Forget Fairtrade Fortnight, let the market work


Division of labour is the most powerful force in the world. It is creative, and it is corrosive. "Fair trade," by contrast, is never creative. It is only corrosive.

If I have two apples, and two bananas, and you have a pin factory, with all the production benefits of division of labor…well, even after we trade, you still have a lot of pins. I might trade you an apple and a banana for a card of 100 pins. I might want three times that many if I want to do some sewing, or to pop a lot of balloons. But you and the other ten people who have specialized in pin-making can't get along with exchanging with just a few other people. They need a larger market, with many more people in it.

That means two things happen, though not because anyone plans it out beforehand. First, the locus of exchange, or size of the market, becomes larger. Second, the focus of exchange shifts to the commodity, and away from the person doing the trading. I don't know who made the pins, and I don't care. I just want to buy pins, and you just want to produce pins at a low cost.

"Fair trade" tries to refocus exchange on the person, not the commodity. Fair trade consciously prevents the productivity increases that arise from division of labor, by creating a kind of human zoo, arresting production and exchange relations in a pre-industrial agricultural form. By raising returns to unproductive labor, fair trade shackles people in less developed nations to traditional roles, and traditional methods of production.

In Chapter 3 of the first book of the Wealth of Nations, Adam Smith argues:

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men's labour as he has occasion for.

Expanded division of labor, and its two consequences, increased specialization and lower costs, is the fundamental dynamic force behind globalization. The market expands dramatically. But then distance and the number of transactions overwhelm the capacity for personalistic "fair trade" exchange to supply the quantity demanded, and so price is artificially high and quantity produced is suppressed.

"Fair trade" raises costs to consumers. Worse, it enslaves the people it claims to help, with the invisible chains of artificial subsidy, and arrested economic development. If it pleases you to think of happy natives, living primitive lives, just go rent a BBC documentary, and let the market work.

Professor Michael Munger is Professor and Department Chair, Political Science Department, Duke University, and writes regularly here