I posted on Monday about where I agreed and did not agree with one Explanation from Veronique de Rugy About import and export, in particular about export. In addition, I did not agree with Don Boudreaux.
Don responded the same day with 2 long comments about my message and 1 new post At his Cafehayek. But Don told me that this post The best represents his thinking.
Here it is my thinking in a nutshell: people have several reasons to export. The usual purpose of exporting is to make money, but there are others. People do not always export to import. (As you will see, Don Boudreaux agrees.) A way to pay for imports with investments by foreigners instead of export. Although consumption is the only main goal that motivates people to make money, this is not the only one. If we see that people are paid for something, it does not mean that they had to be paid. Finally, remember the 7one Pillar of economic wisdom: the value of a good or service is subjective.
Before I give my specific answers, I acknowledge something that Don said in advance:
I try to explain again here why I don’t even disagree – to be sure – with my dear friend David Henderson about the issue of the relationship between import and export.
I feel the same about Don. Nothing about our friendship is at stake in this discussion. This discussion is only about technical economy.
This is going.
Don writes:
As I wrote in my earlier message, I wanted to do something that something is an end. “I want to sell my car” does not mean that my end – my goal – is to get rid of my car. I only want to sell my car, because with that I get money that I can then spend on other consumer goods today, or to invest, which will increase my access to consumer goods tomorrow.
Selling my car is a means towards the end of improving my consumption. If I were prevented from receiving something in exchange for my car, I wouldn’t sell it or get rid of it else.
David writes that “our exporters want to export: that is their end.” I do not agree with that – or rather, I think this formulation is too confusing to be justified. Because exporters demand payment in exchange for their export, their end is not to export, but instead to receive something in exchange. Their export is a means.
I almost agree. I think the vast majority of exporters do this to earn payment they can use for other things.
Why “almost?” Over the years I have met or heard some successful entrepreneurs that produce things that produce things in which they really believe and they sell to poorer people in other countries who benefit a lot. The entrepreneurs are paid. I hear them say that satisfactory people in those countries are a large part of their reward. Can they lie? Maybe, but I doubt it. I think they are sincere. In short, they want to earn money, but that is not their only motive.
Don writes:
What exporters receive in exchange is of course money (just like money is what I receive when I sell my car). But clearly the money Is the end of the exporters no longer when the money is my end when I sell my car. If the exporters, just before they sent their goods abroad, the moment they receive the (say) $ 1 million in euros, those euros have to put in mattresses and never pick them up, the exporters would immediately become non-exporters.
I agree. There can be strange exceptions – I look at you, mattress stabbing – but I actually agree.
Don writes:
Exportors only accept money as a payment because they are sure that they can exchange that money, now or in the future, for real goods and services. And in the end the real goods and services are consumption goods and services. The end of the exporters is to increase their standard of living by increasing their access to real goods and services.
I agree with the first sentence. The third is too much of a generalization. Do companies in which Elon Musk have large exports important? I think they do that. Is Elon trying to increase his standard of living? I doubt it. Or take Warren Buffett. I think Berkshire Hathaway, the company he has a large part of, exports some things. That company earns money and because Buffett is a large shareholder, he earns money. Does he try to increase his standard of living? Consider the house that Warren Buffett lives. He bought it in 1958 for $ 31,500. Today it is worth around $ 1.4 million. Couldn’t he possess a nicer house? He says he tends to lower expensive meals of $ 100 and instead he eats a hamburger and a coke. I just don’t think a large part of his motive is to consume.
Don probably provides my argument, because in his next section he writes:
The exporters can spend their export profit today on consumer goods. Or the exporters can invest their export income. David could say that in the latter case the investment was the end of the exporters, but I would not agree. In the end, people invest their or their families ‘or heirs’ power power – that is, to increase their or their families ‘or their heirs’ future access to consumer goods and services. In short, investing is a means for more consumption.
But that’s why I chose Warren Buffett as my example. He has made it clear that he leaves very little of his wealth to his heirs. Don could say that he said: “Families” or heirs “power power” to take into account heirs who are not part of his family. If that is what Don goes on, Touché: Score one for Don.
Don then writes:
In reality, the people who export do not have to be and are often the people who import. This fact can be interpreted if export cannot be said correctly as the means and import to be the end. After all, if exporter Smith does not have the desire to buy foreign output, how may it be that importing is the end of his export?
Indeed, it cannot be said correctly that importing is the end of Smith’s export. But at least two relevant things can Said correctly. The first is that Smith’s export was, as explained above, a means for his increased consumption. The second is that Smith’s export is a means to increase the import of the country in which Smith lives. Smith’s fellow citizen Jones can only import because Smith has been exported.
Note the first sentence of his second paragraph. Good. Don and I finally agree on something. Importing is not the end of Smith’s export. And to remind you, that was one of my most important points in my Monday post. So that is arranged at least.
Don then shows how the money that Smith earns from exporting is then used by others to buy import. Given the way he sets that up, he is right. So export money is then used to buy import.
However, Don’s crucial assumption is that none of the money that Smith earns from export is used to invest in real assets in America and that nothing is kept as $ by foreigners. Both assumptions are at odds with reality.
Don acknowledges that he simplified because he then writes:
This simple example can be made more complicated by introducing investment use of the euros, but as I argue above, that complexity only means that the end of the export is delayed over time.
That returns to consumption as the only end of export, which I have challenged above with my benevolent entrepreneurial example.
Moreover, Don must go back to one of the original explanations of Vero that I have challenged. She wrote:
If we could acquire import without exporting anything, it would be the best of all worlds for us.
In my original message I did not agree by pointing out that we cannot export anything than still getting foreign investments in exchange. Some commentators on my original post tried what the Supreme Court could call a ‘saving construction’: about foreign investments such as export. That would by definition make the statement of Vero. I don’t like that definition, but if that is what she (and Don) really means, then argue about definitions. Such a fight is rarely logical.
Don ends with this:
People must be paid to export. This fact proves that the export in itself is not a goal.
People Are paid to export. But the fact that someone is paid to do something does not automatically mean that he must are paid. I will take an example from my own life. If I give conversations at local Rotary clubs, I will not be paid except a meal. But what if they offered me $ 500? I would accept. An external observer may see me paid $ 500 and assumes that I have to be paid. But that person cannot get into my brain.
Another example. I have entitled my speech “how economists helped the design” several times, mainly as a guest lecturer at the classes at the Naval Postgraduate School. When I give the conversation, I usually refer to the All-Volunteer Force (AVF), which was the term normally used to refer to the US Army for the first 15 years or so after the design that ended in 1973. A student in one of my conversations told the rest of the class and I that when he had heard about the All-Volunteer Force, he wanted to participate. His big surprise came with his first salary. He had taken the word ‘volunteer’ to mean that he would not be paid. (I asked him why he had joined and he said it was to get out of the small town in California in which he grew up. The city, paradise, burned down a few years later.) Someone who observed him could say that he had to be paid. But that was not true.
One last thought. For the past 25 years I have taught at the Naval Postgraduate School, I would start every class with my 10 pillars of economic wisdom. Pillar #7 is: “The value of a good or service is subjective.” When I see people claiming that someone is only doing something because of a certain goal, I will become suspicious. Many people have several reasons to appreciate things and do things.
You may wonder why I spend so much time on this. It is not because I don’t believe in free trade. I do. It’s not because I think import is bad. They are good. It is because I think we should appeal to traders good arguments, not bad arguments, for free trade.