Sorry, Mr. Trump, the Chinese aren't "crushing" us

Now the truth is that in the monetary conditions of the present-day world, an excess of imports over exports does not at all represent a threat to the money supply of a country or the ability of domestic spending to support employment. In the 17th Century, when the doctrine of the balance of trade first came into vogue, the money of the world was gold and silver. In those conditions, the only way that a country without gold or silver mines could increase its money supply was by means of obtaining money from abroad, in exchange for the export of goods. The import of goods could for a time reduce the money supply of a country.

Advertisement

But today, money is irredeemable paper, and every country manufactures its own money supply. Indeed, in these conditions, an outflow of part of the money supply of a country in exchange for imports is positively favorable. This is certainly true in the case of the United States dollar, which to an important extent serves as a global currency. The fact that dollars are in demand globally, but are produced only in the United States, implies that the United States must export a more or less considerable part of its new and additional supply of dollars. Exporting part of the supply of dollars represents getting imports of real goods in exchange for pieces of paper that are virtually costless to produce and replace.

Far more important than the gain associated with obtaining imports by means of the export of costless paper dollars is the gain associated with obtaining imports by means of the investment of foreign capital.

Advertisement

Join the conversation as a VIP Member

Trending on HotAir Videos

Advertisement
Advertisement
Advertisement