At Cafe Hayek, Don Boudreaux writes about “the idiocy of mercantilism.” I agree with the substance of his post, but I think he assumes something which is known to many Cafe Hayek patrons but not to many laymen. And that is the role of money.
According to the mercantilist dogma held by nearly all politicians and pundits (and, yes, also by the People), the best possible outcome for any country – call it country A – whose government is negotiating a trade deal is the following: the government of A arranges for the maximum possible number of citizens of A to work the maximum possible number of hours producing goods and services of maximum possible value to be exported to the maximum possible number of foreigners whose governments agree to prevent those foreigners from ever sending in return to the people of country A even as much as a single wooden toothpick.
All this is absolutely correct. However, many proponents of mercantilism would object and say “Don, you loon! Of course we get something in return! We get money. Our firms get profits!”
This is also true. However, money is not wealth.
“But Jon, now you are the one being the loon! How is money not wealth?” those same proponents would ask me.
Money is only good insofar as it can be traded for something else. Money in and of itself is just little scraps of paper with numbers and pictures printed on them. You cannot eat dollar bills. You cannot clothe yourself in Korean won. You cannot shelter yourself in Euro or live on Reals. They can be traded for something, yes, but in and of themselves they are not resources.
So, a nation that only exports and gets nothing but money in return is, indeed, made worse off. They send off their resources and get nothing but paper pictures back. However, if they send off goods/services and get other goods and services back, then they are made better off!
Exports are a cost; they are what we give up in order to import. Imports are the real benefits of trade.
In short, the purpose of trade is not to acquire more money but to acquire more wealth.
Update: Responding to a commentor at Cafe Hayek, Scott Drummond makes the same point more succinctly: “[M]oney isn’t wealth unless it can be used to acquire goods.”