How You Can Profit From The Coming Devaluation by Harry Browne

Author:Harry Browne [Browne, Harry]
Language: eng
Format: epub
ISBN: 9780985253905
Publisher: Lipton Financial Services, Inc.
Published: 2012-04-26T04:00:00+00:00

IMPORTS

The effect upon imports is exactly the opposite. With a 50% devaluation, they would double in price immediately, because of the change in currency ratios. The only exceptions would be imports from other nations that had just suffered a similar devaluation.3

Overseas suppliers, in countries where no devaluation had taken place, would require more dollars than they did before. They could lower their prices; but why should they? They can still get their old prices in other countries; it is only the American devaluation that has made their products seem more expensive here. However, if America is the chief market, then their sales will suffer and their prices will probably drop to some extent.

In any case, to the American citizen, the prices are much higher. The devaluation has not made him wealthier; nor has it given him more paper money to play with. He simply faces higher import prices with the same old funds.

This, the politicians gladly proclaim, is the solution to the “balance of payments” problem (the outflow of dollars). Exports are stimulated and imports are discouraged. Of course, this means that we, as consumers, lose a great many attractive choices that were once available to us. And all to solve a problem that wouldn’t have existed in the first place without the government’s inflation.

The higher prices to Americans for imports will not result in more dollars being spent on imports. Rather, it will mean that fewer imports will be purchased. For the consumer doesn’t have any additional paper money to spend.

It is important to realize that resources are limited. At any given moment m history, there are a fixed number of resources to be spent. Raising prices at that moment will only reduce the numbers and sizes of purchases.

This is a basic economic truth that is hard for many people to understand. Lack of understanding has created a widespread fallacy concerning the so-called wage-price spiral.

Resources are limited. So price increases (without accompanying inflation) reduce the number of purchases that can be made.

Only inflation can permit higher and higher prices. It is incorrect to think of labor unions, or anyone else, as causing inflation or higher prices by their wage demands. For where would the money come from to pay the higher wages? From higher prices? But where would the consumer suddenly get the money with which to pay the higher prices?

The fact that a union has succeeded in forcing a wage increase upon a company doesn’t create the money with which to pay the increase. If the company attempts to pass the increase on to the consumer, it is just reducing the number of purchases the consumer can make with his limited resources.

Inflation feeds more paper money into circulation, which is then soaked up in many places and in many ways. And unions are part of the soaking-up process. But without inflation, customers could only pay higher prices by reducing other purchases. Unions would simply cause unemployment and business failures whenever they succeeded in forcing a wage increase. For there would be no extra money with which to pay the higher prices required.

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