Shopping Cart Economics: Wealth vs. Money and the So-Called “Trade Deficit”

by Justin Honaker

I work in a grocery store.  Sometimes a customer will remark, “Well, there goes a hundred dollars,” as they hand me their money to pay for their groceries.  They say this in the same way as if they had thrown that same $100 in the river and watched it drift away.

These customers have the same problem as politicians, economists, and others who stress about the so-called “trade deficit.”  The problem is that many people understand Money and Wealth to be entirely synonymous, that is, Money is Wealth and Wealth is Money.  This is only half right.

Yes, Money is Wealth.  Wealth, however, is not necessarily Money, because Money is not the only form of Wealth.  Everything a person owns is a part of that person’s Wealth.  Houses and land, vehicles, stocks and bonds, furniture, indeed, everything down to the smallest, seemingly most worthless possession, makes up a person’s Wealth.  Even the food in his cabinets is included in his Wealth.

On the international level a “trade deficit” occurs when one nation spends more Money on goods produced by another nation than that other nation spends on goods produced by the first nation.  For example, ABC spends $100 million purchasing goods from XYZ.  XYZ buys $75 million worth of goods from ABC.  This creates a “trade deficit” of $25 million in XYZ’s favor.  This terminology ignores the fact that ABC received $100 million worth of goods (one form of Wealth) in return for the $100 million worth of Money (another form of Wealth).  There is no “trade deficit.”  ABC and XYZ conducted business to the tune of $195 million at a rate of $1 in goods to $1 in Money.

Now back to the shopping cart.  The customer is receiving $100 worth of groceries in return for $100 worth of Money.  The customer is not out $100.  He has traded Money for goods.  His Wealth has not diminished.  Depending on how valuable the groceries are to him, his Wealth may even have increased.  (If the customer had valued the Money more, he would not have traded it for the groceries. Value is not only objective, it can be and often is subjective.)

So, “There goes a hundred dollars,” you say?  Well, “Here comes a hundred dollars worth of groceries back at you,” I say.  “Have a nice day.”