I can't figure out how debasing your currency helps exports. Here's an example:
Suppose that the US and Canadian dollars are one to one. If a Canadian wanted to buy a six pack from the US he could exchange 5 Canadian dollars for 5 US dollars and buy the six pack for 5 US dollars. Now suppose the US doubles it's money supply. Now if the Canadian exchanges his 5 Canadian dollars he gets 10 US dollars, since the value of the US dollar has ben cut in half. But when he goes to buy the beer he finds that the price HAS ALSO DOUBLED to 10 US dollars. So the price for US beer has remained constant. How does this make exports cheaper?
Hopefully this doesn't double post. I tried once and it didn't appear to work.
Lawrence:Some answers mentioned "income/substitution effects" and the "costs to producing", which wasn't wrong but really wasn't a precise answer. The relevant answer is that the fundamental cause of an increase in exports through inflation is that wealth is robbed from savers and given to people who will buy exports.
That is not what you said. You said you read the answers in this thread and "they all seem to be wrong or misguided". You said that the idea that inflation helps exports "exists because of what some countries, notably China and Japan, have done."
I won't even ask you to go through every single post here. Once again, just explain what is "wrong" or "misguided" about the very first response in this thread, here.
Most of SE Asia did that and became the largest industrial exporters in the world.
Fair enough. Canadian dollars goes from 1:1 to 2:1. Same question.
Jesse Cohen:Fair enough. Canadian dollars goes from 1:1 to 2:1. Same question.
I'll requote it with your changes:
"If the Canadian dollar goes from 1:1 to 1:2 2:1 against the US dollar, doesn't that mean relative prices have doubled? Why else would it take twice as many Canadian dollars to buy one US dollar???"
The answer is "yes". I'm not sure where your confusion is.
My confusion relates to the original question. If my thinking is right, that exchange rates come directly from goods prices for each currency, then depreciating a currency to help exports makes no sense. If a currency is valued less, it's because it takes more of it to buy something. This doesn't make the good cheaper in relation to other currencies, it just makes it more expensive in the home currency, at least for those receiving the money last, of course.
****Depreciating the currency doesn't make domestic goods cheaper for foreigners, it just makes goods more expensive for those in the home country.
hehe. That's what you get for thinking logically.
Now you understand part of the reason Austrians don't buy into such a notion as "devaluing a currency to boost exports". (And believe it or not, there are still other reasons the idea makes no sense.)
Jesse Cohen:****Depreciating the currency doesn't make domestic goods cheaper for foreigners, it just makes goods more expensive for those in the home country.
In a way, it actually hurts both.