I used to believe in protectionism. Several users here tried to persist me to abandoned it, but they did not take me seriously. But after reading Milton Friedman, I can say that I am absolutely convinced that protectionism is nonsensical > this is because the foreigners don't sell goods for dollars for nothing, they sell their shit to buy our shit.
But this breaks down when it comes to the gold standard: since gold is a universal currency, they will not be compelled to buy our shit. Thus, unemployment will happen under a gold standard. This man understood this:
If dollars left New Jersey for California and there wasn't freedom of movement then this would drive New Jersey's wages down. This would make it cheaper to produce in New Jersey and production would begin to move there and people would buy shit from New Jersey even though they're all using the same currency.
Friedman's objections to the gold standard was to do with efficiency of the currency itself and ensuring stable monetary growth. It had nothing to do with protectionism.
There's a reason why we don't try to endow every city with their own currency. "Monetary displacement" occurs just as certainly with on currency as with many.
re-reading
I don't get it. Why will Ruritania switching to a gold standard stop foreigners from buying their exports? I do see how inflows or outflows of specie would result in inflation or deflation but how does this lead to unemployment? And don't foreigners sell their shit to buy shit, not necessarily ours? Although that doesn't seem relevant to the equation.
So long as prices are allowed to freely fluctuate on the market I don't see why unemployment should result.
... just as the State has no money of its own, so it has no power of its own - Albert Jay Nock
Because foreigners won't have to buy imports to sell exports. They can use that gold to buy from other countries (hence less employment).
If the US had a 100% gold-backed currency, and Americans bought Chinese electronics with that currency, China would have (essentially) just two options. It can either use that currency to purchase American goods or it can redeem that currency for the gold it is backed up by. In either scenario, our import will be matched by export. The question is will we be whether we will export goods or gold. It really doesn't matter.
Try to think about why China make decide to take the gold instead of buying American goods. This would really only be because they view taking the gold and, for example, purchasing Chinese goods to be a better value than buying American goods. This means that they essentially think American goods are overpriced. So what will be the effect of this? In the US, with money being removed from the economy, prices will decrease. Even if there is some amount of unemployment, it will be aided by the fact that the cost of living will be decreasing (the way it does naturally in a depression without too much government intervention). Furthermore, because the cost of labor, along with everything else, is decreasing, it becomes more attractive for foreigners to start up businesses in the US and to buy American goods. In China, the opposite happens. With money being added to the economy, prices will increase. While unemployment may remain low, cost of living will increase, probably in real terms (since wages tend to rise more slowly than the price of consumer goods).Because the cost of labor, along with everything else, is increasing, it becomes less attractive for foreigners to start up businesses in China and to buy Chinese goods.
You've figured nothing out. You're only right if consumption drives the economy, and it doesn't.
The only one worth following is the one who leads... not the one who pulls; for it is not the direction that condemns the puller, it is the rope that he holds.
Wait doesn't he have a point here? Let's compare two scenarios:
Say the Chinese sell us X widgets in exchange for X notes redeemable in gold. The chinese can redeem those notes for gold and use them to buy whatever they want. There's no need to buy American goods with gold as gold will be accepted almost anywhere.
Now say the Chinese sell us X widgets in exchange for X fiat notes. The Chinese have to, in turn, use these notes on American products. Even if they buy from another country with American fiat, that country will be holding fiat and it will have to be spent on American goods no?
Doesn't this imply a certain incompatibility between a gold standard and free trade?
The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger
Buzz Killington, what's this "their" and "our" you're talking about?
Protectionism is all about trying to ensure profits forever and ever amen. However, if it were advocated this way (i.e. honestly), most people wouldn't support it. Hence the appeals to nativism/patriotism/nationalism/blah-blah-blah.
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
I don't think so. A Chinese man can take American dollars to his central bank and it will coordinate with the FED and let him exchange his American fiat for Chinese fiat. A gold-backed currency forces the holder of the currency to get something from the country it was issued from: either goods or gold.
