… is from page 352 of Joseph Schumpeter‘s monumental, posthumously published 1954 History of Economic Analysis:
The first thing to observe about this concept [of the balance of trade] is that it is in fact an analytic tool. The balance of trade is not a concrete thing like a price or a load of merchandise.
DBx: Yes (although it is even more accurate to describe the balance of trade as an accounting convention). If, for example, it had been decided to record purchases and sales of real estate on the current account rather than on the capital account, the size of each country’s current-account deficit or surplus would be different even though absolutely nothing real in the national or global economy would be changed. And yet to hear any of the many protectionists bemoan their country’s trade- or current-account deficit is to hear people who typically mistake this accounting convention for a concrete thing. Such complaints almost always reflect utter misunderstanding of so-called ‘trade balances.’
