On Monday, I shared my thoughts on a statement by Veronique de Rugy concerning imports and exports, with particular attention to exports. This discussion also involved an intellectual sparring match with Don Boudreaux.
Don was quick to respond, providing two detailed comments on my post and one new entry on his own CafeHayek blog. He mentioned that this particular piece encapsulates his perspective the best.
In essence, here’s my stance: Exporting serves various purposes. While the primary goal is often profit, there are additional motivations at play. It’s also worth noting that people don’t always export solely to facilitate imports. As Don Boudreaux would concur, foreign investment can also finance imports, and money-making isn’t the only reason people engage in trade. When observing someone being compensated, it doesn’t inherently mean they were compelled to be compensated. Lastly, let’s not forget the 7th Pillar of Economic Wisdom: the value of goods or services is fundamentally subjective.
Before diving into my specific counterpoints, I want to acknowledge a key observation from Don:
I here try once more to explain why I disagree – uneasily, to be sure – with my dear friend David Henderson on the question of the relationship between imports and exports.
I share the sentiment. Our friendship remains intact through this economic discourse; it’s purely a technical examination of the subject at hand.
Now, let’s proceed.
Don asserts:
As I wrote in my earlier post, wanting to do something does not imply that that something is an end. “I want to sell my car” does not mean that my end – my goal – is to get rid of my car. I want to sell my car only because, by doing so, I will get money that I can then spend on some other consumption goods today, or to invest, which will increase my access to consumption goods tomorrow.
Selling my car is a means toward the end of improving my consumption. If I were prevented from receiving anything in exchange for my car, I would not sell it or otherwise get rid of it.
David writes that “our exporters want to export: that’s their end.” I disagree – or, rather, I think this wording is too confusing to be justified. Because exporters demand payment in return for their exports, their end is not to export but, instead, to receive something in exchange. Their exports are a means.
I find myself in partial agreement. Most exporters indeed aim to earn revenue that can be allocated elsewhere.
Why “partial”? Over the years, I’ve encountered numerous entrepreneurs who genuinely believe in their products and sell them to underprivileged markets, reaping substantial benefits. These entrepreneurs often express that contributing to the welfare of consumers in those countries is a significant reward for them. Could they be deceiving themselves? Perhaps, but I lean toward believing in their sincerity. In short, while profit is a key motive, it isn’t necessarily their sole driver.
Don continues:
What exporters receive in exchange, of course, is money (just as money is what I receive when I sell my car). But clearly the money isn’t the exporters’ end any more than the money is my end when I sell my car. If, just before shipping their goods abroad, the exporters were informed that the moment they receive the (say) $1M worth of euros they must stuff those euros into mattresses and never retrieve them, the exporters would immediately become not-exporters.
I concur. There could be peculiar exceptions—looking at you, mattress enthusiasts—but generally, I agree.
Don goes on:
Exporters accept money as payment only because they’re confident that they can exchange that money, now or in the future, for real goods and services. And ultimately the real goods and services are consumption goods and services. The exporters’ end is to increase their standard of living by increasing their access to real goods and services.
I find the first sentence accurate, yet the third is overly broad. Take, for instance, companies where Elon Musk holds significant stakes—are they exporting? Most certainly. Is Musk primarily focused on enhancing his standard of living? Unlikely. Consider Warren Buffett and Berkshire Hathaway, which also engages in exports. Though Buffett profits from these ventures, his lifestyle choices—like residing in a house purchased for a mere $31,500 in 1958, now valued at approximately $1.4 million—suggest his motives extend beyond mere consumption.
Don likely anticipates my argument, as he mentions:
The exporters can spend their export earnings today on consumption goods. Or the exporters can invest their export earnings. David might say that, in this latter case, the investment was the exporters’ end, but I would disagree. People invest, ultimately, to increase their or their families’ or heirs’ spending power – that is, to increase their or their families’ or their heirs’ future access to consumption goods and services. Investing, in short, is a means to greater consumption.
This is precisely why I cited Warren Buffett as my example. Buffett has publicly stated his intentions to leave minimal wealth to his heirs. Don may argue that he included “families’ or heirs’ spending power” to cover those outside his family, and if that’s his line of reasoning, then touché—Don scores a point.
Don elaborates further:
In reality, the individuals who export need not be – and frequently are not – the individuals who import. This fact might be taken as indicating that exports cannot correctly be said to be the means and imports to be the end. After all, if exporter Smith has no desire to purchase foreign-made outputs, how can it be that importing is the end of his exporting?
It indeed cannot correctly be said that importing is the end of Smith’s exporting. But at least two relevant things can correctly be said. The first is that Smith’s exporting was, as explained above, nevertheless a means to his increased consumption. The second is that Smith’s exports are a means to increase imports of the country in which Smith resides. Smith’s fellow citizen Jones is able to import only because Smith exported.
Notice the first sentence of his second paragraph—well played. Finally, Don and I find common ground. Importing is not the end goal of Smith’s exporting, which was a critical point in my earlier post. At least we’ve settled that.
Don proceeds to illustrate how the funds Smith earns through exporting can facilitate imports for others. His setup is accurate. Exporting does indeed generate funds that can be spent on imports.
However, Don’s fundamental assumption—that none of the revenue Smith earns from exporting is used for domestic investments or held as cash by foreigners—is at odds with reality.
Recognizing his simplification, Don writes:
This simple example can be made more complicated by introducing investment uses of the euros, but as I argue above, that complexity only means that the consumption end of exporting is delayed in time.
This brings us back to the notion that consumption is the sole purpose of exporting, which I’ve countered with my examples of benevolent entrepreneurs.
Moreover, Don should revisit the original statement from Vero I challenged. She stated:
If we could acquire imports without exporting anything, that would be the best of all worlds for us.
In my initial post, I opposed this by indicating that it’s feasible to attract foreign investment without any exports. Some commenters attempted to redefine foreign investment as a form of export, which would render Vero’s statement true by definition. I find that definition unhelpful, and if that’s the argument Don and Vero are making, then we’re merely quibbling over semantics, which rarely leads to productive discourse.
Don concludes with:
People must be paid to export. This fact proves that exports are not an end in themselves.
While it’s true that people receive payment for exporting, the existence of compensation doesn’t inherently imply that it’s obligatory. For instance, when I speak at local Rotary Clubs, I do so for a meal rather than monetary compensation. However, if they offered me $500, I would gladly accept. An observer might conclude that I must be paid, but they can’t access my motivations.
Consider another scenario: I’ve presented my lecture on “How Economists Helped End the Draft” multiple times, particularly at the Naval Postgraduate School. During one of these talks, a student expressed that he had joined the military under the impression that “volunteer” meant he wouldn’t receive a paycheck. An outside observer might interpret his payment as a necessity, but that wasn’t the case.
Lastly, during my time at the Naval Postgraduate School, I would start each class with my 10 Pillars of Economic Wisdom. Pillar #7 states, “The value of a good or service is subjective.” When people assert that an individual’s actions stem from a singular goal, my skepticism is piqued. Human motivations are often multifaceted.
You may wonder why I’m dedicating such attention to this issue. It’s not because I harbor doubts about free trade—I wholeheartedly support it. Nor do I perceive imports as detrimental; they are beneficial. My concern lies in the need for advocates of free trade to present robust, coherent arguments rather than weak ones.
