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Title : On Why Milton Friedman Was Non Naive Almost Trade
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On Why Milton Friedman Was Non Naive Almost Trade

A Don Boudreaux missive of the alphabet to the Wall Street Journal:

Bill Bishop writes that the slow Milton Friedman, inwards supporting unilateral costless trade, was unaware that foreigners who export to America tin “buy USA majuscule stock – companies as well as land” (Letters, Apr 3).  Mr. Bishop as well as so concludes that “If this persisted long enough, Americans would air current upward owning real footling of the country’s production as well as the profits going abroad.”

First, because the mightiness of foreigners to purpose their export earnings to invest abroad is learned of yesteryear students inwards freshmen economic science classes, it’s ludicrous to propose that this possibility was unknown to a Nobel laureate economist.

Second, the argue that the possibility of inward unusual investment did non deter Friedman from calling on the USA authorities to adopt a policy of unilateral costless merchandise is that he understood that such investment helps rather than harms us – as well as that the freer is trade, the to a greater extent than such investment nosotros receive.

Contrary to Mr. Bishop’s implicit assumption, the amount of majuscule inwards the USA isn’t fixed.  Foreigners tin acquire to a greater extent than of it without Americans losing whatever of it.  Indeed, because unusual investment inwards the USA oftentimes complements Americans’ ain investments hither – as well as because, yesteryear creating to a greater extent than majuscule on our shores, unusual investment inwards the USA makes American workers to a greater extent than productive – America’s consistent merchandise deficits over the yesteryear 4 decades accept corresponded amongst a steady increase in the internet worth of USA households as well as nonprofit organizations every bit these merchandise deficits accept led to to a greater extent than unusual investment inwards the U.S.  Today, the real internet worth of USA households as well as nonprofits is at an all-time high, and about 250 percent higher than it was inwards 1977* – the twelvemonth that the USA began consistently to run merchandise deficits.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha as well as Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* The information inwards this graph are inwards nominal dollars.  I adjusted them for inflation with this calculator – a figurer that, using the CPI, likely overstates inflation and, hence, understates the growth inwards existent internet worth.

The to a higher house originally appeared at Cafe Hayek. 

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