg theft, slavery, anything where at least one of the parties object) is not considered.  When we consider the definition of trade I use here, then the title of this blog post becomes a tautology.  Another condition, this time deriving from the “exchange” part of “voluntary exchange,” is that trade involves swapping resources.  With that in mind, non-exchange interactions (eg, charity) are not considered here.  None of this is to say involuntary exchange or non-exchange interactions are unimportant, just the opposite, but they are beyond the scope of this series of blog posts.

Keeping with the tautology, what does “mutually beneficial” mean?  It means that all parties involved stand to gain.  Both Smith and Jones have something the other person wants and they trade because both of them gain from that trade.  The implication here is that all parties to trade are, at all times and everywhere, both suppliers and demanders (both producers and consumers).  In a trade situation, it is impossible for one of the parties to only be a consumer or only be a producer since to trade one needs to give something up before he can get something in return (in the second-to-last section, when I discuss international trade, this distinction will become important when addressing some of the fallacies of tariffs).

Trade is mutually beneficial.  Combine that with ever-present scarcity, and it leads us to the supply and demand curves, which are covered in the next blog post.

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