We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

Mercantilists literally believe (even when they deny the belief) that money is wealth – that to accumulate money is to accumulate wealth and that to spend money is to become less wealthy. This mercantilist “reasoning” is why, for example, mercantilists applaud exports (because exports are sold for money) and lament imports (because imports are paid for with money). Thus the mercantilist obsession with the balance of payments.

Economists counter this mercantilist belief by pointing out that money is valuable only because it can be exchanged for real goods and services. Ultimately, wealth is not money and money is not wealth; ultimately wealth is the use of real goods and services. People who envy Jeff Bezos or Bill Gates or Dave the hedge-fund manager across town don’t really envy Jeff’s, Bill’s, or Dave’s possession of billions of Federal Reserve Notes (or of pieces of paper or streams of electronic bits that are easily convertible into dollars or some other currency). What the envious envy is Jeff’s, Bill’s, and Dave’s luxurious homes, luxury automobiles, private jets, top-rate medical care, and regular consumption of other real goods and services that are not affordable in the same quantities by less-wealthy people.

Don Boudreaux

16 comments to Samizdata quote of the day

  • Umbriel

    “Balance of Payments” has long mystified me. It’s usually explained in terms of “If you’re buying more from a country than you’re selling it, you eventually won’t have enough of its currency to buy from it anymore”. But that ignores the existence of currency markets, and of the fact that we can decide to transact our trade in any currency we want. An imbalance should, at worst, mean that the price of goods from the country with the trade surplus tends to inflate, so as to discourage more purchases and negate the trade imbalance (essentially the same way normal supply and demand would work). Similarly, international currency settlements seem like nothing more than another trade market at work, rather than some critical process to be “balanced”.

    So I gather all the squawking I’ve heard about trade imbalances over the years really has been just the rhetoric of merchantilism and “autarky”.

  • Yes, that was the point that Adam Smith was making with the title of his best known book.

  • As a commenter here rather succinctly put it (I forget who): I went to a supermarket and purchased £100 of food. The supermarket purchased nothing from me. Apparently I have a balance of trade deficit with the supermarket 😆

  • Laird

    A good article. I’ve long been a fan of Don Boudreaux; I read his blog almost every day. If anyone is interested in getting the feed go here.

  • Mr Ed

    What, you might ask, is Sheffield’s ‘balance of payments’ with Sunderland?

    The absurdity of the question is, I hope, self-evident. Both cities are in the same country, and use the same currency; one makes lots of cars, one used to make lots of steel, which finds its way into cars. Most people in either city make nothing, and why draw a line around a city, when it is all individuals who make purchases, be they real or legal people. My first thought on that would be ‘Who’s counting?‘, followed by ‘How would or could you count that?‘.

    But, at the end of the day, if you pay for something with a money, that money has to have some exchange value (or rather, be regarded as being likely to have one in the conceivable future), and the estimation of that money’s value is always an act of speculation.

  • CaptDMO

    Oh yeah, I’m jealous of all that “stuff” in the huge house.
    Millions of dollars “collecting” it.
    OK, now….sell it.
    THIS was a FAMOUS person’s house! This was a ROMAN SOLDIER’S button. This is a DESIGNER collectable silver coin! (or quarter)
    That’s nice, now I’ll offer LESS,to cover the expense of getting he stink out. because it’s used, and to cover my labor melting it back down into a silver ingot.
    Oh, an antique “exotic” car? Nah, I’ve got TWO I can’t get rid of already. costs me money just to store them. Too steep? I’ll happily trade some old pump parlor organs! How many can I put you down for?

  • Thailover

    This is why trade deficit is nonsense in my opinion. In any rational, voluntary trade, both parties grow wealthier. Voluntary trade to Mutual benefit.

  • Kernel

    YES. Money only matters as a social construct to motivate People. As Jeff Airplane said back in the day, money “…doesn’t mean shit to a tree”. The only thing that really matters is what people do.

    (first-time commenter, just got here from “stumblingandmumbling”.)

  • Ferox

    When I see pictures of celebrities in their homes, it always surprises me how crap so much of their stuff is, and how utterly ordinary their actual moment-to-moment lifestyle appears to be.

    They just live ordinary lives in upscale homes, and in ritzy locations, for fifty times the price.

  • You obviously don’t follow my Instagram 😆

  • Paul Marks

    This is an interesting redefinition of Free Trade – instead of the Classical Economists with their “we sell you what we are good are at producing, and you sell us what you are at good at producing” we have this new idea (that would have baffled Adam Smith) that one can just borrow money (for ever) and buy unlimited amounts of consumption goods from other counties, because money-does-not-matter.

    Well Professor B. why not conduct your life on the principle that you suggest for the nation? Do not do any work (after all work is disutility – Adam’s curse) and just borrow money to buy goods from your fellow men – as you suggest people in the nation should just borrow (not work) and buy goods from abroad.

    Let me know how this works out for you – as you starve to death when your creditors finally throw you into debtors prison. Then you will learn that money does matter.

    Actually I am free trader – and far more traditional one. As I believe in two way (not one way) trade – prosperity without WORK does not work. Work make things, real physical products, or die. Those are the choices that face a nation – and its people. You can not just borrow money to buy endless consumption goods – you have to WORK. Make things, grow food, mine for resources, make manufactured goods……. – or die, and DESERVE to die.

    “Ah but Paul, money is just CREDIT now – it is not gold or any other real thing”.

    So it is – but, in this regard, that changes nothing. You still can not live by endless borrowing to finance the import of consumption goods. Prosperity without WORK will not work.

  • Biffa Bacon

    Not all work involves making physical objects

  • Thailover

    Paul Marks, the alchemists were half right. Even though you can’t turn lead into gold, it appears that one can turn paper into gold ala fiat currency. It’s a form of Modern Magic. As long as everyone believes that a $20 Federal Reserve Note has buying power then it does. When everyone stops believing it the magic dies and the paper is worthless. The modern monetary system is pure hokum.

  • Not all work involves making physical objects

    Quite so. I agree with Paul on many things but for some reason he remains steadfastly resistant to the fact services represent very real exchanges of value that are in no way less ‘real’ than guns or butter. That said, yes, some intangibles are utter bollocks, but then so are some physical things that are manufactured. This is not a good time to have gone long on Fidget Spinners 😆

  • Alisa

    Actually services, while not always tangible, always result in consumption of physical goods by their recipients. Paul does have a blind spot with regards to the actual processes that lead from one to the other, but that is beside the point. I just read his comments as meaning the more-general ‘value’ where he says ‘physical products’, and they make perfect sense.

    That said, to an extent he may have a point even without such substitution, if an economy is overwhelmingly based on services, with actual physical mining, manufacturing, etc. becoming negligible compared to a recent-enough past (such as in the US and the UK). In such cases, one might ask ‘why and how did this happen, and has it been a good thing on balance?’ Another pertinent question might be ‘exactly what kind of services are we talking about?’

  • Laird

    Frankly, Paul’s comment baffles me: it is an utter non sequitur to Prof. Boudreaux’s essay. The concept of debt appears nowhere in it; he was merely talking about the proper understanding of “money” (as a medium of exchange, store of value, etc.) and the mercantilists’ complete misunderstanding of it. I don’t think he would disagree with Paul at all; he was simply talking about something entirely different. I get the sense the Paul either didn’t really read the essay or read it so quickly that he didn’t understand what was being communicated.