Re: controlling capital?

[Warren Mosler <mosler@xxxxxxxx>]

At 11:09 AM 3/9/96 -0400, you wrote:
>
>
>On Sat, 9 Mar 1996, Warren Mosler wrote:
>
>> Just to make sure I am on track with the logic, exactly how is capital and
>> flow of capital defined?  For example, real capital flows are the movement of
>> real means of production, such the shipment of, say, machine tools from
>> the U.S. to Mexico.   If capital refers to the money only, than the term
>> "flow" needs to be examined.  For example, if I sell my dollars and buy
>> pesos, there is a counter party.  The money is changing hands.  But until
>> money is spent on real goods and services, there are no real effects.
>>
>> Warren Mosler
>>
>>
>This is the same confusion that plagued the dicussions of liquidity
>preference in the early 1930s.  After all how can there be a bull market
>Warren?  For every bull there must be a bear?  Obviously the fact that
>for every buyer there must be a seller does not prevent stock prices
>from m oving.

Yes, the indifference level is what changes.

 What a Tobin Tax is suppose to do is to prevent hot money
>portfolio movements between currencies. (This is what is meant by capital
>flows in the present discussion.)

Thank you for this specific answer.  In my circles the term is sometimes
used differently.

 It is a question of international
>liquidity preferences that can be disruptive to real income and global
>employment -- just as liquidity preference s can be disruptive to
>employment in a closed economy model.

Currency stability is obviously a very controversial subject.  I find
it very interesting, for example, that the European ERM required each
member, at the end of the day, to support its own currency.  The methods
employed were usually selling available currency reserves, and arranging
lines of credit with other members to be able to engage in further purchases
of the assaulted member's own currency.  Along with this the central bank
usually raised interest rates, hoping to discourage short selling.

I have contended that the ERM was, at best, a condition of unstable equilibrium,
with defensive measures actually weakening the currency under attack.  A stable
equilibrium condition would entail the other members supporting a currency
under attack.  This, of course, would result in unassailable bands.  However,
this arrrangement is feared to trigger the "race to the bottom" as
inflationary policy is rewarded.

Without getting too lengthy, it seems that there are many alternatives to
a tax on transactions to minimize disruptions due to speculative
currency transactions.  Any tax would also have the potential to be circumvented
through derivative transactions, as is already happening.


>
>Paul D.
>
>

Warren B. Mosler
Director of Economic Analysis
III Finance

See:

"Soft Currency Economics"
=========================
http://inca.gate.net/~mosler/softecon.html