Why Should the Us Trade?

Abstract

The US imports Mercedes automobiles because Mr. Jones likes them and is willing to pay the price that the American retailer asks for the car. The US imports cocoa from west Africa because people in the US like chocolate bars and growing cocoa in the US would be very expensive. In the old days (pre Adam Smith or 1776) the popular notion was that a nation traded to build up its gold reserves and in so doing built up its international political profile. Power among nations was seen to derive from national wealth and the ability to impose one’s will in war depended on the richness of the nation, A simple measure of relative richness of England versus say France was the size of the country’s reserves of gold. David Hume (Scottish philosopher, 1711 to 1776) provided the first modern attack on this ‘imports are bad, exports are good’ doctrine.