THE DRIVE FOR EXPORTS
EXCEEDED ONLY BY the pathological dread of imports that affects
all nations is a pathological yearning for exports. Logically,
it is true, nothing could be more inconsistent. In the long
run imports and exports must equal each other (considering
both in the broadest sense, which includes such "invisible"
items as tourist expenditures, ocean freight charges and all
other items in the "balance of payments"). It is exports that pay
for imports, and vice versa. The greater exports we have, the
greater imports we must have, if we ever expect to get paid.
The smaller imports we have, the smaller exports we can have.
Without 'imports we can have no exports, for foreigners will
have no funds with which to buy our goods. When we decide to
cut down our imports, we are in effect deciding also to cut
down our exports. When we decide to increase our exports, we
are in effect deciding also to increase our imports.
The reason for this is elementary. An American exporter
sells his goods to a British importer and is paid in British
pounds sterling. But he cannot use British pounds to pay the
wages of his workers, to buy his wife's clothes or to buy theater
tickets. For all these purposes he needs American dollars.
Therefore his British pounds are of no use to him unless he
either uses them himself to buy British goods or sells them
(through his bank or other agent) to some American importer
who wishes to use them to buy British goods. Whichever he
does, the transaction cannot be completed until the American
exports have been paid for by an equal amount of imports.
The same situation would exist if the transaction had been
conducted in terms of American dollars instead of British
pounds. The British importer could not pay the American
exporter in dollars unless some previous British exporter had
built up a credit in dollars here as a result of some previous sale
to us. Foreign exchange, in short, is a clearing transaction in
which, in America, the dollar debts of foreigners are canceled
against their dollar credits. In England, the pound sterling
debts of foreigners are canceled against their sterling credits.
There is no reason to go into the technical details of all this,
which can be found in any good textbook on foreign exchange.
But it should be pointed out that there is nothing inherently
mysterious about it (in spite of the mystery in which it is so
often wrapped), and that it does not differ essentially from what
happens in domestic trade. Each of us must also sell something,
even if for most of us it is our own services rather than goods, in
order to get the purchasing power to buy. Domestic trade is
also conducted in the main by crossing off checks and other
claims against each other through clearing houses.
It is true that under the international gold standard discrepancies
in balances of imports and exports were sometimes
settled by shipments of gold. But they could just as well have
been settled by shipments of cotton, steel, whisky, perfume, or
any other commodity. The chief difference is that when a gold
standard exists the demand for gold is almost indefinitely expansible
(partly because it is thought of and accepted as a
residual international "money" rather than as just another
commodity), and that nations do not put artificial obstacles in
the way of receiving gold as they do in the way of receiving
almost everything else. (On the other hand, of late years they
have taken to putting more obstacles in the way of exporting gold
than in the way of exporting anything else; but that is another
story.)
Now the same people who can be clearheaded and sensible
when the subject is one of domestic trade can be incredibly
emotional and muddleheaded when it becomes one of foreign
trade. In the latter field they can seriously advocate or acquiescein
principles which they would think it insane to apply
in domestic business. A typical example is the belief that the
governmeot should make huge loans to foreign countries for the
sake of increasing our exports, regardless of whether or not
these loans are likely to be repaid.
American citizens, of course, should be allowed to lend their
own funds abroad at their own risk. The government should
put no arbitrary barriers in the way of private lending to
countries with which we are at peace. As individuals we should
be willing to give generously, for humane reasons alone, to
people who are in great distress or in danger of starving. But we
ought always to know clearly what we are doing. It is not wise
to bestow charity on foreign people under ths impression that
one is making a hardheaded business transaction purely for
one's own selfish purposes. That could only lead to misunderstandings
and bad relations later.
Yet among the arguments put forward in favor of huge
foreign lending one fallacy is always sure to occupy a prominent
place. It runs like this. Even if half (or all) the loans we
make to foreign countries turn sour and are not repaid, this
nation will still be better off for having made them, because
they will give an enormous impetus to our exports.
It should be immediately obvious that if the loans we make to
foreign countries to enable them to buy our goods are not
repaid, then we are giving the goods away. A nation cannot
grow rich by giving goods away. It can only make itself poorer.
No one doubts this proposition when it is applied privately.
If an automobile company lends a man $5,000 to buy a car
priced at that amount, and the loan is not repaid, the automobile
company is not better off because it has "sold" the car. It
has simply lost the amount that it cost to make the car. If the car
cost $4,000 to make, and only half the loan is repaid, then the
company has lost $4,000 minus $2,500, or a net amount of
$1,500. It has not made up in trade what it lost in bad loans.
If this proposition is so simple when applied to a private
company, why do apparently intelligent people get confused
about it when applied to a nation? The reason is that the
transaction must then be traced mentally through a few more
stages. One group may indeed make gains—while the rest of us
take the losses.
It is true, for example, that persons engaged exclusively or
chiefly in export business might gain on net balance as a result
of bad loans made abroad. The national loss on the transaction
would be certain, but it might be distributed in ways difficult to
follow. The private lenders would take their losses directly.
