Chapter 9: Trade and Interdependence
Updated: 1/13/20
Christian Economics: Teacher's Edition
Now Abel was a keeper of sheep, and Cain a worker of the ground. In the course of time Cain brought to the Lord an offering of the fruit of the ground, and Abel also brought of the firstborn of his flock and of their fat portions. And the Lord had regard for Abel and his offering, but for Cain and his offering he had no regard. So Cain was very angry, and his face fell. The Lord said to Cain, “Why are you angry, and why has your face fallen? If you do well, will you not be accepted? And if you do not do well, sin is crouching at the door. Its desire is contrary to you, but you must rule over it.” Cain spoke to Abel his brother. And when they were in the field, Cain rose up against his brother Abel and killed him (Genesis 4:2b–8).
This passage is accurately classified as an aspect of point three of the biblical covenant, which relates to ethics: law. Cain broke God’s law against murder. But this was also an aspect of point three in another way. God’s law favors voluntary cooperation over theft, violence, and fraud. Cain’s murder of Abel was an act of envy. Cain killed Abel, despite the fact that he was murdering the person who supplied him with meat. The two of them specialized. Cain produced grains. Abel produced meat. They specialized economically for the sake of greater individual productivity. This is a positive sanction for economic exchange. Each person becomes dependent on the output of the other. Interdependence replaces independence. This places a penalty price on murder.
The idea that agriculture was developed long after hunting is one of the favorite myths of evolutionary anthropology. This text indicates that there was specialization of production from the beginning of man’s history. Cain was a farmer. Abel was a shepherd.
The theology of the story is implied. God’s wrath against man for man’s sin is placated only by the shedding of blood. When God made a covenant with Abram, Abram slew animals (Genesis 15:10). There were agricultural sacrifices under the Mosaic law, but the central sacrifice of the nation was Passover: the slaying of a lamb. Unleavened bread was also eaten: the sacrifice of the field. So, God had respect ritually for agriculture, but animal sacrifice was primary. This enraged Cain.
The specialization of production leads to greater productivity. This was the thesis of Adam Smith’s Wealth of Nations (1776). The first three chapters of Book I are these: “Of the Division of Labor,” “Of the Principle which gives Occasion to the Division of Labour,” and “That the Division of Labour is Limited by the Extent of the Market.” This theme of the division of labor as a way to overcome the economic effects of scarcity has been fundamental to academic economic analysis ever since.
Specially cursed scarcity is a curse that was imposed by God because of Adam’s sin. But with every curse in history, there is a related blessing. The blessing of cursed scarcity is this: it offers an economic reason for people to cooperate with each other. If they are willing to trade with each other, and if trade is lawful, they can afford to specialize in their production. They can produce what they are best at, and they can exchange their output with others who produce what they are best at. All trading parties expect to be better off after the trades. Usually, they are. So, they trade again.
In the case of Cain and Abel, the benefits from trade were insufficient to restrain Cain’s lust for revenge. Cain either ignored the inevitable loss of wealth that his action would produce, or else he factored it into his calculations and decided to pay the price. He decided that he would rather do without a share of Abel’s meat than to put up with the visible reminder that God accepted Abel’s sacrifice and rejected his. Cain was really angry at God. “Who does Abel think he is, anyway?” was in fact this complaint: “Who does God think He is, anyway?”
One of the most insidious sins is envy. I do not mean jealousy. Jealousy is this sin: “He has what I want. I am going to find some way to take it from him for myself.” Envy is this sin: “He has what I want. I know I cannot get it from him. So, I will destroy either it or him, even if it costs me.” When Satan rebelled, he knew the consequences for himself. He also knew the consequences for Adam and Eve. He used the serpent to lure them into rebellion. He chose to upset God’s plans, even though it would cost him a place in God’s kingdom. He was trying to get even with God. He would be far worse off as a result. This did not persuade him. Cain had exactly the same outlook.
