Abstract
This paper reexamines the issue of international financial capital mobility, which is today’s economic orthodoxy. Discussion is often framed in terms of the impossible trinity. That framing distorts discussion by representing capital mobility as having equal significance with sovereign monetary policy and control over exchange rates. It also distorts discussion by ignoring possibilities for coordinated monetary policy and exchange rates, and for managed capital flows. The case for capital mobility rests on neo-classical economic efficiency arguments and neo-liberal political arguments. The case against capital mobility is based on Keynesian macroeconomic inefficiency arguments, neo-Walrasian market failure arguments, and neo-Marxian arguments regarding distortion of the social structure of accumulation. Close examination shows the case for capital mobility to be extremely flimsy, pointing to the ideological dimension behind today’s policy orthodoxy. JEL Classification: F00; F32; F33.
Highlights
The 1990s saw global implementation of the Washington Consensus, a key element of which was financial liberalization that included promotion of international capital mobility
This paper re-examines the economics of international capital mobility and argues there are good economic reasons for restoring capital controls as a standard part of the policy arsenal
The argument is there exists a fundamental inconsistency between the trinity of fixed exchange rates, sovereign monetary policy that sets domestic interest rates, and unfettered international capital mobility
Summary
This paper reexamines the issue of international financial capital mobility, which is today’s economic orthodoxy. That framing distorts discussion by representing capital mobility as having equal significance with sovereign monetary policy and control over exchange rates. It distorts discussion by ignoring possibilities for coordinated monetary policy and exchange rates, and for managed capital flows. The case for capital mobility rests on neo-classical economic efficiency arguments and neo-liberal political arguments. The case against capital mobility is based on Keynesian macroeconomic inefficiency arguments, neo-Walrasian market failure arguments, and neo-Marxian arguments regarding distortion of the social structure of accumulation. Close examination shows the case for capital mobility to be extremely flimsy, pointing to the ideological dimension behind today’s policy orthodoxy
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