A Look at Assets

For the people that hate trade deficits, the fact that the cash of the lemon cultivator diminishes from $100 to $90 with the exchange sounds like a terrible thing because they are concentrating on the fact that the lemon cultivator has $10 less of cash then before the exchange; and they even become more upset when they find out that the guy that has these $10 is the carrot cultivator with an advantage of $110 to $90 in effective terms.

This perspective does not take into account the fact that the total assets of the lemon cultivator continue being of $150 and that he now has a distribution of assets that he prefers more then what he had before. however when this type of thing is pointed out to people that do not like deficits, they will then ask you what happens after the lemon cultivator has eaten his 30 lemons and 30 carrots and the carrot cultivator has eaten his 20 lemons and his 20 carrots. At the end, all they have are their correspondent amounts of cash. Since the lemon cultivator has $20 less then the carrot cultivator, supposedly he is in a worse situation since he has a trade deficit.

Once again this type of reasoning shows a lack of understanding from the fact that the lemon cultivator is happier doing the exchange and ending up with $90 of cash then if he hadn’t exchanged anything and still had his $100 in cash. If it had not been for the exchange, he would have had a monotonous diet of just lemons.

The enemies of trade deficits make things look very gloomy when they start to talk about how the world is changing its ways due to international trades, saying that the foreigners are coming in to take their country over. To see their point of view, imagine that instead of starting out with $100, each one of the vegetable cultivators were to start out with 100 lots of land that were worth $1 per lot. The only way the lemon cultivator can obtain $10 to pay his trade deficit is by selling ten lots of land to the carrot cultivator. In other words, the trade they become involved in is part of the 20 apples plus 10 lots of land, with a combined value of $30. Since 10 lots of land of the lemon cultivator now belongs to the carrot cultivator, those who do not like deficits think that the lemon cultivator sold his country off.

These property transfers actually occur in real life. During the eighties, the United States had some massive deficits with Japan. When this occurred it made some individuals and Japanese corporations into owners of many companies and famous buildings in that country. This obviously scared a lot of patriotic politicians within the United States because they did not understand that any exchange that is done, be it with foreigners or with fellow citizens, has as a purpose to make all the involved more content. I mean what is the problem with using an amount of your goods in other countries? Does it need to stay in your country? If you look at the case of the United States in the eighties, they did not see any advantage of remaining as the owners of Times Square and Columbia Pictures when they were actually interested in changing them for Honda Accords and video recorders Sony. This set off such a rage against the Japanese that it was ridiculous given the fact that the largest groups of foreign proprietors during that time were the British. 

Unfortunate as it is, it is not always understood that the objective of this kind of trade is to actually make everyone more content. A lot of people conceive trade like an antagonistic way of trying to dominate and rule other countries through surplus trades, so that you can end up being owners of all the assets. With this end they argue in favor of designed restrictions to manipulate commercial trade, so that their country always has surplus trades. But those policies always end up failing, because every time you place a set tax price to imports in order to discourage them and improve their trade balance, other countries can do the same. The result of these trade wars is that all the barriers, restrictions and assessment put into them on both sides reduce the international trade to almost nothing. Nobody wins and nobody is happy.

Therefore, during the last fifty years the governments have pressured so that there are less restrictions on the international trade. The movement being made towards free trade has resulted in hundreds of thousands and millions of new jobs and a considerable increase in the standards of life and more happiness because people all around the world want to be free to interchange and buy whatever they want in order to be satisfied and happy, even if this means buying from a foreign country.

Beginner Money Investing International Commerce Affects the Economy Commercial Deficits, Good or Bad? A Look at Assets The Comparative Advantage