Buy Local, Potomac Edition

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.

So said Adam Smith.

In other words, the day that two humans decided, “I’ll hunt; you gather” was the day that economic growth was invented. Since then, the division of labor (or labour if you are Scottish) has gone far beyond what even Adam Smith could have imagined. Today, we are uber-specializers: I concentrate on understanding panel data regression techniques so that I don’t have to know how to hunt, gather, or shelter myself. Others specialize in those skills and are far better at those things than I could ever hope to be. By specializing and trading, we each stand to gain.   

But Smith had a caveat. He warned us:

The Division of labour is Limited by the Extent of the Market.

If there are few people with whom we can trade, then our ability to specialize is limited and so is our ability to produce. Imagine how unproductive you would be if you could only rely on the specialized labor of a few people?

Well some in the greater Washington, D.C. area have imagined it and are eager to try it. They have introduced a new local currency which they have called the “Potomac.” According to Wikipedia, they have coined 1145 of them. The goal is “to strengthen the local economy.” 

The economics of this are pretty straight forward. As Russ Roberts recently wrote:

We have tried buy local before. It is called the Middle Ages.

The political economy of it is also pretty straight forward: even though this is unlikely to benefit the overall community, it is likely to benefit a few producers if it helps them lock-in customers (especially if the producers continue to accept greenbacks from other customers).

What I can’t understand is why the buy local movement seems to have such moral force among otherwise completely moral people. To me, the notion that I should only deal with those who are similar to me—those who happen to share my culture or geography—seems downright ugly.