I totally agree with this article. There is more to currencies than just interest rates differentials. They reflect productivity differentials, government regulations, concentration of power.
If one were to take the passage seriously the only conclusion would be that just as a common currency is supposedly a bad idea for EU countries, so has a common dollar been a disaster for most of our 50 U.S. states, along with the various countries around the world that have essentially dollarized their economies. The economies of New York, California and Texas are nothing like those of West Virginia and Mississippi, not to mention that economic activity in Manhattan, Beverly Hills and Highland Park in no way resembles what’s taking place in Buffalo, San Bernardino and Denton, yet the dollar is the accepted medium of exchange without much in the way of protest in all the locales mentioned despite their “very different economies.” Implicit in the assertion about the alleged horrors of a common currency is that the relatively weak economies of Arthurdale (WV) and Oxford (MS) are held back by the dollar such that each state should issue a currency of its own.
In the magazine’s defense, what it presumes about money is not uncommon on both the left and right, and that’s the problem. While many on the right pay lip service to the tautology that there’s no free lunch, alongside their reliably emotional opponents on the left who act as though lunch can be free (government spending seemingly just happens, with no one fleeced to pay for it…), each subscribes to the falsehood that “money” is magical, and can be played around with by wise minds to achieve all manner of wondrous economic outcomes.
In truth, money is solely a measure. I have bread, I want your wine, but you don’t want my bread. Money makes a transaction possible between a baker and vintner with differing wants simply because it’s historically been viewed as a stable “ticket” that allows producers of actual wealth to measure what they produce on the way to trade. Money facilitates exchange, and that’s why a common dollar has long made so much sense. That’s why the euro still makes sense.
To simplify what is truly basic, but almost totally misunderstood by those deep in thought on the right and left, money is not wealth. Instead, money is how we exchange actual wealth. Money is also not investment. Repeat the latter over and over again. Instead, money is what we use to direct the economy’s actual resources to their highest use. Money facilitates investment. That’s why gold has historically been used as the definer of money. Known throughout history as the most constant commodity from a value standpoint in the marketplace, it was logically used to define money that achieves its greatest utility when it’s stable.
Economies grow thanks to investment, and when investors invest, they are buying future dollar, euro, yen (name your currency) income streams. So while money itself isn’t wealth, stable money makes the investment that leads to wealth creation far more constant, patient, intrepid, etc.
Furthermore, those still deluded by the notion that monetary policy for rich countries is not appropriate for poorer countries might ask themselves what things would look like for the euro itself had Greek monetary authorities not just designed it, but if Greece’s economic situation were the driving force behind the ECB’s conduct of monetary policy. If so, as in if
The belief underlying the idea that relative economic laggards need a “separate” monetary policy is the equivalent of
But for now, let it be said that even if the Drachma were to replace the euro,
It’s then argued that the acceptance of the euro as “money” is what got
What the above hides is that
All of which leads to the most brain dead commentary of all about
Yet missed by the fabulists on the left and right is that there are second and third stage market responses to currency devaluation. To devalue the currency is to tautologically raise production and labor costs, all the while devaluing earnings that attract investors in the first place. That no country in the history of the world has ever devalued its way to prosperity doesn’t deter the mystics across the ideological spectrum who think diluting the proverbial ticket will alter reality. That devaluation would scare away the very investors essential to growth doesn’t seem to interest the astrologists either.
Fair enough, there’s no law against confusion, but with
George Dagnino, PhD
The Peter Dag portfolio
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