Economic History of the United States

By Chester W. Wright | Go to book overview

CHAPTER VIII
COLONIAL TRADE AND MARKET ORGANIZATION

The Function of Trade in the Economic Order. The function of trade in the economic order is to further the process of specialization or division of labor in the production of economic goods or services. It is through this process, where each person specializes in the making of those goods or services for which he is best fitted and then exchanges his surplus products for those in the production of which some other person has a relative advantage, that goods are obtained more cheaply than where every person or family produces all the goods that they consume. The economic principle underlying this specialization is generally known as the law of comparative costs, namely, that each individual, assuming an intelligent choice from the point of view of his economic interests, will tend to specialize in that line of activity in which he possesses the greatest relative advantage as compared with those producing the various goods which enter into exchange under the conditions then existing. This applies not only between the individuals who make up the family group, but between individuals within the same locality, the same nation, or throughout the whole world, and so underlies all trade whether local, national, or international. It applies, moreover, to all the agents of production, to natural resources, capital goods, and business management as well as to labor. Such being the case, since there are marked variations in the productive capacity of these various agents not only within a country but throughout the world, it is obvious that the greater the proportion of the supply of these agents of production throughout the world that enters into the process of the world's specialization and exchange, the greater the likelihood that the wants of the world will be supplied in the most economical way; in short that the people of the world as a whole will have their wants supplied more completely and with less economic effort and sacrifice than would otherwise be possible.

The ideal situation, economically, would be one where no limitations or hindrances on trade were found and where there was a world-wide market for all commodities. To attain such a situation it would be necessary that all commodities could be transferred from one place to another without cost and that the total supply and the prices of any commodity should be known to all seeking to buy it; in short that all buyers and all sellers should be able to come together with a complete knowledge of mar

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