First Word

Indeed, according to the main story of a local rag, Media, Penna. is the first American “Fair Trade Town.”

What is “Fair Trade”?

Fair Trade is described as “a movement to make sure that the producers of goods in developing countries are paid fairly, especially small producers in economically weak situations.”

This is the old fallacy of pre-modern economics: that there exists a price that is “fair,” which can be objectively calculated apart from the subjective preferences of the producers and consumers. It is amazing that this concept still survives some 120 years after it was exploded by economists.

As one might imagine, Fair Trade is loaded down with additional ideas to widen the “market” of its appeal. For example:

1. “It’s about taking out the middle man and paying producers a fair price for their goods.”

But this assumes that the old bogey-man the “middle man” is not providing a valuable service. If he is not providing added value, then a free market will squeeze him out anyway.

2. “It requires that groups of farmers work cooperatively and give a certain percentage of income to their communities to build facilities like schools and help centers. In order for this to happen and avoid the monopoly of one farmer, communities must be structured democratically.”

In other words, the system is a way to bribe the local producers to implement socialism. A hard-working, efficient farmer must not be allowed to profit more than his lazy fellows! That would be undemocratic.

3. “Women and minorities also have an advantage under the Fair Trade model: they must have access to leadership positions as decision makers on issues like how profits will be spent.”

So, the odds are again stacked against male bread-winners. This should really help solidify families in the third world!

Profits do not belong to owners, but can be spent by functionaries forced into position by the Fair Trade bureaucrats.

(And what minorities? All minorities? For example, will the white minorities in Zimbabwe and South Africa be aided by this policy?)

4. “American consumers profit from Fair Trade also, because products are of top quality. For example, Fair Trade coffee is shave grown, a method that preserves the land.”

But by definition, one never profits by virtue of paying more than is necessary for a given product. Moreover, what does “preserving the land” have to do with the “quality” of the product which “American consumers profit” by? It may be that “preserving the land” is something an American is willing to pay more for; it is misleading to call that profit, however.

A Few Things wrong with “Fair Trade”

that is, in addition to the criticisms listed above:

Price competition is the way new suppliers can attract attention for their product. Take that away, and they must now resort to the usual ways of corrupt regimes to get any action: bribery (the carrot) and threats (the stick).

Suppose a “Fair Trade” system is in place for coffee, and the demand for coffee is allocated amongst some set of producers for the given “fair price.”

Now, what if the women of Rwanda are able to produce more coffee than what they are allocated under the artificial Fair Trade equilibrium that has been established? In a real market, they might decide to shave 50 cents per pound, so that the demand would sky-rocket and they could clear all the coffee they are able to produce, becoming wealthy in the meantime. But here, they can’t. It wouldn’t be “fair.” Instead, all they could do is lobby for greater market share with the bureaucrats that control the Fair Trade market. But then, their greater share (if they are the lucky lobbyists) will translate into a smaller share for someone else. How is this fair?

The defenders would probably say, “they can produce as much as they want, and we will pay them $10 per pound [or whatever] for all of it.”

But this is nonsense. If there were enough demand for all that coffee at $10 per pound, then the price would have already reached $10 under normal market forces.

The “Fair Price” is of course higher than a free market would deliver. Therefore, there will be surpluses produced, as economics infallibly predicts.

Why it might work, for a while

There are only two ways a boondoggle like “Fair Trade” could work:

1. By dictated favoritism directed by the organizers, who can starve out the undesirable competition that would be willing to sell for less.

2. Somehow, the demand schedule must be artificially jacked up.

An upward shift in the demand curve will of course increase both price and quantity compared to the pre-shifted situation (ceteris paribus).

How to create this upward shift?

Guilt, plain and simple.

Guilt-ridden people are easy to manipulate, and will fork over lots of money to assuage their guilt.

Christians are going to be prime targets of this propaganda, because of their tender consciences.

If they want to send charitable donations, say, to the women of Rwanda, then by all means do so.

But don’t confuse paying an artificially high price for coffee as being anything other than charity.

It is doing an economic injustice to someone, somewhere, who is being squeezed out.

And I suspect, that the “middle men” have far from disappeared from the scheme. Surplus gravy like this will attract them like roaches, from all corners.

Only these middle-men will indeed not be adding any value to the transaction.

Someone, probably not the women of Rwanda, will be laughing all the way to the bank.