The losses from government lending would ultimately be paid
out of increased taxes imposed on everybody. But there would
also be many indirect losses brought about by the effect on the
economy of these direct losses.
In the long run business and employment in America would
be hurt, not helped, by foreign loans that were not repaid. For
every extra dollar that foreign buyers had with which to buy
American goods, domestic buyers would ultimately have one
dollar less. Businesses that depend on domestic trade would
therefore be hurt in the long run as much as export businesses
would be helped. Even many concerns that did an export
business would be hurt on net balance. American automobile
companies, for example, sold about 15 percent of their output
in the foreign market in 1975. It would not profit them to sell 20
percent of their output abroad as a result of bad foreign loans if
they thereby lost, say, 10 percent of their American sales as the
result of added taxes taken from American buyers to make up
for the unpaid foreign loans.
None of this means, I repeat, that it is unwise for private
investors to make loans abroad, but simply that we cannot get
rich by making bad ones.
For the same reasons that it is stupid to give a false stimulation
to export trade by making bad loans or outright gifts to
foreign countries, it is stupid to give a false stimulation to
export trade through export subsidies. An export subsidy is a
clear case of giving the foreigner something for nothing, by
selling him goods for less than it costs us to make them. It is,
another case of trying to get rich by giving things away.
In the face of all this, the United States government has been
engaged for years in a "foreign economic aid" program the
greater part of which has consisted in outright government-togovernment
gifts of many billions of dollars. Here we are
interested in just one aspect of that program—the naive belief of
many of its sponsors that this is a clever or even a necessary
method of "increasing our exports" and so maintaining prosperity
and employment. It is still another form of the delusion that
a nation can get rich by giving things away. What conceals the
truth from many supporters of the program is that what is
directly given away is not the exports themselves but the
money with which to buy them. It is possible, therefore, for
individual exporters to profit on net balance from the national
loss—if their individual profit from the exports is greater than
their share of taxes to pay for the program.
Here we have simply one more example of the error of
looking only at the immediate effect of a policy on some special
group, and of not having the patience or intelligence to trace the
long-run effects of the policy on everyone.
If we do trace these long-run effects on everyone, we come to
an additional conclusion — the exact opposite of the doctrine
that has dominated the thinking of most government officials
for centuries. This is, as John Stuart Mill so clearly pointed out,
that the real gain of foreign trade to any country lies not in its
exports but in its imports. Its consumers are either able to get
from abroad commodities at a lower price than they could
obtain them for at home, or commodities that they could not get
from domestic producers at all. Outstanding examples in the
United States are coffee and tea. Collectively considered, the
real reason a country needs exports is to pay for its imports.
EXCEEDED ONLY BY the pathological dread of imports that affects
all nations is a pathological yearning for exports. Logically,
it is true, nothing could be more inconsistent. In the long
run imports and exports must equal each other (considering
both in the broadest sense, which includes such "invisible"
items as tourist expenditures, ocean freight charges and all
other items in the "balance of payments"). It is exports that pay
for imports, and vice versa. The greater exports we have, the
greater imports we must have, if we ever expect to get paid.
The smaller imports we have, the smaller exports we can have.
Without 'imports we can have no exports, for foreigners will
have no funds with which to buy our goods. When we decide to
cut down our imports, we are in effect deciding also to cut
down our exports. When we decide to increase our exports, we
are in effect deciding also to increase our imports.
The reason for this is elementary. An American exporter
sells his goods to a British importer and is paid in British
pounds sterling. But he cannot use British pounds to pay the
wages of his workers, to buy his wife's clothes or to buy theater
tickets. For all these purposes he needs American dollars.
Therefore his British pounds are of no use to him unless he
either uses them himself to buy British goods or sells them
(through his bank or other agent) to some American importer
who wishes to use them to buy British goods. Whichever he
does, the transaction cannot be completed until the American
exports have been paid for by an equal amount of imports.
The same situation would exist if the transaction had been
conducted in terms of American dollars instead of British
pounds. The British importer could not pay the American
exporter in dollars unless some previous British exporter had
built up a credit in dollars here as a result of some previous sale
to us. Foreign exchange, in short, is a clearing transaction in
which, in America, the dollar debts of foreigners are canceled
against their dollar credits. In England, the pound sterling
debts of foreigners are canceled against their sterling credits.
There is no reason to go into the technical details of all this,
which can be found in any good textbook on foreign exchange.
But it should be pointed out that there is nothing inherently
mysterious about it (in spite of the mystery in which it is so
often wrapped), and that it does not differ essentially from what
happens in domestic trade. Each of us must also sell something,
even if for most of us it is our own services rather than goods, in
order to get the purchasing power to buy. Domestic trade is
also conducted in the main by crossing off checks and other
claims against each other through clearing houses.
It is true that under the international gold standard discrepancies
in balances of imports and exports were sometimes
settled by shipments of gold. But they could just as well have
been settled by shipments of cotton, steel, whisky, perfume, or
any other commodity. The chief difference is that when a gold
standard exists the demand for gold is almost indefinitely expansible
(partly because it is thought of and accepted as a
residual international "money" rather than as just another
commodity), and that nations do not put artificial obstacles in
the way of receiving gold as they do in the way of receiving
almost everything else. (On the other hand, of late years they
have taken to putting more obstacles in the way of exporting gold
than in the way of exporting anything else; but that is another
story.)
