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Here’s a letter to a good friend in Colorado, Ross Kaminsky:
Ross:
Thanks for inviting me to appear Monday on your radio show to explain why the act of exporting is a cost rather than a benefit. I accept.
I’ll make three points, each of which is prompted by the flurry of comments at my blog, and by e-mails, that I’m receiving in response to my latest postings – here [2] and here [3] – on exports-as-costs.
First: costs are not losses. To describe something accurately as a “cost” is not to describe that something as a “loss.” Costs are things voluntarily sacrificed in exchange for other things of higher value to the person incurring the costs. Apart from exchanges that prove afterward to have been mistaken, all incurred costs result, for the persons incurring them, in net gains. While I incur a cost when I buy a tasty meal at a restaurant, that transaction does not inflict on me any loss.
Second and relatedly: the fact that some actions are means for achieving ends does not imply that taking those actions is not worthwhile, or even that those actions are never essential. My going to work each day at George Mason University, along with my saving and investing part of my current income, are means for me to increase my household’s access to real goods and services. In effect, I export to GMU my lecturing and writing in exchange for money (see point three below). I accept this money only because it increases my ability to import from merchants across town and across oceans the goods and services that I wish to consume. Although I love my job at GMU, if GMU stopped paying me, I’d stop working at GMU, for that job would no longer be for me a means to a desired end.
Third: the ultimate reason a person trades is to obtain more real goods and services, not to obtain more money. While exports are sold for money and the profits from export sales are typically reckoned in monetary terms – for example, $1M profit earned by exporting lumber – exporters accept payment in money only because exporters know that they can, and that they eventually will, spend that money on real goods and services for their own use (whether as goods and services for consumption in their households, or as inputs for use in their businesses).
If non-Americans were to immediately start insisting on paying for American exports only in Monopoly money – scrip not exchangeable for real goods, services, or anything else of value – Americans would immediately stop exporting.
I confess to being repeatedly mystified by how many people find baffling what seems to me to be a reality too obvious for words. But it is not my place to criticize other people’s understanding; all I can do is to try again and again and again to improve my explanation of this central and important truth.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030