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Quotation of the Day…

… is from page 136 of the original edition of Lee Francis Lybarger’s 1914 book, The Tariff (original emphasis):

But for some reason the protectionist brain has taken special delight in the fact that we ship out hundreds of millions of dollars’ worth more than we get back. I presume if we got nothing back in return for anything we shipped out, he would be happier still!

DBx: Whenever the typical politician or pundit complains about the so-called “trade deficit” he or she is usually in the grip of the core mercantilist fallacy that trade is good only insofar as it enables the home country to export more than it imports. According to this fallacy, the benefit of trade lies only in its ability to bring into the home country as much money as possible. Therefore (so goes this specious reasoning) because exports bring in money and imports ship out money, the more that we export relative to the amount that we import, the greater are our gains from trade – the more we “win” from trade.

This mercantilist belief – this superstitious fear of trade deficits – is sheer nonsense. It is, alas, nonsense proudly embraced not only by the President of the United States, but by politicians and pundits left, right, and center.

But why is this belief nonsense? Isn’t getting more money in fact good? Yes, but getting more money is good only because that money can be used to acquire real goods and services. If the money gotten in exchange for imports is recognized for what it is – claims on real goods and services – then any excess this period (measured in some monetary unit) of exports over imports would be recognized either as future imports or past imports.

If, say, we Americans today export more than we today import and receive the difference in euros, these euros enable us Americans to import tomorrow goods and services that we paid for today with today’s excess of American exports over American imports. Or, alternatively, if we Americans yesterday imported more than we exported and paid the difference in U.S. dollars, today’s excess of American exports over American imports comes as a result of non-Americans redeeming the claims that they earned yesterday by their exporting more to Americans than they imported from Americans.

In both cases, the benefits to Americans of trade are found in Americans’ imports.

Of course, in reality dollars and other currencies can and are also used for investment purposes. But because people invest only for the purpose of ultimately increasing their ability to acquire real goods and services, taking account of international investments changes nothing fundamental about the relationship between exports and imports. And that fundamental relationship is this: people produce and trade only to increase their ability to consume. People produce and trade only to acquire real goods and services, either today or in the future. And economically nothing but inessential details change when such trade occurs across political jurisdictions rather than only within any single jurisdiction.

If the excess of money received when the people of a country export more than they import were, immediately upon receipt, transformed into Monopoly money, mercantilists – if they follow their logic – would cheer. If, instead, mercantilists – upon seeing the dollars or euros or yen in their hands change before their eyes into Monopoly money – would recognize the resulting impoverishment, they would thereby reveal that they do not understand the logic of their ridiculous doctrine.