God’s curses on Adam and the ground imposed costs on Cainitic behavior. This is a law of economics: “When costs rise, less is demanded.” An increase in the cost of rebellion would lead to less rebellion being demanded. What was this cost? Forfeiting the economic benefits of trade. If greater wealth is readily available, but a person decides to avoid taking advantage of this opportunity, he suffers a loss. As surely as a farmer who comes across a valuable coin in the ground when he is plowing his field loses wealth if he covers it up and never tells anyone, so is a person who decides not to trade. Worse, he kills the person with whom these profitable trades would be possible for many years. That was Cain’s sin. It was murder based on envy. It was envy based on theology: a rejection of the theology of shed blood to atone for a person’s sin. Cain shed Abel’s blood because God had honored Abel’s blood-based ritual sacrifice. Cain in fact ritually affirmed God’s theology. He decided that Abel was at fault, and therefore deserved to die. So, he shed Abel’s blood.
Cain’s sin was exactly the sin that God’s curses of both Adam and the ground were imposed to restrict. By placing a price on such behavior, God reduced the demand for violence as a way to settle disputes.
A buyer possesses money, the most marketable commodity. He is in a strong bargaining position. He owns what sellers want to buy. They must buy his money by offering him opportunities to improve his situation. This is surely to his benefit.
Money is the least specialized commodity. This is another way of saying that it is the most marketable commodity. Money can be used to purchase a wide range of goods and services. The more advanced the economy, the wider the range. The great advantage of money is this: you can buy whatever you want when and where you want it if you have the purchase price, plus a sales tax. Money is convenient.
But money conveys no other advantage. There used to be a saying of economists who opposed the gold coin standard: “You can’t eat gold.” It was a silly argument. You also cannot eat paper money, bank checks, and credit cards. At least with a gold coin, you could have someone melt it down and make a piece of jewelry. Try that with paper money. Money is used exclusively in exchange. It is not hoarded for its own sake by normal people. They think: “I may need this for a rainy day.” They are worried about the rain.
This means that a person who has money to spend rather than goods in the storm cellar is dependent on the continuing availability of goods at local markets or through online purchases. If he already had what he might need on that rainy day, he would not need money, but he would need a lot of storage space. Who knows what might be necessary in the future? Lots and lots of things. They may rot. They may rust. Most important, most people will never need more than a few of the stored items, even on one of life’s most rainy days. Money is the preferred way we save for a rainy day.
Take away the free market, and this thrift strategy may backfire. Occasionally, this happens. A major war can do this. Governments declare price controls during wars. The supply of legal goods then dries up. It can happen in a plague, when people are afraid to trade with each other. But such events do not happen often. The market usually functions continuously and smoothly. If you have enough money, you can buy whatever you want.
The money economy relentlessly extends its reach. Things are cheaper in a marketplace than on a nearly self-sufficient farm. They are vastly more plentiful. The division of labor makes this possible. So, more and more people want to participate. The movement of populations from villages to cities has been a familiar phenomenon throughout history. There are more things to buy and sell in a city. There is a greater division of labor.
This may not always be true. The coming of 3-D printing technologies may offer profitable ways to be productive locally without living in a city. Cheap communications technologies have transferred to village residents some of the advantages of urban living. But these technological trends have not yet reversed the larger social trend: movement away from villages.
People are dependent on village trade. In a city, they are dependent on urban trade. But this dependence is widespread and decentralized. There are so many suppliers, compared to a village. So, individuals become more dependent on the urban exchange system, but less dependent on a single supplier. Trade makes people dependent. Most people prefer greater dependence on the price-regulated, money-dependent free market than on a village supply system in which barter is common, and local monopolies are common. People have a far greater range of choice in a money-based market economy than in a barter economy.
The buyer is far less vulnerable to dependence on suppliers than suppliers are on buyers. Money is the key leverage that the buyer has over the seller. As the number of choices increases through sellers’ competition, the buyer’s dependence on any one seller decreases.
A seller specializes in order to gain an advantage over his competitors. He relies on his own highly specialized knowledge. He also relies on the fact that buyers have less information about options. This traditional advantage of sellers has steadily disappeared because of the World Wide Web, where highly specialized information is accessible and is usually free of charge.
The seller is dependent on a highly developed system of capital. He borrows money to run his business, or he seeks investors. His dependence on the market is much greater than a buyer’s dependence is. Why? Because a buyer has money, the least specialized commodity. He has greater flexibility of action than a seller possesses. He can buy almost anything with his money. A seller can buy almost nothing directly with his inventory of products. He does not live in a barter economy. He must sell for money, which he does not possess. Money is what a buyer possesses.
