Home > International Trade, Microeconomics, Uncategorized > Free Trade or Fair Trade?

Free Trade or Fair Trade?

A student e-mails:

Dear Mr. Kelcy,

I was reading somewhere about a concept known as Fair Trade. Organizations trying to get “fairer” prices for producers of certain commodities and this didn’t make sense to me because I assume that once there is trade, then it most likely fair because if it wasn’t, there would not be trade in the first place. I think that prices reflect the value of commodities and trying to get “fairer” prices, etc for them would end up rather hurting them.

I just wanted to know if I’m thinking in the right direction?

I think you are headed in the right direction. There can certainly be unfair business practices, as well as illegal and unethical business practices, that hurt people who trade. Usually unfair, unethical and illegal trade practices hurt the poor the most, so I applaud any organization that tries to prevent these things.
However, it’s hard for me to imagine a price itself being unfair. That’s a little bit like saying a price is happy or naughty. Prices are determined. They don’t have their own ethical system. I suspect people who talk about getting a “fair” price really mean that they don’t think the process for determining the price is fair, so instead of trying to correct the process failure, they are trying to improve the result.
As you intuit, trying to improve the result of a free process of voluntary trade, while possible, isn’t easy. History is full of discarded economic experiments designed to do just that. The best results seem to come from making the process free and fair, not the result.
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