Closing the Borders

• Isolation: The economy might be physically isolated from potential trading partners or have other natural barriers that prevent trade. A small island in the middle of the ocean far removed from shipping lanes offers an example. A country surrounded by enormous mountains and burning deserts offers another.


• Transit Cost: Physical isolation is actually one example of trade limitations imposed by high transportation costs. An economy might be closed simply because the transit cost of trade with other economies are higher than any benefits gained from trade. The high transit costs might arise because the economy has no transportation systems connecting to other economies.


• Government Decree: The ruling government might close off borders to other economies through taxes, regulations, military, or other coercive actions. That is, the government might decree that trade with other economies is NOT allowed. PERIOD. Violations are then severely punished.


• Cultural Preferences: Citizens of the economy might prefer to interact and trade ONLY with members of the economy. Perhaps the citizens are somewhat xenophobic and distrust or dislike "foreigners," thus choosing to remain isolated and closed.

Self Sufficient

• First, note that no economy can be absolutely self sufficient. At the very least it must import "sunshine." Even the global economy, which is the penultimate in self sufficiency, relies on daily "imports" of solar energy to keep the wheels of production running. Cosmic radiation and meteorites are also imported, albeit with fewer productive uses.


• Second, in light of modern international trade, self sufficiency might seem to be something of an impossibility (solar energy notwithstanding). How would an economy grow and prosper without trade? Growth, prosperity, and increasing living standards are the result of using resources to produce wants-and-needs satisfying goods and services. This can be accomplished by a single, self-sufficient person. Trade with others eases the task, but is not absolutely needed. However, to the extent that trade transpires, it can occur entirely among members of a given economy. While the individuals are not self sufficient with trade, the collective group can be. The entire economy can be self sufficient.


• Third, this raises the question: What exactly is "the economy?" An economy is a system of production, consumption, distribution, and exchange. Usually an economy is designated based on national or political boundaries. Be such designations are somewhat arbitrary, often based on historical accidents. In fact, if fully and completely identified, an economy is almost by definition self-sufficiency. If all production, consumption, distribution, and exchange activities are included in the designation of THE economy, then THE economy is necessarily self sufficient. Of course, what this means is that the global economy, the entirety of production, consumption, distribution, and exchange on the planet, has assumed the modern self sufficiency mantle.

The Open Alternative

Virtually all economies in the modern world are open and engage in assorted forms of international interaction, particularly international trade. The question is not so much one of open versus closed, but the degree of openness. Some open economies engage in only limited interaction with their foreign sector and are largely self-sufficient. Others engage in a great deal more international interaction.