Price of economic freedom: a guide to flexible rates

During the whole of the last decade the nation was exhorted by politicians, television programmes and many very worthy bodies to accept two beliefs: (a) that the balance of payments was the biggest industrial, economic, political and even moral problem the nation faced, and (b) that it was the personal responsibility of every citizen. A moralistic approach to economics prevailed in which specialised com mentators were asked on television if people could feel less guilty when the trade figures improved. There were documentary films, business conferences, books, pamphlets and poster campaigns emphasising the sinister threat of national bankruptcy, and our individual duty to work harder to prevent it. Some of these to the embarrassment of their authors-saw the light of the day in the early months of 1970 when the British balance of payments had, according to the official figures, never been 'better'. Even then the syndrome did not disappear, and the most serious statesmen, diplomats and even official economists believed that the biggest obstacle to Britain joining the E.E.C. was the balance of payments cost.

This book has three main objects. The first is to explain why the balance of payments is a pseudo-problem, artificially created by the attempt to freeze exchange rates and/or mistaken domestic financial management. But like all self-created problems, it is capable of doing untold harm if allowed to persist. If exchange rates were flexible, as advocated in the following pages, there is a very high probability that the balance of payments would be relegated to a very minor place among policy questions for any country that conducted its affairs with reasonable - not ideal - prudence.