Lecture 5 Markets and Infrastructure

If Robinson Crusoe was a skilled potter, then we can see why him stranded on an island would mean that a valuable opportunity to trade with the rest of the world is lost. If it were not for the inconvenience of being surrounded by the sea, Robinson Crusoe would been able to trade his pottery for money and use that money to buy food and other luxuries. That fact that he is stranded on the island means that he is not able to get the tools and raw material to make the pottery and even if he was able to produce something with what he can find on the island, he is not able to sell it in the market and buy what he needs from the market. There are three distinct trades that have been stopped. First kind where he would have bought raw material and capital goods for the producing pottery. Second kind where he would have sold what he produced in the market and third where he used the produce from his sale to buy what he needed. If he had been able to make these trades, he would have transformed his labour and skills as a potter to turn his labour into a variety of good and services. Without access to the market, he is left to consume what he can produce with his hands and the tools (capital goods) that he can fashion with his own hands.

Large parts of the world lives in remote villages that are stranded in the same way without access to markets and forced to consume what they can produce in their own small autarkic economy. The denizens of these micro-economies are confined to all trade amongst themselves. The smaller the community, the smaller the opportunities to trade. One of the characteristics of poverty is without access to markets, there is no ability to specialise and that all the time and resource is spent by the household in producing food. A household ability to produce is limited and households near the poverty line are likely to try to get their calorie intake from cereals. Obtaining all the calories from cereals leads means that the household are deprived of vitamin and minerals that are crucial for the human body. These households then get trapped in the nutritional traps where they are not able to exert effort to produce food because they are under nourished. This reduces their ability to work, which in turn limits their ability to produce. The household is thus caught in the vicious cycle of poverty.