Here’s a letter to a long-time and sympathetic Café Hayek patron:
Mr. B___:
In response to this post you ask: “Help me to understand: How are exports costs? And to whom are they costs?” Fair questions.
Exports are costs to exporters because exports are valuable things – or, alternatively, exports embody valuable resources – that exporters could have used for their own consumption but instead chose to send abroad to strangers.
Even if, contrary to fact, we export exclusively out of an altruistic urge to help foreigners, the fact remains that in exporting we sacrifice things of value.
Of course, our exporting isn’t an exercise in altruism; we export in order to get valuable goods and services in return. Yet the fact that we value the imports that we get in return more than we value the exports that we send as payment for our imports doesn’t mean that, to us, exports aren’t costs. The reason is the same as why your valuing the car that you bought more than you value the goods and services that you sacrificed to get that car doesn’t mean that, to you, when you chose to sacrifice goods and services to get the car you didn’t incur a cost.
Nothing is changed by the fact that these exchanges are mediated by the use of money. Yes, we voluntarily sell our exports for money, and when we do so we say, correctly, that we gain or “profit.” But this reality doesn’t mean that exports aren’t costs. To see why, ask in which situation, A or B, is your material gain greatest. A: you receive $100,000 from foreigners in exchange for goods that you voluntarily and profitably sell to them. B: you receive $100,000 from foreigners as a gift.
Clearly, although you gain in both situations, your gain is greater in B than in A. The reason is that to achieve your gain in A you had to sacrifice something – that is, to incur costs.
That exports are costs is proven by this fact: people export only because, and only insofar as, they expect to get in exchange for their export earnings things of value. Because all exporting will stop if people come to expect that they will no longer be able to convert their export earnings into real goods and services, people thereby reveal that the exportation of the goods and services is, to them, costly.
In summary, exports are a cost to each exporter in the same manner that going to work each day is a cost to each worker. Worthwhile, yes. But it’s done only because the receipt of greater value is expected in return.
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
