Re: greider article

["Dr. Bruce McFarling" <ecbm@xxxxxxxxxxxxxxxxxxx>]

Greg Nowell <gnowell@xxxxxxxxxx> on Fri, 16 Aug 2002 12:45:51 -0400

> Mr Tomasson has indicated that the world financial structure is

> unstable.  Keynes actual point, it seems to me from the GT, is that

> the core capitalist investment institutions -- the stock and bond

> markets -- are intrinsically unstable, whether world or national.

> We might add to this, in our era, a third point, that the means

> of exchange itself, money, constitutes yet another instability

> dimension that receives less attention in the GT than it might

> have, had Mr Keynes written in our time.  Prof. Davidson's

> points about the need for international financial stability are

> therefore highly germane, but only part of the total picture.


It bears remembering that the type of world financial structure
that looks attractive if you labour under the illusion of stable
financial markets is a nightmare when you are conscious of the
intrinsic instability of these markets.  GIVEN this intrinsic
instability, then a cellular structure in which there is
buffering between individual cells within which individual
financial asset markets operate is very attractive.  Total
isolation would, of course, be as severe a departure from an
attractive system as total global integration, but without the
risk exposure to financial instability in view, there is no way
to justify a value for the buffering function, and without
that, the comparison between further integration and structural
seperation will always favour further integration, all the way
up to fully integrated global markets.

As noted at the time by organisations such as UNCLA, the
Bretton Woods system as launched was not ideal, in that
national borders did not always encompass a sufficiently
large enough area to take full advantage of a system of
open economic *systems* (these are not the terms in which
they argued, but combines their argument about their then-
current situation with hindsight about what that situation
consisted of).  The move toward better economic integration
in Europe in the Bretton Woods period reflected a similar
reality in Europe.

It is also important to note that the Bretton Woods system
as actually put into practice ONLY really took care of the
problem of global effective demand, as a rough approximation,
under the situation in which the US was by far the dominant
economy in the world.  Since the rough maintenance of global
effective demand provided the conditions under which both
reconstructing and developing economies could grow faster
than the dominant global economy, this situation was
self-extinguishing.  This is, of course, along the lines
of Davidson's critique, that when the Bretton Woods system
reached its own self-created use-by date, it should have
been replaced by a system that provided the same benefits
but suited a more multi-polar economic system, instead of
being dismantled.