"A Trade Surplus Benefits the Nation."
It has been common for over 300 years for people to say that it is a good thing for a nation to export more goods and services than it imports. If a nation is a net exporter, it is widely believed, that nation is a true economic powerhouse.
This is why China is regarded as an economic powerhouse. It is competitive in its ability to export goods abroad. But to do this, it must be willing to take IOUs from foreigners. Also, when I say "it", I do not really mean the nation. Calling "China" a net exporter is misleading. This identifies the Chinese civil government as the nation. It isn't.
What I really mean is this: individuals who are exporters are willing to accept IOUs or other kinds of digit-based assets in exchange for physical goods. The exporter gets money, meaning U.S. dollars, in an American bank, or in a foreign bank with an American branch. He has some use for those dollars. If he did not, he would not have exported the goods. He can buy his domestic own currency with these dollars, or he can keep them in a foreign bank. Maybe he will buy stocks or other assets that are sold for dollars. The point is, he has to be willing to accept IOUs, meaning digital promises, in exchange for real goods. That is the only basis for exporting.
The United States imports far more goods than it exports. Yet the United States is also regarded as an economic powerhouse. Why is this? Because foreigners want to invest here. The trouble is, the favored investment is IOUs issued by the Treasury. Foreign investors buy these IOUs, but in most cases it is central banks that buy. The central bankers buy them, because central bankers are told by their governments to keep the value of their domestic currencies down, so as to be able to increase exports to the United States. In other words, the Chinese government really is the source of the exporting power, because it is rigging the currency markets in favor of its exporting industries.
This is a classic example of using state power to subsidize a small percentage of the domestic population, but always in the name of strengthening the nation as a whole. The argument is, as with all government promises, completely fallacious.
What strengthens the nation's domestic population is a predictable currency. This makes forecasting easier. It reduces people's concern about fluctuating currency values. But you cannot get a predictable currency internationally, because other nations are constantly tampering with their currencies, almost always by expanding the money supply. In other words, foreign central banks inflate. So, a domestic currency that is in fixed supply is going to appreciate in relationship to those foreign currencies. In other words, there will be an increase in purchasing power. There will not be stable monetary exchange rates, country to country.
If the Chinese central bank operated a full gold coin standard, it would not be able to inflate the currency very much. The same would be true of Chinese commercial banks. Any bank that expanded its issuing of IOUs would face bank runs on gold coins. It would run out of gold coins relatively rapidly. So, the fear of a bank run, where depositors come in with digital money and demand payment in gold coins, restrains the expansion of the money supply. This means that the currency would appreciate in relationship to foreign currencies that are not restrained by such a threat. This would mean that citizens or residents inside the gold coin standard nation would find it less expensive, year by year, to import foreign goods. As customers, these people would be benefited.
Assuming that these people are producing something of value, which means that they are gaining access to a currency denominated in gold coins, their net worth is increasing. Why is this? Because they can buy ever larger quantities of imported goods with their currency. They are facing what all of us like to face, namely, falling prices for the goods and services that we wish to buy.
Because there are vastly more people involved in domestic production than in exporting, a policy of stable money domestically serves to benefit those members of the community who are economically efficient and can gain a steady stream of the domestic currency. Their cost of living falls consistently, year after year, because foreign central banks are inflating their currencies. The value of those currencies in relationship to a gold coin-based currency continues to fall. So, this is a benefit to consumers who live under the gold standard. This is the vast majority of consumers. Only a relatively small percentage of the nation's businesses and workers is in the export sector of the economy. This is why the subsidy from a depreciating currency is a benefit to a minority of businesses and workers. The vast majority of the residents in the society pay more for their imported goods because of central bank policy, namely, to inflate the currency in order to keep its international value low. But by doing this, the monetary planners are harming the interests of the vast majority of the nation. The subsidy benefits a minority. There are enough people in the majority from which to extract wealth, by means of inflating the currency, which enables the export sector to gain above market revenues by exporting. The minority cannot effectively subsidize the majority. It always has to be the other way around.
So, a stable money economy benefits a majority of citizens, who are constantly able to buy at ever-lower prices. Defenders of mercantilism argue that this is a bad policy. They are convinced that the subsidy involved to the export sector from the central bank that is inflating the currency is a greater value to the nation than the reduced quantity of goods and services that are available to domestic customers. The defenders of mercantilism never discuss the economics of redistribution. They never point out that a majority of citizens experience economic losses, when compared to the gains that they would have made, had they been able to buy foreign goods at ever-lower prices.
The vast majority of citizens have no idea about the relationship between monetary expansion and reduced imports from abroad. They do not understand that they are being harmed by the policy of monetary depreciation domestically. If they understood economics, they would demand a full gold coin standard, and they would benefit from the rising international value of the domestic currency. How would they benefit? By being able to buy more goods from abroad at ever-lower prices.
Unfortunately, so few people understand economic logic, that this subsidy from the majority to the minority is not understood as being a coercive wealth-transfer program for the benefit of the minority. Very few Americans understand this. Very few Chinese understand it. Whenever a nation adopts mercantilism, which is approximately 100% of the time, it does so on the basis that almost no one understands that the policy inflicts damage on the vast majority of citizens, and it benefits only a minority who are in the export sector of the economy.
The world is adopting policies of competitive monetary depreciation. This is going to work to the disadvantage of the vast majority of citizens in every nation. They will not be allowed the benefit of having a strong domestic currency, which would enable them to import more goods from abroad. They would be able to get the goods and services they want, at an ever-declining price, if the domestic currency were based on a gold coin standard. If they had full gold coin redeemability on demand -- if they could go to a bank and get a fixed quantity of gold coins in exchange for digital money -- they would experience an ever-rising living standard. But they do not understand economics, so they consent to policies of mercantilism. This ultimately means monetary debasement. It steals from the masses for the benefit of the exporters. It sends desired goods to foreigners.
It is a shame that most people do not understand economics, but not a shame for favored exporters, who benefit from the theft of purchasing power. You cannot get something for nothing. A minority group of exporters get a lot. The masses get rising prices for almost everything.