Reply To: Debt

#18093
jmherbener
Participant

In a division of labor each person produces to satisfy the consumptive ends of other people and has his consumptive ends met by them. Naturally, each person will run trade deficits with every person from which he buys their outputs and trade surpluses with every person to which he sells his outputs.

A person’s overall trade balance with all other people could be either in deficit, surplus or balance. If it is in deficit, it means that he has traded capital funding to others in exchange for their output. If it is in surplus, it means that he has traded his output to others in exchange for their capital funding.

A trade deficit, then, doesn’t reflect an unproductive or uncompetitive person. It indicates that he prefers to obtain goods from others by paying them in goods and capital funding and others prefer to receive his goods and capital funding in payment for their goods.

There’s no correlation between trade deficits and the performance of the economy.

From 1790-1860, America ran trade deficits almost every year.

http://www.nber.org/chapters/c2491.pdf (Scroll down to Tables 1 and 3)

After 1865-1900, America ran trade surpluses almost every year.

http://www.nber.org/chapters/c2491.pdf (Scroll down to Table 27)