Salin, Pascal
A icle
Commen on Da id Laidle 's "Conce ning Cu ency
Unions"
Zei sch i ü Wi scha s- und Sozialwissenscha en (ZWS) - Vie eljah essch i de
Gesellscha ü Wi scha s- und Sozialwissenscha en, Ve ein ü Socialpoli ik
P o ided in Coope a ion wi h:
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Sugges ed Ci a ion: Salin, Pascal (1979) : Commen on Da id Laidle 's "Conce ning Cu ency Unions",
Zei sch i ü Wi scha s- und Sozialwissenscha en (ZWS) - Vie eljah essch i de Gesellscha
ü Wi scha s- und Sozialwissenscha en, Ve ein ü Socialpoli ik, ISSN 0342-1783, Duncke &
Humblo , Be lin, Vol. 99, Iss. 1-2, pp. 163-165,
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Commen on Da id Laidle 's
"Conce ning Cu ency Unions"
By Pascal Salin*
In his pape Da id Laidle ecalls some basic ideas abou cu ency
uni ica ion — concei ed as he ixing o exchange a es — he i s one
being ha exchange a e changes a e o a nominal na u e. F om ha
poin o iew i is no essen ial o choose ixed o lexible a es and he
cu ency union issue is mos ly i ele an . In o he wo ds, he e a e no
special cos s o a sys em o ixed a es, bu no p ecise eason o choos-
ing hem, excep o he sa ing made in he use o money, which — as
Da id Laidle says — may be o a second o de o impo ance. This e-
la i e unimpo ance o choosing an exchange sys em is, o ins ance, ex-
p essed in he ollowing e ms in he OPTICA 75 epo : "Mone a y
union would be an ins i u ional o ganiza ion among coun ies aiming
a economic union, such as o minimize he ine iciencies inhe en in he
use and con ol o money wi hin he union." Such an in e p e a ion o
mone a y uni ica ion se s he basic o he pa allel cu ency app oach.
F om a heo e ical poin o iew, he e o e, he cos s and bene i s
om cu ency uni ica ion — de ined as he ixing o exchange a es —
a e o a second o de o impo ance.
Howe e , al hough Da id Laidle accep s he mone a is iew, acco d-
ing o which a coun y ough o decide a mone a y ule, he e uses o go
one s ep u he and o admi ha , once a coun y has accep ed a mone-
a y ule, i does no bea any addi ional cos by joining a cu ency
union and abandoning he igh o de e mine i s own mone a y ule and
i s own a e o in la ion.
In ac he choice be ween ixed and lexible a es is mainly an empi-
ical p oblem. Flexibili y means independence in he conduc o mone-
a y policy, bu one can make a bad use o independence. Thus, he case
o o agains cu ency uni ica ion o en shi s bade o a guess abou
he beha io o mone a y au ho i ies and ma ke s.
Da id Laidle 's c i e ion o choosing an exchange egime is he e-
la i e speed o adjus men , o ins ance be ween money wages changes
* Uni e si é Pa is-IX-Dauphine.
11*
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164 Pascal Salin
and exchange a e changes. In he same way, M. F iedman (1953) a gued,
a long ime ago, ha i was easie o change he p ice o a cu ency in
e ms o ano he han o change all nominal p ices in e ms o a cu ency.
W. Fellne (1973) b ough an impo an elemen in o his discussion,
based on he assump ion ha indi iduals a e a ional: i adjus men
implies a dec ease in eal wages (o , a leas , a slowing down o hei
a e o g ow h), i can be be e ob ained h ough a dep ecia ion o he
exchange a e han by an incomes policy, e en i he e is no exchange
a e illusion, con a y o wha is usually said. In ac , adjus men h ough
he exchange a e implies ha e e yone bea s he adjus men cos a
he same ime, in he o m o a dec ease o a slowing down o he pu -
chasing powe o his income; whe eas nobody accep s his same esul
h ough an incomes policy, since he ea s ha he migh be he only one
o bea his cos i o he s succeed in de ea ing he incomes policy.
Da id Laidle 's opinion is simila . Howe e i seems somewha exces-
si e i s because he conside s he case o a need o an absolu e dec ease
in eal wages and no only a slowing down in hei a e o g ow h. Al-
hough his can happen — he eal ans e o oil-p oduce s, when he
p ice o oil inc eases and a coun y canno sp ead ou he e ec s o he
p ice ise o e ime by bo owing, is an example o such a case — i is
a a he a e si ua ion. In mos cases a coun y only has o ace he neces-
si y o slowing down he inc ease in eal wages. I can hus be assumed
ha wage-ea ne s e use an absolu e eal wage cu , bu no a change in
he a e o g ow h o eal wages so ha he p ocess o adjus men
h ough wages would no be slowe han he p ocess o adjus men
h ough exchange a es. I wage-ea ne s e use he needed slowing down
o hei wages he e is no solu ion, wha e e he policy adop ed and he
exchange egimes.
Second, Da id Laidle assumes ha he exchange ma ke adjus s mo e
quickly han he labo ma ke . A mo e impo an ques ion would be he
ollowing: which ma ke is he mo e s abilizing? F om his poin o iew
i could be a gued ha specula o s may ha e a des abilizing ole and e-
cen expe iences wi h loa ing exchange a es could ein o ce his
opinion. Expec a ions o a u he dep ecia ion o he cu ency induce
specula o s o cause an ac ual dep ecia ion, which causes p ice inc eases,
highe wage claims, e c...
