"Most people are in arrested development and cannot use logic." Jacob.
"Competition and capitalism are hated to-day because of their tendency to destroy poverty and privilege." William Hutt
"America is unique in that our economy is totally dependent on global charity." Peter Schiff

Monday, September 5, 2011

Do the Chinese Need Us as Badly as We Need Them?

That's what you hear in the mainstream media all the time. And Peter Schiff always saying "No, they don't need us, they can sell their stuff internally to the hungry Chinese."

I found support for Schiff's claim in the classic work, Commerce Defended, by James Mill. And I quote:

...a nation always has within itself a market equal to all the commodities of which it can possibly have to dispose; that its power of purchasing is always equivalent to its power of producing, or at least to its actual produce; and that as it never can be greater, so it never can be less. Foreign commerce, therefore, is in all cases a matter of expediency rather than of necessity. The intention of it is not to furnish a vent for the produce of the industry of the country, because that industry always furnishes a vent for itself.

Mill here is writing this as a corollary to to the famous Say's Law, which states that when you make something, that which you made can be traded for something you want. In other words production of Thing A gives you the ability to buy what you want of Things B, C, D etc.

That being the case, if a Chinese manufacturer makes a washing machine, he can trade it for a new Chinese car. So all the Chinese have to do is trade with each other, and they will find a market for all their products.

And now we give the floor to our good friend Devil's Advocate, who will ask a few question about Say's Law and this corollary:

DA: Dave, what Say says may apply to the rich capitalist owners of the factories, but what about the coolies who get paid 14 cents an hour? They don't get a new washing machine to trade for a car. Only the owners get washing machines to trade with, and how many cars do they need? You'll have ten thousand washing machines, ten thousand new cars, and only two men who can afford anything. The washing machine company owner can buy one new car, the car manufacturer can buy one new washing machine, and that's all they need. The coolies are stuck with nothing, and the owners are stuck with 9,999 cars and washing machines they will have no choice but to sell to the US.

SD: Not quite, DA. What if the washing machine company was owned by twenty partners?

DA: OK, then there would be twenty cars sold.

SD: And if it had thousands of partners?

DA: But it doesn't.

SD: Oh, yes it does. Because all the workers in the factories all over China are in reality partners in the companies they work for.

DA: What are you talking about? They are the exploited proletariat, not partners.

SD: Actually they are in a much better position than partners. A partner gets his share only when the product is sold, obviously. The workers get paid in advance. A partner gets paid nothing if there are no sales. The workers gets paid win or lose. A partner has to put up some money to be accepted as a partner. The workers get a slice of the pie even though they put up no money. So that it's not just the factory owner putting the washing machines on the market to trade for cars. It's him and all his workers.


  1. Foreign commerce creates a more sophisticated division of labor among the traders.

  2. Dmitry,
    Very true, and it's the very next point Mill raises.
    The US is certainly benefiting from the current sophisticated division of labor, with the Chinese doing all the work and the US doing all the consuming.

  3. It's interesting how Mises, say, talks about the need for population growth not to overtake capital accumulation.

    But that is an argument against open borders. If people could move freely, then hundreds of millions of foreigners would quickly move to the US, and even more US companies would move overseas. Then the capital concentrated in the US would "spread" all over the world and its people.

    This will raise the standard of living overall but lower the American workers' standard of living.

    Should libertarian insistence on open borders, therefore, wait until most countries' economies improve? Or should we love the entire world and recommend policies that fulfill global utilitarianism?

  4. that's a topic for the mises.org forum