The income statement discombobulates mercantilism proponents.
The income statement explicates -- in pure, indisputable numbers -- the expense of producing a good or service. It explicates with equal clarity the revenue derived from the sale of a good or a service. A merchant, as the seller, shows a total allocated expense of ninety cents; he sells his wares for a dollar. Ten cents profit appears as a very discernible, quantified number.
The buyer (here, I refer to the end consumer) offers no similar hard accounting, because he offers no income statement. All we know is that the buyer willingly parted with the dollar that conferred a ten-cent profit to the seller.
If we focus solely on the reported numbers, as mercantilism proponents do, it appears we have a proven winner and a putative loser. The numbers show the merchant cleared ten cents after accounting for ninety cents of expenses. We know the buyer, by trading his dollar for the merchant's wares, generated the merchant's ten-cent profit.
Did the merchant get the better of the buyer in the transaction? Does the seller always get the better of the buyer?
People unfamiliar with basic economics (the case for most mercantilism proponents) think so. Sellers get the better of buyers because exchange markets are zero-sum games. The numbers prove the point. He who receives the cash wins.
The conclusion is grounded in casuistry. Nothing is farther from the truth.
Trade is no zero-sum sporting game. Trade occurs only when both parties to the transaction expect to profit (or the next best alternative, minimize a loss). Thanks to the income statement, we can all see the merchant's profit. The buyer's profit, in contrast, is esoteric because it is all "psychic," though it is every bit as real.
We can infer that the buyer parting with his dollar valued the good or service more than he valued the dollar. If the buyer valued the good or service for less than a dollar, no purchase would have occurred. If he valued the good or service at a dollar, the purchase would have unlikely occurred. Why bother with the hassle of an exchange when inertia will produce the same utility?
When the buyer willing parts with his dollar, we infer, accurately, that the buyer profited from the transaction. The problem is that we don't know the extent of the profit. Returning to our dollar-sale: Was the buyer willing to pay one dollar and a penny? Was he willing to pay one dollar and fifty cents? We know only that the trade generated a profit for the buyer through his action.
So, lose the mercantilism mentality if it clouds your perception. A sale occurs only when both parties to the exchange expect to profit. Cash is no more a trophy to the seller than the good or service is to the buyer.
The income statement explicates -- in pure, indisputable numbers -- the expense of producing a good or service. It explicates with equal clarity the revenue derived from the sale of a good or a service. A merchant, as the seller, shows a total allocated expense of ninety cents; he sells his wares for a dollar. Ten cents profit appears as a very discernible, quantified number.
The buyer (here, I refer to the end consumer) offers no similar hard accounting, because he offers no income statement. All we know is that the buyer willingly parted with the dollar that conferred a ten-cent profit to the seller.
If we focus solely on the reported numbers, as mercantilism proponents do, it appears we have a proven winner and a putative loser. The numbers show the merchant cleared ten cents after accounting for ninety cents of expenses. We know the buyer, by trading his dollar for the merchant's wares, generated the merchant's ten-cent profit.
Did the merchant get the better of the buyer in the transaction? Does the seller always get the better of the buyer?
People unfamiliar with basic economics (the case for most mercantilism proponents) think so. Sellers get the better of buyers because exchange markets are zero-sum games. The numbers prove the point. He who receives the cash wins.
The conclusion is grounded in casuistry. Nothing is farther from the truth.
Trade is no zero-sum sporting game. Trade occurs only when both parties to the transaction expect to profit (or the next best alternative, minimize a loss). Thanks to the income statement, we can all see the merchant's profit. The buyer's profit, in contrast, is esoteric because it is all "psychic," though it is every bit as real.
We can infer that the buyer parting with his dollar valued the good or service more than he valued the dollar. If the buyer valued the good or service for less than a dollar, no purchase would have occurred. If he valued the good or service at a dollar, the purchase would have unlikely occurred. Why bother with the hassle of an exchange when inertia will produce the same utility?
When the buyer willing parts with his dollar, we infer, accurately, that the buyer profited from the transaction. The problem is that we don't know the extent of the profit. Returning to our dollar-sale: Was the buyer willing to pay one dollar and a penny? Was he willing to pay one dollar and fifty cents? We know only that the trade generated a profit for the buyer through his action.
So, lose the mercantilism mentality if it clouds your perception. A sale occurs only when both parties to the exchange expect to profit. Cash is no more a trophy to the seller than the good or service is to the buyer.
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