Categories
economics

All of our money will leave!!!

This is a post I read on an audio forum and my response. He was essentially trying to say that inexpensive audio gear is pernicious…

Cheaper is better? Not if you are exporting your dollars for something of temporary value.

When we import stuff and exchange hard currency for it, we are exporting dollars in exchange for that stuff. The dollars leave our shores forever, at least in a large proportion. We as a country lose that net wealth.

To which I responded:

Ah, but you can’t listen to currency, nor can you eat it or clothe yourself with it. You’ve made the mistake of confusing money with wealth. Wealth is determined by what you can do or purchase, not by how many pieces of paper you have. You do understand that if we send money somewhere else and they do nothing with it, that would mean that they traded an amplifier for pieces of paper or electronic digits… What a deal! Unfortunately for us, they do indeed use that money, they expect something back. Currency is debt. Whoever holds it is entitled to goods or services. The Chinese surely cash in on those IOU’s. Here in the US, that has mostly taken the form of buying our debt but there has also been quite a bit of bond, stock, and other investment over here as well. Believe it or not, they have even imported some American stuff too. They have to do something with those dollars…

Currency trading aside, the key thing to remember is that anything that makes the stuff we buy less expensive increases our wealth. We are able to buy more (or do more, make more, etc) for the same amount of money. That is the definition of an increase in wealth. It could be caused by better machinery, technology, or less expensive labor, the result is the same. We get richer as costs go down. Focusing on money instead of wealth will lead to ideas like it is better to pay more for the things we want, or at least that less expensive things are somehow hurting us.

As always, Bastiat’s insights are still relevant. I highly recommend his essay The Balance of Trade.

The same arguments have been floating around for hundreds of years, they are just as wrong now as they were then.

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