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Matt Ridley is the author of provocative books on evolution, genetics and society. His books have sold over a million copies, been translated into thirty languages, and have won several awards.

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Self-sufficiency is another word for poverty

Why trade restriction lowers everybody's living standards


(picture from Eden's Path)

Steve Landsburg, writing at The Big Questions, takes issue with Paul Krugman's argument that restricting free trade cannot cause a depression:

Paul Krugman writes that  trade does not equal jobs and concludes that trade restrictions cannot even in principle trigger a depression. After all, restricting trade means restricting exports (less jobs!) but it also means restricting imports (more jobs!) so everything washes out.

Well, let's try an extreme example. Suppose I prevent everyone in America from trading with anyone outside their own households. We'd eat only what we could raise in our own gardens, burn only the fuel we could gather from our own backyards, and wear only the clothes we could make for ourselves. In other words, we'd all be living pretty much at the subsistence level. Would you be willing to call that a Depression? I would. Krugman, apparently, would not.

Lansburg is dead right. In my book I argue that prosperity is directly proportional to the degree of specialisation and exchange, or to put it in Adam Smith's words, the `division of labour is limited by the extent of the market'. That is to say, throughout human history, people have moved away from self-sufficiency towards working for each other and grown more prosperous as a result. When you work for each other, you can be more productive because you specialise in tasks at which you are skilled or for which you have labour-saving devices.

Working for yourself means consuming only what you can produce. It makes you a more diversified producer but a more limited consumer. If you had to make your own food, fuel, clothing and shelter, you would have a lot less time to make things like light or entertainment. The key metric is time taken to fulfil a need or a desire.

Here's an example from the blog whence the picture above came, Eden's Path, written by a couple who are trying to be as self-sufficient as possible in Virginia:

We got tired of spending over $1-a-bar for soap several weeks ago, so we started looking around for ways to make soap at home. Most soapmaking was either dangerous - "lye can cause an explosion" - or too time-consuming - "let the soap cure for 30-days." So, we kept looking until we found the perfect solution. Our 3.5-ounce bars of soap now cost us only $0.65/each, take about 30-minutes to make, and do not put us in danger of being blown off the face of the earth. All good reasons to make your own soap.

Hang on. They are taking 30 minutes to save themselves 35 cents per bar. Even if you assume it takes two of them only 30 minutes each to make 24 bars, and that they use as many as two bars a month, they are spending 60 minutes to make a saving of just under eight dollars. That's almost exactly the minimum wage.

Here's a paragraph from my book, The Rational Optimist, on the subject of self-sufficiency:

In 2009, an artist named Thomas Thwaites set out to make his own toaster, of the sort that he could buy from a shop for about £4. He needed only a few raw materials: iron, copper, nickel, plastic and mica (an insulating mineral around which the heating elements are wrapped). But even to get these he found almost impossible. Iron is made from iron ore, which he could probably mine, but how was he to build a sufficiently hot furnace without electric bellows? (He cheated and used a microwave oven.) Plastic is made from oil, which he could not easily drill for himself, let alone refine. And so on. More to the point, the project took months, cost a lot of money and resulted in an inferior product. Yet to buy a £4 toaster would cost him less than an hour's work at the minimum wage. To Thwaites this illustrated his helplessness as a consumer so divorced from self-sufficiency. It also illustrates the magic of specialisation and exchange: thousands of people, none of them motivated by the desire to do Thwaites a favour, have come together to make it possible for him to acquire a toaster for a trivial sum of money. In the same vein, Kelly Cobb of Drexel University set out to make a man's suit entirely from materials produced within 100 miles of her home. It took 20 artisans a total of 500 man-hours to achieve it and even then they had to get 8% of the materials from outside the 100-mile radius. If they worked for another year, they could get it all from within the limit, argued Cobb. To put it plainly, local sourcing multiplied the cost of a cheap suit roughly 100-fold.

However, the evolution of society towards increased specialisation and exchange is not unidirectional. History is littered with examples of people who moved back towards self-sufficiency as they grew less prosperous. Unable to find trading partners to do mutual service with, they had to serve themselves and that made them poorer.

Two examples, both from The Rational Optimist:

The economist Vernon Smith, in his memoirs, recalls how in the Depression his family moved in the 1930s from Wichita, Kansas, to a farm when his father was laid off as a machinist, because 'we could at least grow most of our own food and participate in a subsistence economy.'

And the end of the Roman empire.

As Roman rule disintegrated, at least in the west, money lending at interest stopped and coins ceased to circulate so freely. In the Dark Ages that followed, because free trade became impossible, cities shrank, markets atrophied, merchants disappeared, literacy declined and - crudely speaking - once Goth, Hun and Vandal plundering had run its course, everybody had to go back to being self-sufficient again. Europe de-urbanised. Even Rome and Constantinople fell to a fraction of their former populations. Trade with Egypt and India largely dried up, especially once the Arabs took control of Alexandria, so that not only did oriental imports such as papyrus, spices and silk cease to appear, but those export-oriented plantations in Campania became the plots of subsistence farmers instead. In that sense, the decline of the Roman empire turned consumer traders back into subsistence peasants. The Dark Ages were a massive experiment in the back-to-the-land hippy lifestyle (without the trust fund): you ground your own corn, sheared your own sheep, cured your own leather and cut your own wood. Any pathetic surplus you generated was confiscated to support a monk, or maybe you could occasionally sell something to buy a metal tool off a part-time blacksmith. Otherwise, subsistence replaced specialisation.