Armen Alchian's Prescient Advice to China
By David Henderson
I’ve now finished working my way through the over 1,600 pages of Armen Alchian’s writing. (Note to self: when you agree to write a book review, keep in mind the book you’re reviewing. When I went back to the original email offer, I found that I was asked to review the single-volume 523-page Economic Forces at Work. Oh, well. Not the optimal use of my time, but not that far from optimal: I learned a lot and seeing Armen’s mind at work led to some nice memories of being in his class in 1972.)
One of the pieces in the longer 2-volume work is titled “Customs, Behavior, and Property Rights.” It was presented at the Peking [Beijing] Institute of Foreign Trade in 1982.
The whole thing, which is short, is good, but here’s my favorite. Remember that this was back in 1982:
Fourth, as Chinese trade expands with the United States, American politicians will complain that you are selling us more than we are buying from you. You should ignore our American politicians, who don’t know that international trade involves many countries. No one buys from another exactly the same amount sold. Instead three- or four- or five-way trade—called multilateral trade—occurs, and one country’s imbalance with another country is matched by its opposite balance with still another. But some politicians who understand that fact are really representing some American producers who are being displaced by the foreign imports. We American consumers welcome those imports. So if American politicians complain about your success, you know how to answer them.
[DRH note: If Armen’s statement “one country’s imbalance with another country is matched by its opposite balance with still another” is about the merchandise trade balance or the current account balance, he’s obviously wrong. If it refers to the overall balance, including the capital account, he’s obviously right. But don’t let issue stop you from realizing his prescience about the future in which Chinese would sell us more than they buy from us and U.S. politicians would complain about that.]
Further note: When I thought, just now, to see if I could find his paper on line, I didn’t, but I found that Donald Boudreaux highlighted the same quote over 2 years ago. Great minds, etc.