Trade

Trade is the voluntary exchange of goods (including both tangible commodities and products and intangible services) between different agents. The agents involved in trading may be either individuals or collective entities acting autonomously. Through trade, each of the parties obtains a good that they—at least at the moment the transaction is agreed upon—value more highly than the good offered in exchange. The motivation to trade for each of the agents engaged is therefore the difference between what they offer and what they receive in terms of their respective subjective ex ante valuations.

Historically, trade has been present since the early stages of human civilization, originally taking the form of direct exchange of goods. Barter has for the most part been gradually replaced by indirect exchange through the use of some form of money—a good accepted as an intermediary by the agents trading. The use of a commonly accepted medium of exchange greatly facilitates trade by drastically reducing transaction costs, allowing value to be stored, and providing a unit of account in which prices can be measured and compared. Monetary prices are essential for the development of a complex economy, but the essence of trade remains the same in indirect exchange: the buyer gives up a certain number of monetary units to receive a good to which he attributes a higher value, and the seller offers the good in order to receive an amount of money that he values more highly than the good.

The scope for trade is more reduced in small autarkic societies, as the division of labor and comparative advantage are two of the key factors fostering trade, and both depend crucially on scale. In contemporary complex economies, the nature of what is traded can vary significantly. In many instances, trade implies an actual physical transfer of a good or the execution of a service, but there are also cases in which what is transferred are ownership titles (such as in real estate or a wide range of financial instruments) or specific sets of exclusive rights of use (such as with tradable intellectual property rights). [Page 672]As a voluntary exchange, trade requires some form of mutual agreement between the agents that engage in the transaction. Nonvoluntary exchanges (resulting from the use of coercion by one of the agents involved and not from mutual consent) therefore do not qualify as acts of trade. An implication of this is that trade requires both well-established property rights and a functioning legal framework to enforce those rights and prevent deception and fraud.

Given its importance, trade has generally been politically regulated in some way or another in societies throughout history. The type and scope of regulation has varied substantially, but the rationale is usually associated with the desire to pursue specific economic and social objectives. The field of international trade is particularly prone to regulation, because commercial relations between different nations are frequently influenced by political evaluations of the national interest. Hence, for example, the mercantilist doctrines that mostly dominated European trade policy from the 16th to the second half of the 18th century viewed the power of a state as being directly dependent upon the amount of precious metals held by the national treasury. This led to active policies (such as tariffs, subsidies, and other incentives to domestic industries) seeking to ensure surpluses in balance of trade in order to provide a flow of gold and silver into the country.

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