Reforming the world monetary system

Abstract

PurposeThe purpose of this paper is to examine Fritz Machlup's method and use of scenario analysis in the policy discussions around exchange rate solutions to balance of payments problems.Design/methodology/approachThe qualitative research on which this paper is based is the sociohistorical biographical approach, based on a close examination of published works and archival materials.FindingsWhat makes Machlup unique is his focus on the impact to an economic system of discrete human actions, each set of actions associated with a change in exchange rate policy and the operations and institutions necessary to implement it. Impact on the system was evaluated in terms of three values – balance of payments adjustment, liquidity and confidence. In his use of a system's approach, his focus on change and adjustment to change, and most particularly his focus on human action, Machlup is also distinctively Austrian.Research limitations/implicationsThis is the first paper generated from the author's far larger planned study of Fritz Machlup and the Bellagio Group.Practical implicationsThe collaborative exploration of alternative futures by senior teams has become increasingly important to strategic planning by governments and corporations.Originality/valueThe story of the Fritz Machlup's contribution to exchange rate regimes, international trade and the balance of payments has remained largely untold.