Gold is only another commodity, one which is particularly suited for trading.
If Ruritania have large stocks of gold, because people hold large reserves of it, they might be interested in exporting part of this reserve in exchange for goods from abroad.
The consequence of this is that the domestic gold reserves go down, as the international gold reserves go up.
Unless Ruritania is a gold producer, it becomes harder for ruritanians to keep importing things from abroad as their gold reserves get comparatively smaller, making imported goods more expensive to ruritanians.
On the contrary, ruritanians will perhaps want to restore their previous gold reserve levels, and the only way they can do that is reducing the prices of the other goods they sell, which causes net exports of goods (and imports of gold), balancing out their previous transactions.
The assumption here is that ruritanians want to keep their historic level of gold reserves, which of course does not need to hold all the time.
Jargon,
Your question assumes that foreigners buying our products is a good thing in and of itself. So you are asking that if they get paid in gold they need never buy our products.
Two answers to this. First, money is a medium of exchange. Meaning the way we got gold in the first place was by selling someone our products. So we already have sold something before the Chinese even sold us anything. And if we mined the gold out of the ground, then it started off as a commodity, so the very act of paying them in gold is giving them a product of ours.
But the real answer is that the whole point of trade is not to export, but to import. Just as a worker doesn't go to work because he loves shoveling manure around, but because it's a means to ultimately go shopping and feed his family, so too exports are a means to go shopping [= import] and get things that are better or cheaper than what is made here.
If the Chinese are paid in gold and don't use it to buy our stuff, so much the better for us. We get to have our stuff and their stuff to use.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
And is a discussion about trade complete without a link to this article?
https://smilingdavesblog.wordpress.com/2011/07/23/imports-and-exports-which-one-is-good/
[The ideas there are mainly from Hazlitt's Econ in One Lesson]
If China sells their goods to us for gold, then they can just redeem the notes, take the gold and go buy somewhere else. End of story.
If however, like in your scenario, the Chinese guy tries to trade the notes through the central bank, those American notes have to eventually buy American goods. Or clear American debts. Because Americans are the ones that accept those notes. But there's no reason why gold has to pay for American goods.
Buzz can you link to where Friedman talks about gold and free trade?
Point taken. But in a world with a lot of artifically imposed price rigidities, this can be detrimental to a nation's employment.
EDIT: rewritten for clarity.
I notice people brought up the question of possible unemployment under a gold standard.
Q: We buy Chinese stuff, they don't buy ours, we are unemployed.
A: If we have to compete with the world because the Chinese are not forced to buy our products under a gold standard, but can pick and choose, that means we are being part of a free market. Are we afraid we are that incompetent and lame that we can't compete without some gimmick [like paying the Chinese in dollars only]? And if we start with gimmicks, why won't the world do it also, cancelling our advantage?
Also, if our stuff is garbage, then under a fiat system, the Chinese will only sell their wares in the first place to those who make good stuff [not to us], so they can have something worthwhile to buy back.
Why is there a huge market for yen and euros and currencies of industrial countries, but not for the currencies of backwards third world countries, or of North Korea? Because what can you buy with North Korean or third world money? Nothing. They don't make anything worth buying, so there is no point getting their currency. If we cannot compete because we make inferior stuff, just like North Korea, no one will want our currency, just like North Korea. Meaning when we try to go shopping in China with dollars, they will refuse to sell to us. Because they won't want our dollars, just like nobody wants North Korean money.
Bottom line, if we make good stuff, we have nothing to worry about, even under a gold standard. They will use their gold to buy our stuff, because it's good. No unemployment.
If we make garbage, all the fiat money in the world will not help us. They won't accept our fiat money in the first place, because it's useless to them. In other words, unlike what the Q assumes, the situation will be: we cannot buy Chinese stuff, they do not want ours. The US consumer will have to settle for the garbage made in the US, because no country will sell him anything good. Still no unemployment, though, because the US workers are employed supplying the US economy.
