Controls in International Economics or the Renewal of the Methoden-Streit

Abstract

Since 1967 — and well before the disruption caused by the recent activities of O.P.E.C. — the very foundations of the international monetary and banking system have been threatened by repeated and increasingly severe currency crises. Yet conventional economic theory, whether of the neo-Keynesian or monetarist school, has been completely unable to account for what has happened, as is clearly demonstrated by the wails and confessions of its principal standard-bearers. The very fact that each camp has been characterized by deepening and increasingly violent discord is added proof of the helplessness of traditional methods in the face of modern problems. Among the former, the neo-Keynesians, the difference of opinion is between those who maintain that the balance of payments is a simple mirror image of the state of public sector financing, and those who believe that stability can be secured at an acceptably low rate of unemployment by means of monetary and fiscal ‘fine-tuning’. The latter, the monetarists, are equally violently divided between, on the one hand, those who hold that exchange rate adjustments and monetary policy are a sufficient corrective for international payments imbalances, and, on the other, those who deny that such traditional policies can affect ‘real factors’.