The Intellectual Conditions for Recent Increases in Capital Mobility

Abstract

As the analysis in the following chapter will show, the process through which capital has become ever more mobile in the post-war period has been an incremental process rooted in step-by-step institutional reform. It was prey to the force of events and both the speed and the nature of the reforms were influenced by partisan changes in government. Viewed from the perspective of today’s opportunities for extremely high capital mobility, it can seem like a process that was dogged by many false starts. In this respect, economic theory ran considerably ahead of economic realities. The Bretton Woods system which had regulated capital movements from the end of the Second World War began to be dismantled in the mid-1970s. Yet, by this time the intellectual developments which shifted economics to models of perfect capital mobility had already occurred. Economists have found models based on the assumption of perfect capital mobility to be useful because they provide a relatively easy means of stating the conditions for equilibrium in precise mathematical terms (e.g., Kaldor 1972: 1237–8; Niehans 1994: 313–7; Mirowski 2002: 99–105). These conditions can then be translated into a series of ready-made prescriptions for running a market-based economy with a minimum of government intervention (e.g., Prachowny 1994: 27–8; Keen 2001: 161–3; Mäki 2001: 6–7).