Theoretical note: Once again, we see how Say's Law is so important to understand what is going on. Products are ultimately paid for with products, even in a money economy. If our products are good, we can trade with them. If they are bad, we cannot. It's that simple, and all the monetary gimmicks in the world cannot change these basic facts.
"re-reading"
Kissing ass.
I'm pretty sure that if I'm a seller, I'm selling to sell; and I'm pretty sure if I'm a buyer, I'm buying to buy.
A Japanese noise artist who records under the name Merzbow releases his vinyl, and the distributor Soleilmoon located in the North West USA gets pre-orders in for distribution, of whom releases them to various buyers, some of which are located in the UK. Why? Because that's how the particular market is for a particular good. Simply put, the demand for it and how they've worked it out. I'm sure whether the exchange is in fiat money or gold is the last thing on the mind of the individuals involved.
I am sorry to say that he didn't, I thought this objection up when I was talking to a friend about free trade and employment.
>>>>Bottom line, if we make good stuff, we have nothing to worry about, even under a gold standard. They will use their gold to buy our stuff, because it's good. No unemployment.
But the thing is, they won't HAVE to buy our stuff. That's my point. Under the current regime dollars taken from the US go back to the US because dollars can only be spent where dollars are accepted. But gold is a universal currency, so those assholes in a free market utopia will be able to sell us their crap without buying stuff back from us.
>>>>>>>>If dollars left New Jersey for California and there wasn't freedom of movement then this would drive New Jersey's wages down. This would make it cheaper to produce in New Jersey and production would begin to move there and people would buy shit from New Jersey even though they're all using the same currency.
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Dollars leaving NJ just means that most stuff is being produced in CA. If production moves to CA, you could say that wages would lower in NJ, but as soon as wages would lower in NJ they'd also be able to be lowered in CA.
Not to mention the low wages would be bad for workers in NJ.
But the thing is, they won't HAVE to buy our stuff. That's my point.
But the thing is, they won't HAVE to buy our stuff now either. That's my point. There are plenty of people out there hungry for Chinese goods. The Chinese don't HAVE to sell to us in the first place, and thus won't HAVE to buy our stuff.
And guess what? They are not dummies. They realize that if they sell here they HAVE to buy our stuff. It's a voluntary decision that they make before they sell us anything in the first place. It's not like we tricked them or forced them, or anything like that. They don't HAVE to do anything.
The way it is now, we shoot ourselves in the foot, because we are offering the Chinese an all or nothing deal. Either sell us and be forced to buy our stuff in return, or don't sell to us at all. If they decide it's not worth the whole hassle, we get nothing. We don't get those lovely imports we want so badly, and we certainly don't sell them anything.
But under a gold standard, even if they don't buy our stuff, at least we get to buy theirs.
Besides which, I don't understand this obsession with selling them our stuff. You make it sound like that is what trade is all about. No, trade is about importing. That's the object of the whole game, just as going shopping is the object of working for a living. If they are willing to sell to us, that's all we really care about.
As for jobs, if they don't want to buy what we make now, we will have to adapt and make what they do want. Just like any business. Why do you want to be clever and force them to buy crappy goods? [And they must be crappy if we have to force them to buy, right?] Do you think such a business model is sustainable? Don't you think they will find a way around it, like charging us higher prices, or not dealing with us at all?
Finally, even if we grant for the sake of argument that the scheme you are suggesting has some merit, the disadvantages of fiat money are so huge that they outweigh by a ton the miniscule advantage you are pointing out. It's like wanting to put poison in your food, because the color is pretty.
But under a gold satndard, even if they don't buy our stuff, at least we get to buy theirs.
Ultimately of course in the long term we have to be exporting something valuable. With gold, the Chinese could be buying things from someone else, whom we are selling to, so the gold comes back to us eventually (so we can buy more from the Chinese). Specialization is nice.
Can we then say that the money represents what you produced?
If people dont use north korean currency because they dont make shit, then we can assume that the nk currency represents their economic output.
