The Amazing Cargo Ship
When I introduce my (mostly) freshmen students to the economics of international trade, I steal an idea that I learned from David Friedman and Steve Landsburg.
I start by showing my students a picture of Thomas Edison. I then ask them to imagine a modern-day version of this inventor who creates a machine that turns corn into cars. I then show them a photo of an Iowa cornfield, and then one of a big, honkin’ machine. Pour corn into one end of this machine, press a button, wait a few hours for the machine to do its thing, and voilà! – cars emerge from the other end. The next photo I show is of a brand new and shiny Nissan Maxima.
“What would you think of someone who invents a machine that turns corn into cars?” I ask my students. “Wouldn’t you applaud that inventor? And wouldn’t you also understand this marvelous machine to be a great benefit to humankind?”
My students all nod in enthusiastic agreement.
Then I ask them what would the existence of such a machine mean for the way we Americans should acquire our automobiles. I suggest to them that if the cost of growing all the corn necessary to produce the amount of cars we want, plus the cost of operating the machine, were lower than is the cost of manufacturing cars as we currently do – that is, with workers on factory floors – it would be a no-brainer to produce our cars by growing corn and then feeding that corn into the machine for it to work its wonders.
While a few students understandably express concerns about the fate of today’s autoworkers, workers who would indeed lose their automobile-making jobs if such a machine were invented and used, I’ve yet to encounter a student who believes that the American economy and people wouldn’t be made better off by the invention and operation of such an a-maize-ing machine.
After noting the unanimous agreement of the class about the goodness of such a machine, and noting also that this agreement makes perfect sense, I then announce that I’m about to show them a picture of an actual machine that turns corn into cars. I announce that such a machine has already been invented and is commonly used, and I express faux surprise that they’ve never heard of it. This announcement always elicits looks of skepticism.
But their skepticism is unjustified, for there is indeed such a machine. The photo that I show to them is of a cargo ship. The particular photo that I show is of a hulking, blue cargo ship, docked at the Port of Baltimore, with automobiles rolling out of its hold.
“This cargo ship, ladies and gentlemen, does in fact economically turn corn into cars just as literally as does the machine that I earlier asked you to imagine. In fact, the cargo ship is even more marvelous than the earlier machine! One reason is that the cargo ship, unlike the earlier machine, can create cars not only from corn, but also from wheat, soybeans, cotton, petroleum, pharmaceutical products, and too many other American-made goods to name. Almost any good that we fancy producing can be fed into a cargo ship and turned into cars.”
I hope that you’ll not think me immodest to report that with this example I solidly cement my students’ attention. But I’m not yet done.
“The near-miraculous nature of the cargo ship doesn’t end there. It can also turn American corn into things other than cars. It can turn American corn into Mexican tomatoes, Chilean grapes, Guatemalan coffee, French wine, Italian trousers, Malaysian textiles, Canadian lumber, and South African diamonds. Or it conjures into our possession any of these things by being fed also wheat, or Wheaties, or whatever else we fancy producing. In short, the cargo ship can turn almost anything into something else. It can transform whatever we produce into almost anything that we wish to consume. The cargo ship is wondrous!”
At this point in my celebration of the splendiferous cargo ship at least one student protests that this ship, unlike the hypothetical machine invented by a modern-day Edison, doesn’t really turn corn into cars.
I respond by asking in what way does the cargo ship differ from the other machine. “Well,” the student will typically answer, “in the machine invented by a modern-day Edison, the physical substance of the corn is actually restructured into automobiles, while the cargo ship only transports American corn to a different country and then is reloaded with cars, which it then hauls to the US.”
“So how does that differ from what’s done by the hypothetical modern-day Edison machine?” I persist in asking. “In the case of the Edison machine, no one cares just what goes on inside of the machine to turn corn into cars. Certainly the producers of the corn don’t care, and the buyers of the cars don’t care. The same is true for the cargo ship. No one cares just how this ship leaves the U.S. today loaded with corn and returns several days later loaded with automobiles. All that producers of corn care about is that they get paid their asking price for corn. In exchange for this payment, they turn their harvested corn over to exporters, who load it onto cargo ships. Nothing of any significance would be different if the farmers instead sold their corn harvests to the owner-operator of the modern-day Edison machine.”
“Likewise for car buyers. They agree to pay certain prices for cars in exchange for the actual receipt of cars. Whether the cars they buy emerge from the end of a modern-day Edison machine or from the belly of a cargo ship, if the cars they receive are of the expected quality, the buyers are satisfied. From the perspective of both producers and consumers, the cargo ship is a machine no different in any essential respects from the modern-day Edison machine.”
The lesson of the cargo ship applies more generally, not merely to trade that crosses political borders. Like the trade that’s carried out using cargo ships, all trade – from the simplest to the most complex – works wonders. Trade allows each of us to turn our unique talents into the fruits of the talents of everyone with whom we trade.
All that I, Don Boudreaux, produce is economics instruction. That’s it. Yet I consume an uncountably large number of different goods and services, from food to pharmaceutical products, from housing to health care, from wine to weather apps, from clothing – and corn – to cars. Not only do I not produce any of the things that I consume, I couldn’t if given a million years possibly do so. I acquire what I consume through trade – an institution that turns each of our talents into the fruits of the talents of our fellow human beings.
Amazing.
Donald J. Boudreaux
Donald J. Boudreaux is a Associate Senior Research Fellow with the American Institute for Economic Research and affiliated with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.
