The Inherent Value of Money Fallacy

This pernicious fallacy is once again raising its confusing head. The most recent instance I have seen is the argument advanced by conservatives that illegal immigrants send money home and this somehow affects the economy.

Oh, boy, where to start? First of all, money does not now represent actual value. Value is a metric we each assign money. For instance, my son believes, firmly, that the value of a dollar is around one fifth of a toy car. I disagree. I find that the value of a dollar is about two fifths of an energy drink. I also find the value of a dollar to be a certain percentage of my time, as I have a day job.

While the dollar value is different to different people, the number is not, and here is where the fallacy arises. We conclude that if we transfer the dollar from one person to another, its useful value will stay roughly the same. This is the fundamental fallacy of socialism, or any redistributionist system.

In the case of the illegal immigrant, however, the argument is particularly stupid, as it shows an epic misunderstanding of fundamental economics. Specifically, that dollar is the property of the US government and has no value outside of the United States. In other words, it is only legal tender in the United States. People outside the United States trade dollars because they know they can use them to buy useful things from the United States, not because there is any inherent value in a dollar.

If the illegal immigrant were sending, say, gold or some other precious good to his relatives, the argument might hold, but it would be more difficult to make because the immigrant would have had to purchase or acquire the gold or precious goods to send in the first place, which would have been economic activity in the US, weakening the original argument. However, some sort of valuable thing being sent to relatives in another country would definitely represent a reduction in the national wealth of the US. Why this doesn't matter I will explain a bit later. However, the dollar is not an inherently valuable thing.

The reason I'm stressing this point is that illegal immigrants work in the US, send their dollars home to, say Sweden (or wherever; not picking on anyone...), and their parents then convert the dollars to whatever the local currency is. The resultant dollars go into a bank where people who wish to buy things denominated in dollars may purchase them to do so. Once they buy something in dollars, the dollars are back home, in the US, circulating in the economy once again. In other words, the only difference between having an illegal spend money in the country and having one send the money home is how long it takes for the money to once again circulate.

Since the dollar was made in the US, it must always come back to the US sooner or later. On a macro scale, were the exports of the United States to continue to decline, at some point, the value of the dollar not in the US compared to those exports would go down. In other words, if the number of dollars floating around in the world economy stays the same but the amount of goods exported goes down, the goods would become more expensive, driving more exports and vice-versa. This is the price curve in action. In this case, the amount of dollars floating in the world economy has gone up, but the exports have not reacted yet, so dollar exports have become relatively more expensive. This means, over time, that demand for dollar-denominated exports will rise, causing an increase in manufacturing in the US to meet the demand.

So, not only does the illegal help his family back home, not only does he provide his country with much-needed hard currency, but he also stimulates the US export business. This is 'win-win'.

And, now for the case of the valuables being sent to the home country. First of all, the game is not zero sum; valuables are being injected into the economy at a fairly steady rate. Second, the increase in economic stature in the country the illegal came from is worth the valuables, as we generally pour plenty of economic aid into the types of countries illegals come from.

The other point is that an increase in wealth in a country generally leads to an increase in economic activity, which leads to an increase in consumption, which leads to an increase in importation, which will lead to an increase in demand for goods, which is pretty much what we have above. Of course, since the valuable goods are not dollars, they can be 'spent' anywhere in the globe, but any time they are spent, they will bid against activity in dollars. The increased economic activity will always drive increased exports.

One of the fun little facts is that the more people there are working productively, the higher the 'velocity' of money, meaning the more often it changes hands between its bouts in the government, and thus the greater the economic output. This will be true, at least, until we get a VAT. Anyway, the more people there are working, the greater the demand for goods and services, and the less those goods and services cost, leading us to my final point:

Any person working, for any amount, is producing in exchange for value. This means that an illegal working is producing value for his/her employer at the same time as gaining value for his/herself. This is an important point because even when illegals are 'taking jobs' they are producing value. That value will be 'spent' sooner or later on other value, leading to job creation, as it is value that would not otherwise have been there. What I'm trying to say is that the illegal earns and must spend, while his employer produces and must sell. Since the total cost of production is lower because of the illegal taking less money, the production is more efficient, and there is more to go around. This means generally better lives for everyone. The ability to gain a better life is directly linked to the rate at which people in an economy are gainfully employed in for profit enterprise.

Of course, the above clearly implies that, given true free trade, it wouldn't matter if the illegals worked in their country or ours, but that is a discussion for another time.