Reminding ourselves of the basics

Note that Adam Smith pointed out more than 240 years ago that \”Consumption is the sole end and purpose of all production\” and that the measure of a country\’s true wealth, is the total of its production and commerce. That is, a country\’s wealth is what the people of that country can consume. The great 19th century French economic pamphleteer Frédéric Bastiat wrote, \”Consumption is the end, the final cause, of all economic phenomena, and it is consequently in consumption that their ultimate and definitive justification is to be found.\” Note also that exports are things that we produce and send to other (overseas) people. That is, they are goods and services that we produce but do not consume and thus they lower our welfare. Imports on the other hand, are goods and services that other counties produce and send to us to increase our consumption. This means imports increase our welfare. So imports are welfare increasing and exports are welfare decreasing. Therefore \”imports are good; exports are bad\”

But this does raise the question of why do we bother to export and not just import? The obvious answer is that exports are the way we pay for our imports. If we want people to send their goods and services to us we have to send our goods and services to them in exchange. Adam Smith also noted that in any free exchange, both sides must benefit. The buyer profits, just as the seller does, because the buyer values whatever he gives up less than the goods he obtains. That\’s why we trade at all.

Shorter version: Imports are going shopping. Exports are just the shite that we do so we can go shopping.

5 thoughts on “Reminding ourselves of the basics”

  1. This is true, it’s just been a little disappointing over the past year that you’ve veered away from this position and to one emphasising production and exports – e.g. saying how Iceland was doing better than Ireland.

  2. This is not a very sophisticated analysis. Under some very restrictive conditions, exports are a cost, imports a benefit. But we obviously do not satisfy those restrictions now, therefore this platitude does not hold.

  3. @vimothy, say what now? Exports are *always* a cost – they’re *stuff that’s worth something that we don’t have anymore*. Imports are always a benefit – they’re *stuff that’s worth something we newly have*. That’s a simple fact, which doesn’t depend on any “restrictive conditions” at all.

    That isn’t to say that a country which imports a higher value of things than it exports over a particular timeframe is *necessarily* following the best policy that it could. But that’s solely because it usually means that at some point in the future, you’ll have to do the opposite (or stiff your overseas creditors…)

  4. vimothy:

    Glad you’ve appeared and made it obvious that none of us “regulars” here understand this thing called “economics,” at least don’t comprehend it very well.

    Having said that, I am (and I think I speak for quite a number of the aforementioned “regulars”)
    very disappointed that you’ve not given us the benefit of your own insightful analysis and raised the level of our understanding of such matters.

    We’re probably mind-numbed and indoctrinated and can’t quite get it out of our heads that we have (either as individuals, firms, or nations) not much inclination toward labor, application, or even innovation for their own sakes but are nearly exclusively driven in these pursuits by nearly overwhelming urges to get more and better stuff to gratify our desires to have and to consume.

    But, as I’d said, your short comment makes me ache (and I know I speak, again, for many), if only for a more “sophisticted” analysis with which to replace our own commonsensical but (obviously) plebian one. Couldn’t you share with us just a bit of your higher-level appreciation of such things?

    And I do admit that some of our prepossessions, seeming to us so very obvious, must, indeed, be more or less “platitudinous,” as you’ve suggested (though we didn’t intend it that way and would be ever so quick to receive and benefit from instruction). Explain our error–do–and set us on the path of true knowledge. We’d be grateful forever.

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