Theoretical Approaches to Adjustment
Theories relating to adjustment of the balance of payments are deep-rooted in economic literature. They go back at least to the pre-Adam Smith writings of the mercantilists. But they have this in common: they are concerned with the maintenance of the balance of payments in relation to some stated norm. For the mercantilists, the desired norm consisted of an excess of exports over imports. The choice of this norm was justified politically by the contribution it made to the enrichment of the nation state. For the English economists of the nineteenth century, the norm was defined in terms of an equilibrium of foreign transactions such that it conformed to a general equilibrium system, variations in which were expressed by intra-country movements of some generally accepted monetary medium — in practical terms, gold. Thus the great difference between the views of adjustment before and after Adam Smith was that the earlier view valued accumulation of international money by country A at the expense of countries B, C and D, whereas the later view conceived of an equilibrium distribution of international money as between countries in the world system proportionate to the share of each in world output of goods and services.
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