The Trade Balance Chimera in Two Sentences
By Pierre Lemieux
Charles H. Carroll (1799-1890) was a Maryland and Massachusetts merchant who wrote on economics often with surprising insights. In a 1862 article reproduced in his book Organization of Debt into Currency and Other Papers, he destroyed the myth of the unfavorable balance of trade in two sentences (emphasis in original):
The balance of trade, that has occupied so extensively the thoughts of politicians, is a chimera. The balance of profit is in our favor only when our return cargoes exceed the outward in value; in other words, when our imports exceed our exports.
A protectionist might reply that “profit” means selling for more than inputs have cost and thus implies a higher value of exports than imports. But this assumes that imports are merely inputs in the production of exports and that the profits of producers, instead of consumer utility, is what counts. A reductio ad absurdum of this approach comes from realizing that exporting everything and consuming nothing would be economic nirvana.
It can be argued that the only way of escaping Carroll’s conclusion is to realize that the balance of trade is meaningless in an individualist (political or methodological) approach to society. Each individual or corporate body takes care of his own balance of trade, and whatever collective balance of trade emerges has no more economic significance than if we discovered a deficit in the trade balance of the group of individuals shorter than average vis-à-vis the taller ones.