Arbitrage!

This comes from Alan LeMay’s novel The Searchers (you may have seen the film, starring John Wayne), where he’s writing about trade between Euro-Americans and Native Americans in the late 19th century.

And they took a great quantity of sheet-iron arrowheads, the most sure-fire merchandise ever taken onto the plains. These were made in New England, and cost the traders seven cents a dozen. As few as six of them wold sometimes fetch a buffalo robe worth two and a half to four dollars.

In addition to arbitrage, the quote reveals how trade makes both sides better off and the role of technology in making products that are both better and cheaper.

Although the novel isn’t actually about economics, you should still give it a read. I don’t read “cowboy stories,” (tried to read a Zane Grey book once, or maybe it was Louis L’Amour, but just couldn’t hack it), but The Searchers is not a cowboy story. Like True Grit, it only uses the frontier west as its setting for a very human story of love, tragedy, and and epic search for revenge and redemption.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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6 Responses to Arbitrage!

  1. pierrecorneille says:

    I haven’t read the novel or seen the movie, but that trade doesn’t seem like a very good deal, although I confess I’ve only read the first couple sentences of Wikipedia’s “arbitrage” article and understand the context very poorly.

    Any discussion of such trade in the late 1800s would have to consider the increasing scarcity of buffalo, the increasing dependence of Indians on Euro-Americans for manufactured good, and the larger context of the Euro-Americans’ government casually disregarding treaties and waging low-level, quasi perpetual war against the Indians. I suppose the first two items–the effects of buffalo scarcity and “dependency”–can be debatable. With scarcity might come changes in opportunities, and what some people call “dependency,” other people call “new opportunities to get things much more cheaply than having to make them oneself.”

    But I don’t think the context of treaty abrogation and perpetual war can so easily be disregarded. Even if in any given transaction or set of transactions, I don’t see how the Indians could really enjoy much in the way of “rule of law” or predictability when it comes to protection of property. I’m not saying Indians were never treated fairly, but that enough of them were treated unfairly by people who collectively were stronger than they that there was much less credible certainty against coercion to permit enjoyment of trade.

    None of this is a comment about the novel, which, again, I haven’t read.

  2. Matty says:

    Is it arbitrage? If I read wikipedia right arbitrage is when a profit can be made purely from the different prices in two markets but in this case the traders sold arrowheads and the service of transporting them to the plains.

  3. Matty says:

    Is it arbitrage? If I read wikipedia right arbitrage is when a profit can be made purely from the different prices in two markets but in this case the traders sold arrowheads and the service of transporting them to the plains so it is not just the different prices that need to be considered

  4. J@m3z Aitch says:

    I don’t understand this comment, Matty. The difference in prices is what made it profitable to bear the cost of transportation. It’s mot exactly incorrect to say the traders sold the service of transportation of the goods, but it’s a bit unusual–we don’t normally say Wal Mart sells us the service of transporting coffee makers from Asia to our hometown.

  5. Matty says:

    I must have misunderstood the wikipedia article. Because it uses complex financial transactions as examples of arbitrage, which don’t involve physical goods, I took it as arbitrage being a case where spotting the difference in prices alone is enough to make a profit, provided you agree to buy and sell. If it covers every case of selling on for profit the article could do with being a bit clearer about that.

  6. J@m3z Aitch says:

    Matty,

    It’s not every case of selling for a profit. If, say, GM won’t contract directly with you for a car, then the dealer is not really engaging in arbitrage. And if competition drives down prices of a good to the point where the seller is only covering costs (including search, shipping, inventory, and “normal profit” (no rents)), I don’t think it’s arbitrage.

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