Globalize and Prosper: Cooperative Exchange, the Occurrence Necessary for the Division of Labor
Expanding the extent of the market gives way to a greater magnitude for occurrence of exchange and thus is the incentive necessary to drive the division of labor. Civilized societies cooperate through specialization which is precisely what Adam Smith had explained as being the “greatest improvement in productive powers of labour”. This improvement, undoubtedly, is attributed to the division of labor; however, it is the cooperation on a large scale that creates increasing productivity as a result from the necessity to exchange. We produce in order to consume.
While we are often inclined to be self-reliant (Ayau, Not a Zero-Sum Game), the incentive to specialize is derived directly from the increasing benefits of cooperative exchange. This incentive we have come to recognize and even welcome as a necessary trade-off in a market economy. In isolation our needs are fulfilled only in limitation to our own abilities whereas in association more needs are met and, in turn creating more products to be simultaneously produced – thus further labor to be divided. This process of exchange and the degree of cooperation is why the effects of the division of labor are only as great as the extent of the market (Smith, The Wealth of Nations).
The Market
A market economy is anywhere and everywhere productive surpluses are brought together for voluntary exchange. It is precisely the market that facilitates a society’s on going cooperation. Additionally, since it is the process of exchange that gives purpose to the division of labor, a market must maintain a significant amount of cooperation to support an increasing level of divided tasks.
A market economy is anywhere and everywhere productive surpluses are brought together for voluntary exchange. It is precisely the market that facilitates a society’s on going cooperation. Additionally, since it is the process of exchange that gives purpose to the division of labor, a market must maintain a significant amount of cooperation to support an increasing level of divided tasks.
There exists little if any incentive for both cooperation and specialization within the smallest of communities as the productive surplus will have a limited value among a smaller, less diverse (taste and demand) population. In order for exchange in the market to occur we must produce a market of differencing goods and services, therefore creating a vast diversity of productive value. This is how the market, through cooperation, serves as the mechanism to induce the desire to specialize (Rothbard, Man, Economy, & State). Small markets yield smaller division of labor potential.
“Producing lots of output is not productive unless it ends up in the hands of those who value it. So the advantage of specialization can be realized only to the degree that people can cooperate, with each specializing in the production of something that others want in order to be able to acquire what he wants from the specialized production of others.” (Lee, Specialization and Wealth).
Through the process of specialized cooperation it is “praxeological”, from the incentives all market actors become responsive to, that we are composed to trade with multiple peoples, societies, etc. in order to meet our own needs and varying levels of satisfaction. Expanding the limitations of the market additionally creates more readily available products than otherwise would have existed in isolation, a result from our desire to improve the processes and products in which we choose to specialize in.
This cooperative exchange is what makes up the market. And while each market maintains its own value of exchange from the number of cooperative entities and available resources, it has become evident, empirically, that combining or thus allowing for market expansion that we will in turn create a far greater abundance of specialization, tasks specialist, and mutual benefits as a derivative from the yielding technological improvements. As the market grows and voluntary exchange ensues, so does the division of labor become progressive, and even in many instances becomes aggressive (“creative destruction”). The division of labor, as Smith explained in The Wealth of Nations, is the prerequisite for innovative methods and technological advancements.
Furthermore, through our ingenuity and improvements in communication we have thus expanded the allowance for cooperative exchange. Therefore, this continuing movement forward in productive ability appears to be inevitable that the international division of labor becomes the end result. “In myriad ways, specialization fosters continuous innovation in time-saving methods and better utilization of resources.” (Ayau, Not a Zero-Sum Game).
Globalization of the Free Market
“Globalization is the process of bringing the entire world into the system of division of labor and thus into the system of social cooperation, of which the division of labor is essence.” (Reisman, Globalization: The Long-Run Big Picture).
Furthermore, through our ingenuity and improvements in communication we have thus expanded the allowance for cooperative exchange. Therefore, this continuing movement forward in productive ability appears to be inevitable that the international division of labor becomes the end result. “In myriad ways, specialization fosters continuous innovation in time-saving methods and better utilization of resources.” (Ayau, Not a Zero-Sum Game).
Globalization of the Free Market
“Globalization is the process of bringing the entire world into the system of division of labor and thus into the system of social cooperation, of which the division of labor is essence.” (Reisman, Globalization: The Long-Run Big Picture).