While a buyer is heavily dependent on the free market in general, a seller is dependent on conditions in a narrow segment of the free market: his niche. This is his source of profit. It is also his source of loss. If he guesses wrong, he can go bankrupt. There is no high-income alternative market for his output. If he cannot sell at existing prices, he must lower them. This will erase his profit margin. It may produce an accounting loss.
A seller is dependent on suppliers. The number of suppliers may increase or decrease, depending on the industry. But the tendency in a free market is for suppliers to get more efficient over time. No single supplier is crucial. This means that the seller’s dependence on any single supplier decreases. He has money. He has the advantage as a buyer with money. In the “food chain” of the free market, the person with money feasts.
In a free market, the crucial resource is accurate, relevant information. The supplier gains his advantage over his competitors in terms of better knowledge. But buyers today also seek knowledge. They find cheaper products. This pressures suppliers. Their key advantage in dealing with buyers is superior knowledge of alternatives. This advantage disappears over time. Buyers can purchase better information about alternatives. The rise of digital algorithms is part of this. The use of algorithms is accelerating. They get cheaper. The rise of new digital production tools also erases the advantage of existing manufacturers. Technological improvements began to accelerate in the Industrial Revolution in Adam Smith’s day. He talked about it: the pin makers and their machines.
The market for pencils is an old one. The technologies are automated. Demand is easily predicted. There are few changes in demand or styles. The familiar yellow pencil is universal. This means that knowledge is widespread. Buyers know what they want and where to buy it. Sellers know what most buyers want most of the time. There are few surprises in the industry.
The many suppliers of the components of a pencil know this market. They make available these components to buyers. The market was never a miracle. It was always highly predictable. The opportunities for profits or losses are minimal. This is because of widespread knowledge among producers.
There are few barriers to entry. Existing brands have some mild customer loyalty, but this can be overcome. The World Wide Web lets new manufacturers get their stories to buyers. The main new markets are in poor counties that are getting richer. There are new buyers.
A major price decrease in pencils is unlikely. A major new benefit from pencils is unlikely. Everything runs smoothly because it is an old industry. There are few hidden opportunities.
This means that a buyer’s dependence on a single pencil producer is not significant. There are too many alternatives. There are many pencils to buy, and there are new digital technologies that are replacing functions of pencils. But a pencil’s portability is extremely high. It is lightweight. It is cheap to replace if you lose it. It is not a portable digital recorder or a smart phone. If it makes a mark on your shirt, there is no lasting damage. It is not a pen. Everyone knows what a pencil is. No one has a major advantage: buyers or sellers.
Interdependence is inevitable in an exchange economy. Before Adam’s fall, this was no threat. Sin has made it a threat. But this dependence is not nearly the threat that violence is. This is why God’s curses of Adam and the ground were important in reducing the amount of violence. People who trade regularly with each other are more likely to suppress their resentment or envy in order to maintain the mutually beneficial results of specialization. The love of money is the root of all evil (I Timothy 6:10). It is also one of the deepest roots of cooperation.
Cooperation increases dependence on other people, but it decreases dependence on your own skills and resources. Personal dependence on others is higher in a barter economy than on a self-sufficient farm. But the residents on a self-sufficient farm are highly dependent on weather, the absence of crop-eating pests, and soil fertility. They possess few tools. Output is low.
In a barter economy, there are few buyers or sellers of any item. The range of choices is limited. As money replaces barter, the range of choices increases. People will sell valuable goods and services for money, but would not sell for a dead chicken or fish, especially in summer. Exchange by exchange, a buyer’s dependence on the division of labor economy increases, but his dependence on any single supplier decreases.
In a money economy, a buyer’s dependence on any single seller is minimal. When a product is familiar, no seller has a major advantage in attaining market share unless the product is so cheap that no one cares to enter the market. In the United States, one product possesses this advantage: Arm and Hammer baking soda. It began in 1846. It controls an estimated 95% of the market. The product is cheap. Buyers don’t care enough to switch brands. Buyers think that all brands are the same. No one can name a rival brand. While buyers’ dependence is almost total, no one cares. The product is of only marginal significance.
As trade increases, dependence on the free market increases. But the free market is decentralized. It is highly diversified. There is far less dependence on a single producer, especially yourself.
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