In his chain o causali y be ween exchange a es, wages and p ices,
who is he mos esponsible o ins abili y? Wage-ea ne s? Specula o s?
The u h is ha expec a ions can be des abilizing only i mone a y
au ho i ies alida e hem: specula ion on he exchange ma ke is no
des abilizing in i sel , bu only as a as i may induce des abilizing mone-
a y policy, he mone a y au ho i ies being unable o unwilling o esis
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Commen on Da id Laidle 165
he exchange dep ecia ing — and in la iona y p essu es s emming om
he specula o s' beha io .
I i is hen assumed ha he money supply is pe ec ly o highly
elas ic and alida es in la iona y p essu es i is impo an o compa e
he o ma ion o expec a ions on he exchange ma ke and he labo
ma ke : ecen expe iences would no be in a o o Da id Laidle 's
opinion, since he exchange a e has been much mo e ola ile han he
wage a e in mos coun ies. The eason could be a ibu ed o "di y
loa ing", bu , also, o o he ac o s, o ins ance he lack o specula ion.1
In such a case he adjus men p ocess would be mo e cos ly by elying
upon exchange a e changes han upon changes in he a e o g ow h o
wages.
Thi d, Da id Laidle belie es ha "wage adjus men " implies unem-
ploymen . Bu adjus men could also be e ec ed h ough labo mobili y.
Such a p ocess could ha e long- un e ec s in he o m o esul ing allo-
ca ion o ac i i ies. Wha is he di e ence in his espec be ween ixed
and lexible a es? Le us assume — as was done in " adi ional" li e a-
u e on cu ency uni ica ion — ha he e is a shi in demand away
om he goods in which a coun y p e iously specialized. Nominal wages
being in lexible, unemploymen appea s unde ixed a es. Real wages
dec ease unde lexible a es. In any case, adjus men implies ha ac-
o s o p oduc ion mo e o o he ac i i ies in he coun y o mo e o
o he coun ies. Will labo mobili y espond mo e o unemploymen o
o he dec ease in eal wages? The answe can only be empi ical, and
he e is no a p io i eason o hink ha he adjus men is as e o less
cos ly wi h one o he o he exchange egime.
The e o e one could disag ee wi h he ollowing asse ions by Da id
Laidle : " he a e age le el o unemploymen o e ime will, o a simila
pa e n o shocks be highe in a coun y which belongs o a cu ency
union"; o "The main enance o mone a y independence by indi idual
coun ies would lead o smalle sho - e m luc ua ions in ou pu
and employmen ". One eason o disagg eemen is he one we jus
s essed, namely ha he necessa y ac o mobili y is no necessa ily
highe unde one o he o he sys em. Ano he eason is he ollowing:
i canno be denied ha a coun y's policy is independen unde lexible
a es, bu his does no mean ha he coun y's policy is mo e s abiliz-
ing. Le us jus imagine ha a coun y uses i s mone a y independence
o emba k upon a e y es ic i e mone a y policy: eal shocks implying
eal wage cu s will c ea e unemploymen . Wha would ha e happened
unde ixed a es? One canno answe wi hou knowing he beha io o
he "common mone a y au ho i ies": one possibili y would be ha he
1 C . R. I. McKinnon (1976).
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166 Pascal Salin
union adop s he same a e o in la ion as he coun y would ha e done
unde loa ing a es.
Ano he possibili y would be ha he "common a e o in la ion" is
highe , in which case he sho - un a e o unemploymen would be
smalle . O he a e o in la ion could be lowe in he union, especially
i he coun y conce ned is small so ha i canno ha e much in luence
on he decisions aken by he "common au ho i ies" and i i is ela-
i ely mo e a ec ed by he assumed eal shocks. The issue may hus
depend on he dis ibu ion o powe in he union and on he dis ibu ion
o shocks. In some sense, Da id Laidle makes a plea in a o o in la-
ion and no a plea in a o o loa ing a es. The plea in a o o in la-
ion is based on he assump ion o some sho - un ade-o be ween
unemploymen and in la ion and he ela i e social cos s o bo h and
we ha e no o discuss i as such. The only poin we wan o s ess is he
ollowing: e en i one ag ees ha in la ion has o be p e e ed o unem-
ploymen in he sho - un and he e is no isk o con inuing in la ion,
i is no heo e ically ue ha mone a y uni ica ion — de ined as a e-
gime o ixed a es — is ela i ely an i-in la ion-biased, so ha loa ing
a es would be be e .
Re e ences
Commission o he Eu opean Communi ies, OPTICA Repo 1975: Towa ds
Equilib ium and Mone a y Uni ica ion in Eu ope, Repo by a g oup o
independen expe s, II/909/75-E, 16 Janua y 1976.
Fellne , W. (1973), Con olled Floa ing and he Con used Issue o Money
Illusion, Banca Nazionale del La o o Qua e ly Re iew, Sep embe , pp.
206
- 234.
F iedman, M. (1953), The Case o Flexible Exchange Ra es, in: M. F iedman,
Essays in Posi i e Economics, The Uni e si y o Chicago P ess.
McKinnon, R. I. (1976), Floa ing Fo eign Exchange Ra es 1973-74: The Em-
pe o 's New Clo hes, in: K. B unne and A. H. Mel ze (eds.), Ins i u ional
A angemen s and he In la ion P oblem, Ca negie-Roches e Con e ence
Se ies on Public Policy, Ams e dam, No h-Holland, p. 79 - 114.
OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/
DOI h ps://doi.o g/10.3790/schm.99.1-2.163 | Gene a ed on 2023-04-04 11:56:17