Trade

by Juan

December 19, 2021 2 minutes • 344 words

Table of contents

1. Local or Home Trade
2. Direct Foreign Trade
3. Indirect or Roundabout Foreign Trade

There are 3 kinds of trades:

1. Local or Home Trade

This is the trade done within a nation’s borders. This generally supports the most people. Ancient and Medieval China was able to sustain itself with local trade alone.

2. Direct Foreign Trade

3. Indirect or Roundabout Foreign Trade

Of course, no country can do everything by itself, that’s why Smith wrote:

Smith

The most round-about foreign trade of consumption therefore may be as necessary as the most direct foreign trade in terms of supporting the productive labour of the country and the value of its produce. When a country's capital stock is increased to the point that it cannot be all employed to support its productive labour, the surplus naturally disgorges itself into the carrying trade. The carrying trade is the natural effect and symptom of great national wealth. ..The extent of the carrying trade and the capital employed in it, is limited by the value of the surplus produce of all the countries in the world. Its farthest extent, therefore, is infinite compared to the other two. It is capable of absorbing the greatest capitals.

All the three trades are important to society and none of them have to be preferred over the other. He mentions the mistakes of politicians and businessmen in favoring some trades to benefit themselves, leading to the poverty of their own society.

For example, capitalists, investors, and speculators just care about their own wealth and don’t care about supporting society’s productive labour, so they enter Africa with their produce (cash) to import valuable resources such as minerals and cocoa (foreign trade of consumption) or selling it on the commodity exchange or trading hub (carrying trade), without replacing the capital of African society (home trade) defending themselves saying it is arbitrage and is fair game in Modern Economics.

They do not know that it is immoral in Smith’s Political Economy (Wealth of Nations + Theory of Moral Sentiments) which predates the sophistry called Modern Economics. Smith was against this arbitrage, preferring the natural progress of improvement (Book 3)