•  
  •  
 
Iowa Ag Review

Abstract

Why do we trade? Most Americans would answer this question with some reference to the benefits of expanded markets for U.S. goods and more job opportunities. However, if asked the question, why do we work? most would respond that we work to earn money so that we can buy things. At a personal level, we intuitively know that trading our specialized labor with others (using money as the means of transactions) gives us a higher standard of living than if we tried to produce everything ourselves. We know and act on the knowledge that specialization enhances our individual wealth. But economists have known for more than 200 years that what holds at the individual level also holds nationally. A country will have more wealth and a higher standard of living if the country specializes in producing those products that it is relatively good at producing, exporting the surplus, and using the proceeds to buy imported products.