Don Boudreaux Responds to Me and I Respond to Don
I posted on Monday about where I agreed and disagreed with a statement by Veronique de Rugy about imports and exports, particularly about exports. In doing so, I was also disagreeing with Don Boudreaux.
Don responded the same day with 2 lengthy comments on my post and 1 new post on his CafeHayek. But Don told me that this post best represents his thinking.
Here, in a nutshell, is my thinking: People have multiple reasons to export. The usual purpose of exporting is to make money, but there are others. People don’t always export in order to import. (As you’ll see, Don Boudreaux agrees with this.) One way to pay for imports is with investment by foreigners rather than with exports. While consumption is the one main goal that motivates people to make money, it is not the only one. When we see people being paid for something, that does not mean that they had to be paid. Finally, remember the 7th Pillar of Economic Wisdom: The value of a good or service is subjective.
Before I give my specific responses, I acknowledge something Don said upfront:
I here try once more to explain why I disagree – uneasily, to be sure – with my dear friend David Henderson on the question of the relationship between imports and exports.
I feel the same way about Don. Nothing about our friendship is at stake in this discussion. This discussion is solely about technical economics.
Here goes.
Don writes:
As I wrote in my earlier post, wanting to do something does not imply that 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 want to sell my car only because, by doing so, I will get money that I can then spend on some other consumption goods today, or to invest, which will increase my access to consumption goods tomorrow.
Selling my car is a means toward the end of improving my consumption. If I were prevented from receiving anything in exchange for my car, I would not sell it or otherwise get rid of it.
David writes that “our exporters want to export: that’s their end.” I disagree – or, rather, I think this wording is too confusing to be justified. Because exporters demand payment in return for their exports, their end is not to export but, instead, to receive something in exchange. Their exports are a means.
I almost agree. I think the vast majority of exporters do so in order to earn payment that they can use for other things.
Why “almost?” Over the years, I’ve met, or heard of, a number of successful entrepreneurs who produce things they really believe in and sell them to poorer people in other countries who will benefit big-time. The entrepreneurs get paid. I hear them saying that satisfying people in those countries is a big part of their reward. Could they be lying? Maybe, but I doubt it. I think they’re sincere. In short, they want to make money but that’s not their only motive.
Don writes:
What exporters receive in exchange, of course, is money (just as money is what I receive when I sell my car). But clearly the money isn’t the exporters’ end any more than the money is my end when I sell my car. If, just before shipping their goods abroad, the exporters were informed that the moment they receive the (say) $1M worth of euros they must stuff those euros into mattresses and never retrieve them, the exporters would immediately become not-exporters.
I agree. There may be weird exceptions—I’m looking at you, mattress stuffers—but I basically agree.
Don writes:
Exporters accept money as payment only because they’re confident that they can exchange that money, now or in the future, for real goods and services. And ultimately the real goods and services are consumption goods and services. The exporters’ end 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 firms in which Elon Musk has a large stake export? I think they do. Is Elon trying to increase his standard of living? I doubt it. Or take Warren Buffett. I think that Berkshire Hathaway, the firm he owns a big part of, exports some things. That firm makes money and because Buffett is a major shareholder, he makes money. Is he trying to increase his standard of living? Consider the home Warren Buffett lives in. He bought it in 1958 for $31,500. It’s worth about $1.4 million today. Couldn’t he own a nicer house? He says that he tends to forswear expensive $100 meals and instead he eats a hamburger and a Coke. I just don’t think a major part of his motive is to consume.
Don probably foresees my argument because in his very next paragraph, he writes:
The exporters can spend their export earnings today on consumption goods. Or the exporters can invest their export earnings. David might say that, in this latter case, the investment was the exporters’ end, but I would disagree. People invest, ultimately, to increase their or their families’ or heirs’ spending power – that is, to increase their or their families’ or their heirs’ future access to consumption goods and services. Investing, in short, is a means to greater consumption.
But that’s why I chose Warren Buffett as my example. He has made clear that he is leaving very little of his wealth to his heirs. Don might say that he said, “families’ or heirs’ spending power” to account for heirs who are not part of his family. If that’s what Don is getting at, then touché: score one for Don.
Don then writes:
In reality, the individuals who export need not be – and frequently are not – the individuals who import. This fact might be taken as indicating that exports cannot correctly be said to be the means and imports to be the end. After all, if exporter Smith has no desire to purchase foreign-made outputs, how can it be that importing is the end of his exporting?
It indeed cannot correctly be said that importing is the end of Smith’s exporting. But at least two relevant things can correctly be said. The first is that Smith’s exporting was, as explained above, nevertheless a means to his increased consumption. The second is that Smith’s exports are a means to increase imports of the country in which Smith resides. Smith’s fellow citizen Jones is able to import only because Smith 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 exporting. And, to remind you, that was one of my major points in my Monday post. So at least that is settled.
Don then goes on to show how the money Smith makes from exporting is then used by others to buy imports. Given the way he sets that up, he’s correct. So money from exporting is then used to buy imports.
Don’s crucial assumption, though, is that none of the money Smith makes from exporting is used to invest in real assets in America and none of it is held as $ by foreigners. Both assumptions are at odds with reality.
Don recognizes that he has simplified because he then writes:
This simple example can be made more complicated by introducing investment uses of the euros, but as I argue above, that complexity only means that the consumption end of exporting is delayed in time.
That gets back to consumption being the only end of exporting, which I’ve challenged above with my benevolent entrepreneur example.
Moreover, Don needs to go back to one of the original statements by Vero that I challenged. She wrote:
If we could acquire imports without exporting anything, that would be the best of all worlds for us.
In my original post, I disagreed with that by pointing out that we could export nothing but still get foreign investment in return. Some of the commenters on my original post tried what the Supreme Court might call a “saving construction:” regarding foreign investment as exports. That would make Vero’s statement true by definition. I don’t like that definition but if that is what she (and Don) really mean, then we are arguing about definitions. Such arguing rarely makes sense.
Don ends with this:
People must be paid to export. This fact proves that exports are not an end in themselves.
People are paid to export. But the fact that someone is paid for doing something doesn’t automatically mean that he must be paid. I’ll take an example from my own life. When I give talks at local Rotary Clubs, I am not paid, except for a meal. But what if they offered me $500? I would accept. An outside observer might see me being paid $500 and assume that I must be paid. But that person can’t get inside my brain.
Another example. I’ve given my talk titled “How Economists Helped End the Draft” several times, mainly as a guest lecturer in classes at the Naval Postgraduate School. When I give the talk, I usually refer to the All-Volunteer Force (AVF), which was the term that was normally used to refer to the U.S. military for the first 15 years or so after the draft ended in 1973. A student in one of my talks told the rest of the class and me that when he had heard about the all-volunteer force, he wanted to join. His big surprise came with his first paycheck. He had taken the word “volunteer” to mean that he wouldn’t be paid. (I asked him why he had joined, and he said it was to get out of the small town in California that he had grown up in. The town, Paradise, burned down a few years later.) Someone observing him being paid might say that he had to be paid. But that was not true.
One last thought. For the last 25 or so years I taught at the Naval Postgraduate School, I would start each class with my 10 Pillars of Economic Wisdom. Pillar #7 is, “The value of a good or service is subjective.” When I see people claim that someone does something only because of a particular goal, I get suspicious. Many people have multiple reasons for valuing things and doing things.
You might wonder why I’m spending so much time on this. It’s not because I don’t believe in free trade. I do. It’s not because I think imports are bad. They’re good. It’s because I think we free traders should make good arguments, not bad arguments, for free trade.
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