Thursday, January 19, 2017

The French Economist Who in 1845 Destroyed the Silly Thinking on Trade That is Now Displayed By Trump

Adam Millsap writes:
In 1845, French economist Frederic Bastiat tackled the oft-repeated argument that a negative balance of trade – a trade deficit – is harmful for a country. Trump has repeatedly bemoaned America’s trade deficit, likening it to a company losing money. But Bastiat refuted this notion and challenged its supporters with the following thought experiment: “Suppose, if that amuses you, that the foreigner inundates us with all sorts of useful commodities without asking in return – that our imports are infinite and exports nil. I defy you to prove to me that we should be poorer on that account.”

In Bastiat’s thought experiment, the country’s trade deficit would be enormous – negative infinity! – but this would be a windfall and not a cost to the country. Later, in 1893, economist Simon Newcomb acknowledged that much like today, many people opposed trade deficits. But he pushed back by reminding his readers that trade is a voluntary activity that benefits both parties: “For a century and a half the doctrine entertained and taught by economists is that there can be no trade between two nations which is not advantageous to both; that men do not buy or sell unless what they receive is to them more valuable than what they give in exchange; and what is true of the individual man is, in this respect, true of the nation.”

1 comment:

  1. --- But [Simon Newcomb] pushed back by reminding his readers that trade is a voluntary activity that benefits both parties. ---

    "Not if it doesn't benefit me as well!"

    /Marxist Trumpista.

    ReplyDelete