Sunday, January 8, 2017

Getting the Goods for Inexpensive Monochrome Portraits of Dead Political Americans

A Don Boudreaux letter to one of his readers:
Mr. Ed Rector
Mr. Rector:
Thanks for your comment on a recent post at CafĂ© Hayek.  Your point, in summary, is that the part of America’s trade deficit that consists of foreigners holding or using U.S. dollars (rather than sending those dollars back to the U.S. as investments) is indeed a problem for Americans.
While I agree that the Federal Reserve today has a comparative advantage at supplying currency to the global economy, I disagree that this reality is bad for Americans.  In fact, it’s good for Americans – very good.  The reason is that we receive from foreigners a steady flow of valuable goods and services in exchange for inexpensive monochrome portraits of dead American statesmen (or their even-less-costly-to-produce digital equivalents).
If you doubt that this reality is good for Americans, consider the following scenario.  Suppose that non-Americans become so fascinated with American smiles that they eagerly offer to give to us Americans the likes of automobiles, household furniture, kitchen appliances, food, and petroleum in exchange for nothing but photos of smiling Americans.  Would you be made poorer if you could now acquire much of what you consume simply by sending to foreigners photos of your smiling face?  Of course not; you’d be made richer.  Would your neighbor be made poorer if she could now acquire much of what she consumes simply by sending to foreigners photos of her smiling face?  Of course not; she’d be made richer.  Likewise, all Americans would be made richer if we all could acquire much of what we consume simply by sending to foreigners photos of our smiling faces.
While some Americans would lose particular jobs if our smiles became such a productive input – just as some Americans lose particular jobs whenever consumers discover less-costly means for satisfying their demands – Americans as whole would be made richer.
There is, in short, everything to applaud, and nothing to lament, about our ability to peacefully acquire as many as possible goods and services from foreigners in exchange for as few as possible of our own resources and as little as possible of our own labors.  If foreigners so value the possession and use of U.S. dollars that they send to us in exchange a steady stream of valuable goods and services, we should be grateful rather than grumpy.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek


  1. Although I get what he is saying, I don't think this is one of his more persuasive pieces. I think he's preaching to the choir with this one. Anyone who would disagree with him would likely reject the notion that all we are giving them is monochrome pictures of statesmen.
    The last paragraph, however, is very well done and convincing.

    1. Re: David T,

      --- Anyone who would disagree with him would likely reject the notion that all we are giving them is monochrome pictures of statesmen ---

      The important thing is who is right and who is wrong? Remember that professor Boudreaux is answering the argument that the money people give to foreigners makes us poorer somehow, ostensibly because people are giving it to the 'wrong' people instead of the 'right people' which are, presumably, the hardhatted "American Worker®". Therefore his explanation serves to show the basic fallacy behind the notion that money is wealth and that it should never leave the shores to lands yonder.

    2. The relevant difference between the real world and the professor's example is that photos do not have any future claim on real goods and services, while dollar denominated notes do have a real claim on future goods and services plus interest, which is the premium for consuming present goods instead of future goods.

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  3. Is Boudreux a MMTer? Does money have no value? Why do I work 50 hours a week for this cheap monochrome paper?

    The Fed can print the money, but the value of the money is not the smiling face on the paper its printed on. Boudreux's argument is a non-sequitur.

    Here you go Helicopter Boudreux: If the money is so worthless and these stupid foreign bastards want more of it then obviously the FED should print trillions of dollars, send checks to Americans with the special instructions "must be used to purchase foreign goods." What the hell are we working for?

    I thought we were made richer through savings, investment and production that adds value to end users. Nope, turns out it's just printing money and sending it abroad in exchange for trinkets.