Now the same people who can be clearheaded and sensible
when the subject is one of domestic trade can be incredibly
emotional and muddleheaded when it becomes one of foreign
trade. In the latter field they can seriously advocate or acquiescein
principles which they would think it insane to apply
in domestic business. A typical example is the belief that the
governmeot should make huge loans to foreign countries for the
sake of increasing our exports, regardless of whether or not
these loans are likely to be repaid.
American citizens, of course, should be allowed to lend their
own funds abroad at their own risk. The government should
put no arbitrary barriers in the way of private lending to
countries with which we are at peace. As individuals we should
be willing to give generously, for humane reasons alone, to
people who are in great distress or in danger of starving. But we
ought always to know clearly what we are doing. It is not wise
to bestow charity on foreign people under ths impression that
one is making a hardheaded business transaction purely for
one's own selfish purposes. That could only lead to misunderstandings
and bad relations later.
Yet among the arguments put forward in favor of huge
foreign lending one fallacy is always sure to occupy a prominent
place. It runs like this. Even if half (or all) the loans we
make to foreign countries turn sour and are not repaid, this
nation will still be better off for having made them, because
they will give an enormous impetus to our exports.
It should be immediately obvious that if the loans we make to
foreign countries to enable them to buy our goods are not
repaid, then we are giving the goods away. A nation cannot
grow rich by giving goods away. It can only make itself poorer.
No one doubts this proposition when it is applied privately.
If an automobile company lends a man $5,000 to buy a car
priced at that amount, and the loan is not repaid, the automobile
company is not better off because it has "sold" the car. It
has simply lost the amount that it cost to make the car. If the car
cost $4,000 to make, and only half the loan is repaid, then the
company has lost $4,000 minus $2,500, or a net amount of
$1,500. It has not made up in trade what it lost in bad loans.
If this proposition is so simple when applied to a private
company, why do apparently intelligent people get confused
about it when applied to a nation? The reason is that the
transaction must then be traced mentally through a few more
stages. One group may indeed make gains—while the rest of us
take the losses.
It is true, for example, that persons engaged exclusively or
chiefly in export business might gain on net balance as a result
of bad loans made abroad. The national loss on the transaction
would be certain, but it might be distributed in ways difficult to
follow. The private lenders would take their losses directly.
The losses from government lending would ultimately be paid
out of increased taxes imposed on everybody. But there would
also be many indirect losses brought about by the effect on the
economy of these direct losses.
In the long run business and employment in America would
be hurt, not helped, by foreign loans that were not repaid. For
every extra dollar that foreign buyers had with which to buy
American goods, domestic buyers would ultimately have one
dollar less. Businesses that depend on domestic trade would
therefore be hurt in the long run as much as export businesses
would be helped. Even many concerns that did an export
business would be hurt on net balance. American automobile
companies, for example, sold about 15 percent of their output
in the foreign market in 1975. It would not profit them to sell 20
percent of their output abroad as a result of bad foreign loans if
they thereby lost, say, 10 percent of their American sales as the
result of added taxes taken from American buyers to make up
for the unpaid foreign loans.
None of this means, I repeat, that it is unwise for private
investors to make loans abroad, but simply that we cannot get
rich by making bad ones.
For the same reasons that it is stupid to give a false stimulation
to export trade by making bad loans or outright gifts to
foreign countries, it is stupid to give a false stimulation to
export trade through export subsidies. An export subsidy is a
clear case of giving the foreigner something for nothing, by
selling him goods for less than it costs us to make them. It is,
another case of trying to get rich by giving things away.
In the face of all this, the United States government has been
engaged for years in a "foreign economic aid" program the
greater part of which has consisted in outright government-togovernment
gifts of many billions of dollars. Here we are
interested in just one aspect of that program—the naive belief of
many of its sponsors that this is a clever or even a necessary
method of "increasing our exports" and so maintaining prosperity
and employment. It is still another form of the delusion that
a nation can get rich by giving things away. What conceals the
truth from many supporters of the program is that what is
directly given away is not the exports themselves but the
money with which to buy them. It is possible, therefore, for
individual exporters to profit on net balance from the national
loss—if their individual profit from the exports is greater than
their share of taxes to pay for the program.
Here we have simply one more example of the error of
looking only at the immediate effect of a policy on some special
group, and of not having the patience or intelligence to trace the
long-run effects of the policy on everyone.
If we do trace these long-run effects on everyone, we come to
an additional conclusion — the exact opposite of the doctrine
that has dominated the thinking of most government officials
for centuries. This is, as John Stuart Mill so clearly pointed out,
that the real gain of foreign trade to any country lies not in its
exports but in its imports. Its consumers are either able to get
from abroad commodities at a lower price than they could
obtain them for at home, or commodities that they could not get
from domestic producers at all. Outstanding examples in the
United States are coffee and tea. Collectively considered, the
real reason a country needs exports is to pay for its imports.
No comments:
Post a Comment