Market globalization, in both process and theory, occurs just the same as does any market confined within a single region. Although, a global market sustains a much greater ability to create significant cooperation and wealth as a result of the entire world’s producers and population working in tandem, than compared with such a single region separated from the rest of the world (Reisman, Globalization: The Long-Run Big Picture). For example, within the states of America each state has available their own resources, both naturally occurring and those attributed from the ability of the given population, whether in greater scarcity or relative abundance; however, cooperating as a whole, the U.S. is much more productive and efficient with her resources then if each state was to produce in isolation. The Framers of the Constitution recognized free trade among the states as being a necessary part of our economic system, which is why it was mandated in Article I, Section 9 of the Constitution (Batemarco, Why Managed Trade Is Not Free Trade).Through the law of association, all resources within each given region are thus most efficiently allocated and the market as a whole is made that much better off
compared with the alternative, each state cooperating and producing in isolation.
In conjunction with increasing the amount of cooperation within a market economy, international division of labor offers additional compelling motives. A global market decreases the opportunity cost through specialization in productive outputs. Thus, when the opportunity cost is lowered the focus of human efforts and resource allocation is optimized. The cost of production is lowered and the shared benefits are elevated.
Additionally, some production can only efficiently exist in certain regions due to access to naturally available resources, thus further illustrating the benefits made available through comparative costs. The nations who possess a greater abundance of a given resources and can, in turn, produce an output at a lesser comparative costs should be more inclined to do so and trade for other productive outputs that they so desire.
compared with the alternative, each state cooperating and producing in isolation.
In conjunction with increasing the amount of cooperation within a market economy, international division of labor offers additional compelling motives. A global market decreases the opportunity cost through specialization in productive outputs. Thus, when the opportunity cost is lowered the focus of human efforts and resource allocation is optimized. The cost of production is lowered and the shared benefits are elevated.
Additionally, some production can only efficiently exist in certain regions due to access to naturally available resources, thus further illustrating the benefits made available through comparative costs. The nations who possess a greater abundance of a given resources and can, in turn, produce an output at a lesser comparative costs should be more inclined to do so and trade for other productive outputs that they so desire.
On a global perspective, it is not simply the additional amount of cooperation, although this adds significantly to the level of value-oriented exchange which is a necessity for the division of labor, that yields far greater productivity and incentive but rather the considerable lowering of cost across the board. This lowering of costs is an affect of comparative cost. In a competitive trade environment, each participating nation will find within their best interest to focus their available capital on the production of goods and services in which there are most efficient at - maintain a comparative advantage.
Country A will thus specialize in producing products W and X for which they maintain a comparative advantage in, and Country B will thus specialize in producing Y and Z. These two nations will then trade their available surpluses for one another, all the while doing so in the most cost efficient way possible. The process of comparative advantage is thus increased as a result of a global market – a win-win outcome from international division of labor. Of course, in the real world most nations maintain a varying number of productive sectors in which they maintain a relative comparative cost in, thus, again, a result of allowing specialization to focus capital in new areas of expertise.
As David Ricardo outlined in his explanation for the law of association, the case for international division of labor is made best when nations are allowed to specialize in what they can do best – that is producing products in which their comparative cost is lowest and trading with other nations who maintain a comparative cost in other valuable productive outputs. It is within this movement of the international division of labor that we are all made better off.
Of course, a necessary framework of laws must be present for the division of labor to transform into international cooperation. This framework of laws is the respect for contractual agreements and rights to private property. The respect for contractual agreements and private property is the cornerstone for mutual exchange. Additionally, a currency exchange market is needed to allow for each nation, during trade, to effectively allow for price mechanism to dictate the value of productive outputs. Albeit a bit more complicated than the simplistic mention here, it is important that these factors exists in an international market economy as without them international cooperation would not take place. “The only function of money is, ultimately, to facilitate the division of labor”. (Ayau, Not a Zero-Sum Game).
Government Facilitation of the Market
A global free market is the catalyst for the international division of labor. However, a free market must be free from outside coercion and facilitation. Market actors should be free to cooperate and exchange with others as they see fit; their knowledge to speculate in rapidly changing market environments and the incentives made available as a result of their self-interest serve as their guiding motive. Adam Smith had described this affect as the market’s “invisible hand”.
