Adam Smith on how trade makes us better people

Economists love efficiency. That is why most of them love free trade. Countries with relatively free trade also tend to be wealthier than more protectionist countries. But there is more to life than maximizing utility. Today’s economists should take a cue from Adam Smith, the father of free trade. For him, trade is about more than efficiency. It is also about empathy.

Smith’s larger project was human cooperation. Trade is a key ingredient in Smithian liberalism, and many of the reasons why have little to do with efficiency.

First and foremost, trade respects individual dignity. If another person has something you want, there are two ways you can get it. One is to take it by force. The other is to trade them something they value in return. Actually, it’s better than that. You have to give them something they value even more than what they give up. You won’t bother with this unless you have enough empathy and compassion to engage with other people on equal terms.

To do this, you have to see things from their point of view. You have to make an effort to understand their values, even if they differ from yours. Then you have to sweet-talk them in ways that appeal to them, not you. You have to be able to have a two-way conversation with the other person. You not only need to say what you want, you have to listen to what they want. Smith found these empathetic parts of trade far more interesting than the efficiency gains.

Trade doesn’t work without property rights, which are another staple of liberal (in the correct sense) economics. As the Smith-influenced scholar Bart Wilson points out, even property is more about empathy than efficiency. It’s a cliché to point out that dogs know what property rights are. Just try and take away their stick and see what happens. That dog is saying “this is my property.”

But Wilson, in Smithian spirit, says that this is only half the story. The idea of property has two parts: “This is mine, and that is yours.” It is both of those things. Dogs do not do that; humans do. Again, a Smithian concept of property rests on treating other people with dignity. Property is not selfishness. It is a social custom based on cooperation. It also happens to be economically efficient.

Peace is human cooperation on a national scale. Trade between individuals not only helps to build peace among countries, it helps to sustain it. The very first thing McDonald’s teaches its teenage employees is, don’t kill the customer. It’s bad for business. Instead they are told to be helpful and polite.

Read the full article on the Economic Standard.