Friday, July 8, 2011

Bastiat on Business - July 8, 2011

The United States' trade deficit is often discussed and often maligned by our politicians. The truth is, a nominal trade deficit is nothing to be afraid of. To put things simply, in exchange for a "deficit" we get cheap stuff and are able to focus our entrepreneurial talents on other things besides making shoes, t-shirts, or automobiles. Instead of fearing China, let's thank them for the inexpensive televisions, footballs, and pens they are supplying us.

The sooner we Americans understand that we live in a post-industrial economy the better, and we can move on to finding our comparative advantage once again. I imagine that Bastiat would agree with me when I suggest, our protectionist attitude toward yesterday's industries is what is holding us back. I say, let us not make the television but design better ones. Let us not make automobiles, but make spacecraft instead. Let us not make the footballs, but have the leisure time to watch football on our inexpensive HDTVs made in China.

Like always, Bastiat gives a clear and entertaining explanation of trade, and the naïveté that our "leaders" show when discussing of trade.

The Balance of Trade

Exerpt from "Select Essays on Political Economy"
Seymour Cain, trans.

Published by: Foundation for Economic Education - Irvington-on-Hudson, New York

The balance of trade is an article of faith.

We know what it consists in: if a country imports more than it exports, it loses the difference. Conversely, if its exports exceed its imports, the excess is to its profit. This is held to be an axiom, and laws are passed in accordance with it.

On this hypothesis, M. Mauguin warned us the day before yesterday, citing statistics, that France carries on a foreign trade in which it has managed to lose, out of good will, without being required to do so, two hundred million francs a year.

"You have lost by your trade, in eleven years, two billion francs. Do you understand what that means?"

Then, applying his infallible rule to the facts, he told us: "In 1847 you sold 605 million francs worth of manufactured products, and you bought only 152 millions' worth. Hence, you gained 450 million.

"You bought 804 millions' worth of raw materials, and you sold only 114 million; hence, you lost 690 million."

This is an example of the dauntless naïveté of following an absurd premise to its logical conclusion. M. Mauguin has discovered the secret of making even Messrs. Darblay and Lebeuf laugh at the expense of the balance of trade. It is a great achievement, of which I cannot help being jealous.

Allow me to assess the validity of the rule according to which M. Mauguin and all the protectionists calculate profits and losses. I shall do so by recounting two business transactions which I have had the occasion to engage in.


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