The unintended consequence from both producers and consumers acting freely in a market economy is that everyone is made better off. This outcome occurs from the motivation to trade. Free trade stimulates competition, lowers prices and efficiently directs the flow of capital resources. Government facilitation of the market, on the other hand almost always results in an unintended consequence of making the majority worse off for the betterment of only a few. The reason being is that government officials are likely to be influenced by special interest groups lobbying for special treatment to help protect their industries. The Smoot-Hawley tariff passed by the U.S. government in 1930 is a primary example of a destructive protectionist policy. The protection, of course is either the complete elimination of foreign competition or the implementation of policies to make competitor cost unattractive to local consumers. The end result being the same; consumers are made worse off and failing industries are artificially kept alive.
Market regulations, tariffs, quotas, and anti-dumping laws all serve one common purpose – to restrict international free trade. National governments, as witnessed even in recent history, tend to prefer to decide which producers and manufactures they should keep operating within their boarders at all cost. To do so, of course, means that these industries must be protected from global competition. Thus, governments cannot facilitate globalization when their policies serve the interest of the protectionist.
These restrictive policies on international trade also result in negative impacts that hamper the local economy. Government involvement in a market economy, as a result from their interventionism, removes the market mechanisms (price) necessary to foster efficient allocation of resources. Thus, governments are inefficient and create waste. Additionally, market economies are primed on the basis of a profit loss system. And since governments do not own the factors of production and capital resources in a free market, when they attempt to take facilitate these processes the outcome is always disastrous. That is, government actors are neither responsive to market signals nor responsible for the costs from their failures.
Conclusion
International division of labor will bring with it the greatest available level of productivity and standard of living; however, this magnificent cooperation will not be possibly without the precondition of economic freedom and the rights to private property. When nations around the globe complete the necessary transition from government control of the market to a laissez faire market approach, only then will we bear witness to the “greatest improvement in productive powers of labour” on a global stage.
Additionally, it is not just the cooperation for exchange but also for production that leads us to globalization. For we must, through the most efficient methods possible, employ all the available resources – man and commodity – for the utmost productive ends. Thus, leading to the wealth of nations, the incentive to produce in quantity for other’s consumption is the quintessential reason we trade. “The main cause of prosperity, Smith argued, was increasing the division of labor” (www.econlib.org). And, only through government facilitation of the market shall the extent of this market be limited, artificially and unnecessarily, from what otherwise will occur under free-market conditions.
Country A will thus specialize in producing products W and X for which they maintain a comparative advantage in, and Country B will thus specialize in producing Y and Z. These two nations will then trade their available surpluses for one another, all the while doing so in the most cost efficient way possible. The process of comparative advantage is thus increased as a result of a global market – a win-win outcome from international division of labor. Of course, in the real world most nations maintain a varying number of productive sectors in which they maintain a relative comparative cost in, thus, again, a result of allowing specialization to focus capital in new areas of expertise.
As David Ricardo outlined in his explanation for the law of association, the case for international division of labor is made best when nations are allowed to specialize in what they can do best – that is producing products in which their comparative cost is lowest and trading with other nations who maintain a comparative cost in other valuable productive outputs. It is within this movement of the international division of labor that we are all made better off.
Of course, a necessary framework of laws must be present for the division of labor to transform into international cooperation. This framework of laws is the respect for contractual agreements and rights to private property. The respect for contractual agreements and private property is the cornerstone for mutual exchange. Additionally, a currency exchange market is needed to allow for each nation, during trade, to effectively allow for price mechanism to dictate the value of productive outputs. Albeit a bit more complicated than the simplistic mention here, it is important that these factors exists in an international market economy as without them international cooperation would not take place. “The only function of money is, ultimately, to facilitate the division of labor”. (Ayau, Not a Zero-Sum Game).
Government Facilitation of the Market
A global free market is the catalyst for the international division of labor. However, a free market must be free from outside coercion and facilitation. Market actors should be free to cooperate and exchange with others as they see fit; their knowledge to speculate in rapidly changing market environments and the incentives made available as a result of their self-interest serve as their guiding motive. Adam Smith had described this affect as the market’s “invisible hand”.
The unintended consequence from both producers and consumers acting freely in a market economy is that everyone is made better off. This outcome occurs from the motivation to trade. Free trade stimulates competition, lowers prices and efficiently directs the flow of capital resources. Government facilitation of the market, on the other hand almost always results in an unintended consequence of making the majority worse off for the betterment of only a few. The reason being is that government officials are likely to be influenced by special interest groups lobbying for special treatment to help protect their industries. The Smoot-Hawley tariff passed by the U.S. government in 1930 is a primary example of a destructive protectionist policy. The protection, of course is either the complete elimination of foreign competition or the implementation of policies to make competitor cost unattractive to local consumers. The end result being the same; consumers are made worse off and failing industries are artificially kept alive.