If all the countries in the world use gold (1 currency), then north korea, making crappy products/no products, will have very little gold in its banks.
I dont know where the argument here is exactly.
But gold is a universal currency, so those assholes in a free market utopia will be able to sell us their crap without buying stuff back from us.
Why do you always need someone to buy back? Isnt the crap youre buying worth having more than the gold? If a trade agreement seems detrimental, why even trade in the first place? I dont understand your argument. The whole point of importing goods is to buy something, and then consume it, in return that consumption contributes to your living standard/enjoyment of life.
If we make garbage, all the fiat money in the world will not help us. They won't accept our fiat money in the first place, because it's useless to them. In other words, unlike what the Q assumes, the situation will be: we cannot buy Chinese stuff, they do not want ours. The US consumer will have to settle for the garbage made in the US, because no country will sell him anything good. Still no unemployment, though, because the US workers are employed supplying the US economy. Theoretical note: Once again, we see how Say's Law is so important to understand what is going on. Products are ultimately paid for with products, even in a money economy. If our products are good, we can trade with them. If they are bad, we cannot. It's that simple, and all the monetary gimmicks in the world cannot change these basic facts.
I agree with the above.
“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence.""The sweetest of minds can harbor the harshest of men.”
http://voluntaryistreader.wordpress.org
Yes, and they WON'T buy our stuff unless
1. It's cheaper to make shit over there
2. THEY CAN USE THOSE DOLLARS TO BUY SHIT IN THE UNITED STATES, CREATING EMPLOYMENT.
And we don't lose all our jobs to the Chinese.
Well actually, we're not forcing them to buy our shitty goods. If they don't want to buy our goods, they won't buy them. But fiat currency ensures that if they can do something better than we can, we don't have people out of work.
Phi: you didn't even attempt to challenge my employment argument. No, I am not trolling.
Except that their gold is also useful to themselves, so they could basically blow all their gold in their own economy. So where is the guarantee that we will get back what we put in?
Sorry, your first comments made no sense to me. And no need to shout.
You think that if we turn off all trade with the Chinese [the situation about which you wrote the above], and neither import nor export, that we will be better off, because we don't lose our jobs.
May I suggest a careful reading of this article: http://mises.org/rothbard/protectionism.asp It taught me a lot. It should answer all your questions, if read carefully and slowly.
...fiat currency ensures that if they can do something better than we can, we don't have people out of work.
No. As that article explains, if we are forced to buy inferior US stuff, that means waste of our money, and of our resources, and of our labor force. Waste means unemployment. Think about it. You have two countries, one with double the resources of the other. Which country will have more jobs?
Let us imagine a deserted and isolated island. Three men, Arnold, Brian, and Cory, become stranded on this island. They have no tools or supplies except for the clothes on their backs. The only food available to eat are the wild fish and coconuts.
Smiling Dave: more wealth doesn't necessarily mean more employment. We're talking about employment. Unless that article deals with the question of employment...
Why would B be unemployed? Yes, B won't be employed on this day to gather coconuts for A like he was yesterday. But this just means that B won't have the leisure time he had yesterday. Is he entitled to having that leisure time? Of course not! I hope that is not your argument. B will still be self-employed (since he has to work for himself if he won't trade). Expecting all prole workers to magically become self-employed is delusion, and you already have failed the value free test of economics by asking "is he entitled". Does it cause unemployment or not? That is the question. Explain why it doesn't or stahp. "Nutty as squirrel shit." | Post Points: 35
1. I don't understand how I have "failed the value free test of economics." I am not asking if B is entitled to leisure time; instead, I am surmising that question might be one asked by an economic illiterate (like yourself) in an attempt to justify protectionism or fiat currency. Further, saying someone isn't entitled to x when its also apparent that the assumption is no one is "entitled" to x or anything else doesn't imply the extraction or intrusion of value to economics.
We're talking about employment. Unless that article deals with the question of employment...
Dave turns around and slowy walks away.