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If I Were a More Successful Investor I’d Be a More Successful Investor

Here’s a letter to a new reader of Cafe Hayek:

Mr. T.J. Wayne

Mr. Wayne:

You object to my claim that foreign investment in the U.S. benefits us Americans. You believe that we are harmed by such investment because, as you say, “it means lost investment options for us.”

With respect, I completely disagree.

First, you implicitly assume that all investment done by foreigners in the U.S. funds economic opportunities that exist independently of the entrepreneurial creativity of the foreigners who do the investing. But this assumption is mistaken. Much of the investment done by foreigners here is in opportunities that are entrepreneurially created by those foreigners. To use a favorite example of mine, Ikea’s successful model of furniture retailing was invented by a Swede, not by an American.

Second, you also implicitly assume that the amount of capital in the U.S. is fixed, or at least exists independently of Americans’ and foreigners’ choices of how much to save and invest. This assumption, too, is mistaken. Increased investment in America from our neighbors in, say, Taiwan no more necessarily decreases your, my, or other Americans’ investment in America than does increased investment in America from our neighbors in Texas.

Third, to point to profitable foreign investments in America and assert, as you do, that we Americans would have been even better off had we, rather than foreigners, made those investments is true but irrelevant. I personally today can point to Amazon and say truthfully that if I decades ago had had Jeff Bezos’s ideas and talents and had beaten him to the punch at doing exactly what he did, then I would today be as rich as Bezos. But the fact is that I didn’t have those ideas and was never destined to have them.

Here’s another relevant fact: that Bezos did what he did, and that I didn’t, doesn’t mean that Bezos’s investment in Amazon has harmed me. In fact, Bezos’s investment in Amazon has greatly enriched me, despite my never owing as much as a single share of Amazon stock. And I am likewise enriched by many successful foreign investments in the U.S. in which I possess no equity stakes. The same, I’m sure, is true also for you.

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