Market regulations, tariffs, quotas, and anti-dumping laws all serve one common purpose – to restrict international free trade. National governments, as witnessed even in recent history, tend to prefer to decide which producers and manufactures they should keep operating within their boarders at all cost. To do so, of course, means that these industries must be protected from global competition. Thus, governments cannot facilitate globalization when their policies serve the interest of the protectionist.
These restrictive policies on international trade also result in negative impacts that hamper the local economy. Government involvement in a market economy, as a result from their interventionism, removes the market mechanisms (price) necessary to foster efficient allocation of resources. Thus, governments are inefficient and create waste. Additionally, market economies are primed on the basis of a profit loss system. And since governments do not own the factors of production and capital resources in a free market, when they attempt to take facilitate these processes the outcome is always disastrous. That is, government actors are neither responsive to market signals nor responsible for the costs from their failures.
Conclusion
International division of labor will bring with it the greatest available level of productivity and standard of living; however, this magnificent cooperation will not be possibly without the precondition of economic freedom and the rights to private property. When nations around the globe complete the necessary transition from government control of the market to a laissez faire market approach, only then will we bear witness to the “greatest improvement in productive powers of labour” on a global stage.
Additionally, it is not just the cooperation for exchange but also for production that leads us to globalization. For we must, through the most efficient methods possible, employ all the available resources – man and commodity – for the utmost productive ends. Thus, leading to the wealth of nations, the incentive to produce in quantity for other’s consumption is the quintessential reason we trade. “The main cause of prosperity, Smith argued, was increasing the division of labor” (www.econlib.org). And, only through government facilitation of the market shall the extent of this market be limited, artificially and unnecessarily, from what otherwise will occur under free-market conditions.
Reference
Ayau, M. F. (2007). Not a Zero-Sum Game, The Paradox of Exchange.
Batemarco, R. (1997). Why Managed Trade Is Not Free Trade, The Freeman: Ideas on
Liberty – August 1997, http://www.fee.org/.
Lee, D. R. (1998). Specialization and Wealth, The Freeman: Ideas on Liberty – August
1998, http://www.fee.org/.
Reisman, G. (2006). Globalization: The Long-Run Big Picture, http://www.mises.org/.
Rothbard, M. (1962). Man, Economy, & State, Chapter 3: Exchange and the Division of
Labor, http://www.mises.org/.
Smith, A. (2003). The Wealth of Nations. Biography of Adam Smith (1723-1790). The Concise Encyclopedia of Economics, http://www.econlib.org/.
Ayau, M. F. (2007). Not a Zero-Sum Game, The Paradox of Exchange.
Batemarco, R. (1997). Why Managed Trade Is Not Free Trade, The Freeman: Ideas on
Liberty – August 1997, http://www.fee.org/.
Lee, D. R. (1998). Specialization and Wealth, The Freeman: Ideas on Liberty – August
1998, http://www.fee.org/.
Reisman, G. (2006). Globalization: The Long-Run Big Picture, http://www.mises.org/.
Rothbard, M. (1962). Man, Economy, & State, Chapter 3: Exchange and the Division of
Labor, http://www.mises.org/.
Smith, A. (2003). The Wealth of Nations. Biography of Adam Smith (1723-1790). The Concise Encyclopedia of Economics, http://www.econlib.org/.
3 comments:
Hi Darin,
Took me a while to get to it, but I finally had time to read your latest posts. I am intrigued by some of your references and plan to check them out.
Thanks!
Beth
PS Have you read much Bastiat or Hazlitt? I find their style helps me keep my own writing simpler.
Hi Beth, thank you for reading. I, in fact, have The Law (by Bastiat) in front of me now. I have read Economics in One Lesson (as well as other articles by Hazlitt found on fee.org) I agree, Hazlitt does write economic principals with such simplicity. Two others who, I think, write similarily are Thomas Sowell and Walter E. Williams.
I am a work in progress, however. :-) I'm not very happy with my essay either. I knew what to write and how to explain the pros for global competitive markets, however, for some reason, I just couldn't keep the essay away from a scholastic style.
Just checking in. Hope you write some more. I know it's hard to find time...just want to let you know I am stopping by.
Beth
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