Two of the removed features are removed incompletely. Differerences in preferences. What is important for trade is the marginal preference. So to remove this motivation to trade one mus assume the marginal value (both intrinsic and instrumental) to be equal for everyone for all goods, which i think can only happen in some very weird cases (eg all gods have no instrumental value and utility is a linear combination of the products).
The difference in peoples productive capacity (which doesn’t by itself result in trade (it does when assuming diminishing marginal value to personal consumption of the same product)) is not captured completely by their human capital, it is their all their capital. So normal capital differences could cause trade in any situation where human capital could.
Trade can also be used to facilitate coordination, cooperation and information.
Trade can allow parallelization of work (a kind of cooperation), and can in general let you play with time (eg work to create a product with the intention of trading it for something later (when you have better information about what you want))
Every person gets at birth assigned an array of 3 integers a blue number, a yellow number and a red number. Every person has 3 attributes: the speed they can increase a red number (by spending that amount of time counting out loud), the speed they can increase a blue number, and the speed they can increase a yellow number. They can increase their own numbers or anyone elses. (Note we are not assuming everyone has the same amount of red, blue and yellow points at birth or that they are all equally fast at producing them). Everyone knows that there are no ways to become better at increasing your numbers. Everyone has the following utility function: red points + blue points + yellow points. This world has no trade! But it does have comparative advantages!
Am I misunderstanding your example, or is this a world in which transfer of goods is impossible? If no-one can give their points to anyone else, then trade has been ruled out by definition.
People could trade making each others numbers bigger, it’s just that it will never be beneficial for both. Letting people increase others numbers by decreasing their own number doesn’t change the results
Note that this world assumes away the fixed cost of living. In the real world, every person (even a computer simulated person) consumes and destroys some value to stay alive (either power lost to Entropy for a simulation, or food calories eaten and digested).
Also, too, that world doesn’t have any diminishing marginal returns: somehow my optimum action is increasing whichever score I’m best at, with no variety to my actions at all. This doesn’t model real preferences well, where a score of 101 Red + 1 Yellow + 1 Blue would never equal to 1, 101, & 1 and 51, 51, 1. The very definition of things being different implies that they cannot be perfectly substituted for each-other at all quantities.
If you relax either of those strange assumptions, you will see trade re-emerge.
Yes. The comment was meant as a proof by example that you can have no trade in a world with comparative advantages, if everyone has the same marginal value of all products the result is no trade. Diminishing marginal returns are indeed enough to make marginal values different between people.
Except, your example doesn’t have comparative advantages because there is only one “good” available (points). There has to be some difference in value somewhere to have different goods.
And note the slight of hand in the original post where Elizer goes from “people like all goods the same” to “oh, but somehow people like laptops more than apples”—if everyone really did like all things equally, there would be no trade because having “a basket of apples” would be the same as having “one apple.”
Yes. I agree that the original post keeps going after removing differences in values because they don’t remove differences in marginal value, which is what matters. I am providing an example where properly removing the differences in marginal value results in no trade.
You are using a nonstandard definition of goods. Would you equally object to a market with only blueberries, apples and bananas on the basis that there is only one good available (fruits)?
The example world can be modified easily to use any utility function of the form a·red points + b·yellow points + c·blue points.
The whole point of making simplified models (economic or otherwise) is to reflect some underlying truth in a more grokkable form. But, if you remove the load bearing ideas when making the model it doesn’t provide any insight.
If all goods are perfect substitutes, then there is no trade. That’s all your model is saying. And that’s the same thing I was saying, though my previous post was less elegant about it. It doesn’t matter what the production functions look like: they key factor is the perfect substituiton on the demand side. And, as you said, redefining a Red point as 1/a Red points doesn’t change that conclusion.
Two of the removed features are removed incompletely.
Differerences in preferences. What is important for trade is the marginal preference. So to remove this motivation to trade one mus assume the marginal value (both intrinsic and instrumental) to be equal for everyone for all goods, which i think can only happen in some very weird cases (eg all gods have no instrumental value and utility is a linear combination of the products).
The difference in peoples productive capacity (which doesn’t by itself result in trade (it does when assuming diminishing marginal value to personal consumption of the same product)) is not captured completely by their human capital, it is their all their capital. So normal capital differences could cause trade in any situation where human capital could.
Trade can also be used to facilitate coordination, cooperation and information.
Trade can allow parallelization of work (a kind of cooperation), and can in general let you play with time (eg work to create a product with the intention of trading it for something later (when you have better information about what you want))
Example world without trade.
Every person gets at birth assigned an array of 3 integers a blue number, a yellow number and a red number. Every person has 3 attributes: the speed they can increase a red number (by spending that amount of time counting out loud), the speed they can increase a blue number, and the speed they can increase a yellow number. They can increase their own numbers or anyone elses. (Note we are not assuming everyone has the same amount of red, blue and yellow points at birth or that they are all equally fast at producing them). Everyone knows that there are no ways to become better at increasing your numbers.
Everyone has the following utility function: red points + blue points + yellow points.
This world has no trade! But it does have comparative advantages!
Am I misunderstanding your example, or is this a world in which transfer of goods is impossible? If no-one can give their points to anyone else, then trade has been ruled out by definition.
People could trade making each others numbers bigger, it’s just that it will never be beneficial for both.
Letting people increase others numbers by decreasing their own number doesn’t change the results
Note that this world assumes away the fixed cost of living. In the real world, every person (even a computer simulated person) consumes and destroys some value to stay alive (either power lost to Entropy for a simulation, or food calories eaten and digested).
Also, too, that world doesn’t have any diminishing marginal returns: somehow my optimum action is increasing whichever score I’m best at, with no variety to my actions at all. This doesn’t model real preferences well, where a score of 101 Red + 1 Yellow + 1 Blue would never equal to 1, 101, & 1 and 51, 51, 1. The very definition of things being different implies that they cannot be perfectly substituted for each-other at all quantities.
If you relax either of those strange assumptions, you will see trade re-emerge.
Yes.
The comment was meant as a proof by example that you can have no trade in a world with comparative advantages, if everyone has the same marginal value of all products the result is no trade.
Diminishing marginal returns are indeed enough to make marginal values different between people.
Except, your example doesn’t have comparative advantages because there is only one “good” available (points). There has to be some difference in value somewhere to have different goods.
And note the slight of hand in the original post where Elizer goes from “people like all goods the same” to “oh, but somehow people like laptops more than apples”—if everyone really did like all things equally, there would be no trade because having “a basket of apples” would be the same as having “one apple.”
Yes.
I agree that the original post keeps going after removing differences in values because they don’t remove differences in marginal value, which is what matters.
I am providing an example where properly removing the differences in marginal value results in no trade.
You are using a nonstandard definition of goods. Would you equally object to a market with only blueberries, apples and bananas on the basis that there is only one good available (fruits)?
The example world can be modified easily to use any utility function of the form a·red points + b·yellow points + c·blue points.
The whole point of making simplified models (economic or otherwise) is to reflect some underlying truth in a more grokkable form. But, if you remove the load bearing ideas when making the model it doesn’t provide any insight.
If all goods are perfect substitutes, then there is no trade. That’s all your model is saying. And that’s the same thing I was saying, though my previous post was less elegant about it. It doesn’t matter what the production functions look like: they key factor is the perfect substituiton on the demand side. And, as you said, redefining a Red point as 1/a Red points doesn’t change that conclusion.