The moment we begin to think about the fact that how our daily things come to us through a myriad of producers and processes, we can only be amazed.
As part of my lunch today, I enjoyed a big, ripe, sweet, firm peach. “So what?” you may be asking. Well, my doing so is more remarkable than one might think. You see, I live at the extreme end of the road, near a remote, isolated village in the farthest southeast corner of the Mexican state of Quintana Roo; and the peach I ate was grown in California.
In the real world, of course, the complexity of trade defies comprehension.
I acquired this fruit, as I acquire the bulk of the fruits, vegetables, and other fresh comestibles I consume, from Lucio, a man who rises each day at 4:00 a.m. and heads to the market in Bacalar, a town about 100 miles from my home. Lucio loads his pickup with fresh produce and other things, hauls these products for two hours, and offers them to those of us who live along a pot-holed road in this far-away place. The people who sell to him, in turn, acquire their inventory from other sellers, who are part of a perhaps lengthy supply chain whose specifics I do not know.
I know only that each entrepreneur who participates in this amazing process makes considerable investments and bears substantial risk in the hope of pleasing those who might buy from him. No sales are assured; buyers are free at every point to take it or leave it, and leaving it entails leaving the would-be seller holding the bag in more ways than one.
Now, you might think that transporting peaches from California, perhaps from the area near Fresno where I grew up back in the 1950s, flies in the face of your understanding of comparative advantage, which you acquired in an elementary economics class in college. After all, the United States of America is an economically advanced country, and Mexico is a relatively less developed and more labor-abundant one. Shouldn’t the Mexicans export agricultural products to the USA and import goods such as sophisticated machinery, computer software, and technically advanced services? Well, in a word, no. At least, not exactly.
You see, there is more to comparative advantage than professors can fit into the simple Ricardian model of England and Portugal trading with one another, the former specializing in the production and export of cloth, whereas the latter specializes in the production and export of wine. The basic idea remains sound, though, however much we complicate the example: the country whose producers have a relatively lower real opportunity cost of producing a certain good will be better off if they do so, and if the country’s merchants import the goods for which its own producers have a relatively higher real opportunity cost.
One could just keep adding the various products to the list..