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Here’s a letter that I sent yesterday to the American Prospect:
Dear Editor:
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You boast that your magazine is “the essential source for progressive ideas.” And yet your contributors, including recently Dean Baker in the blog that you host, are forever lamenting the U.S. trade deficit (“China Knows It Will Take a Beating on Its Treasury Investments [2],” May 21). Alas, these laments reveal no progress beyond the poor economic thinking and mercantilist policy proposals of the late middle ages.
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For example, in 1381 Richard Leicester, worried about England importing more than it exports (and paying for these extra imports with money), could have been featured in your pages when he wrote that “Wherefore the remedy seems to me to be that each merchant bringing merchandise into England take out of the commodities of the land as much as his merchandise aforesaid shall amount to; and that none carry gold or silver beyond the sea, as it is ordained by statute.”*
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True progress in understanding the nature of trade and the absurdity of fretting about the “balance of trade” – in understanding that wealth is access to goods and services and not gold, silver, or currency per se – did not begin until the late 17th century, especially with Nicholas Barbon. Adam Smith capped this progress when in 1776 he noted that “Nothing, however, can be more absurd than this whole doctrine of the balance of trade.”**
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Sincerely,
Donald J. Boudreaux
* Quoted in Jacob Viner [3], Studies in the Theory of International Trade [4] (1937), p. 6.
** Adam Smith [5], An Inquiry Into the Nature and Causes of the Wealth of Nations [6] (1776) Book IV, Chapter 3, paragraph 31.