Smiles for Free Trade

by Don Boudreaux on January 8, 2017

in Balance of Payments, Myths and Fallacies, The Economy, Trade

Here’s a letter to a recent Café commenter:

Mr. Ed Rector

Mr. Rector:

Thanks for your comment on a recent post at Café Hayek.  Your point, in summary, is that the part of America’s trade deficit that consists of foreigners holding or using U.S. dollars (rather than sending those dollars back to the U.S. as investments) is indeed a problem for Americans.

While I agree that the Federal Reserve today has a comparative advantage at supplying currency to the global economy, I disagree that this reality is bad for Americans.  In fact, it’s good for Americans – very good.  The reason is that we receive from foreigners a steady flow of valuable goods and services in exchange for inexpensive monochrome portraits of dead American statesmen (or their even-less-costly-to-produce digital equivalents).

If you doubt that this reality is good for Americans, consider the following scenario.  Suppose that non-Americans become so fascinated with American smiles that they eagerly offer to give to us Americans the likes of automobiles, household furniture, kitchen appliances, food, and petroleum in exchange for nothing but photos of smiling Americans.  Would you be made poorer if you could now acquire much of what you consume simply by sending to foreigners photos of your smiling face?  Of course not; you’d be made richer.  Would your neighbor be made poorer if she could now acquire much of what she consumes simply by sending to foreigners photos of her smiling face?  Of course not; she’d be made richer.  Likewise, all Americans would be made richer if we all could acquire much of what we consume simply by sending to foreigners photos of our smiling faces.

While some Americans would lose particular jobs if our smiles became such a productive input – just as some Americans lose particular jobs whenever consumers discover less-costly means for satisfying their demands – Americans as whole would be made richer.

There is, in short, everything to applaud, and nothing to lament, about our ability to peacefully acquire as many as possible goods and services from foreigners in exchange for as few as possible of our own resources and as little as possible of our own labors.  If foreigners so value the possession and use of U.S. dollars that they send to us in exchange a steady stream of valuable goods and services, we should be grateful rather than grumpy.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


We Americans would be made even richer if foreigners chose to send to us a steady stream of goods and services in exchange for absolutely nothing from us.  Alas, foreigners want goods and services from us in exchange for the goods and services that they send to us.


Add a Comment    Share Share    Print    Email

Previous post:

Next post: