Trade Makes Us Better People

You may have come across a social experiment called The Ultimatum Game. In this game player A (Jack) is given some money, say £50, and asked how much, if any, he proposes to offer to player B (Jill). Jill can accept or reject Jack's offer - but if she rejects it, neither of them gets anything. If Jack and Jill were rational income-maximisers, Jack would offer just £1 and Jill would accept it, because 1 free pound is better than nothing. But this very rarely happens, because humans are not rational income-maximisers.

Having a voracious appetite for fairness, the Jills of this world often reject free money from the Jacks of this world if the offers are not perceived to be an equitable distribution of the £50. Such sensibilities play out more broadly in society, which is why there is a correlation between trade and fairness. This was demonstrated in an interesting study from Herb Gintis that I read about in Matt Ridley's book The Rational Optimist:

"People in fifteen mostly small-scale tribal societies were enticed to play the Ultimatum Game. Those societies with the least experience of dealing with outsiders were the most hard-hearted, ungenerous and narrowly ‘rational’. Machiguenga slash-and-burn farmers from the Amazon most often offered just 15 per cent of the sum to their co-subjects, and in all but one cases, the second player accepted. Likewise, a Hadza hunter-gatherer from Tanzania usually makes a very small offer and experiences few rejections.

On the other hand, players from those societies that are most integrated into modern markets, such as the Orma nomads of Kenya or the Achuar subsistence gardeners of Ecuador, will usually offer half the money just as a Western undergraduate would. The whale-hunting Lamalera of the island of Lembata in Indonesia, who need to coordinate large teams of strangers on hunts, offer on average 58 per cent – as if investing the windfall in acquiring new obligations. Much the same happens in two New Guinea tribes, the Au and Gnau, whose members often make ‘hyper-fair’ offers and yet see them rejected: in such cultures, gifts can be a burden to the receiver because they carry an obligation to reciprocate.”

“The lesson of this study is that, on the whole, having to deal with strangers teaches you to be polite to them, and that in order for such generosity to emerge, costly punishment of selfishness may be necessary. Rejecting the offer is costly for the second player, but he reckons it is worth it to teach the first player a lesson. The argument is not that exchange teaches people to be kind; it is that exchange teaches people to recognise their enlightened self-interest lies in seeking cooperation. Here, then, lies a clue to the unique human attribute of being able to deal with strangers, to extend the division of labour to include even your enemies.”

As well as the progression-explosion of individual well-being and higher standard of living that capitalism has bestowed upon us, it's also essential to note how good capitalism has been and continues to be for the collective benefits of human society, not just in more than material gains, but in corporate kindness too. A society that relies on trade relies on cooperation, respect, fairness, justice and mutual toleration - the whole edifice depends on it. The free exchange of goods, services and ideas does not just make us materially better off, it makes us nicer, more respectful, more tolerant people to be around too - and those collective benefits play out in our living in all-round better societies.

And the kinds of society we have created through increased trade are uniquely human too. In the animal kingdom there are all kinds of cooperation and collaboration within a species - between other primates, between ants, between lions, between wolves, between elephants, between bees, between birds - you name it. But as a rule, cooperation and collaboration between unrelated strangers seems to not occur very often in the rest of the animal kingdom - there are almost no cases of unconnected animals involved in mutually beneficial transactions in the humans are when we trade. There is even a ratchet-type pattern of trade occurring with the development of farming in various countries independently at different times in history when the right conditions were met - Peru first, then China, then Mexico, then North America and Africa, and then Europe.

Perhaps my favourite example of the joy of trade is when I buy an Indian takeaway. People with whom I have little in common cook incredibly tasty food that I value much more than the money I pay to consume it. At the same time, I help the people that sell to me to make a living, and both agents are made better off. In feeding me, the proprietors get to feed their family too. And this extends right across the marketplace.

We are all making each other better off by trade. We are contributing to a nicer, safer, more respectful, more tolerant society, in which our own personal pursuits are helping enrich total strangers too - and when aggregated, it is sufficient to make everyone in that society richer and more prosperous.

Commerce has done more to combat racism, sexism, and unfair discrimination of any kind, and the alleviation of poverty for billions, than any government program. How bizarre then that we live in an age in which trade has done more than anything else to tackle poverty, hardship, injustice, corruption, prejudice, bigotry and disunity, yet the generation that has been the biggest beneficiaries are the most vociferous opponents of it in history.