ABSTRACT
Robert Mundell in a study prepared for the International Monetary Fund demonstrated that the criterion of the principle of the smallest expenditure of energy also holds true for economic policy. Mundell proved that fiscal policy "always" enjoys a natural superiority in the regulation of domestic demand, and monetary policy is superior in the creation of foreign trade balance. The political overdemand on fiscal policy by too high and too rigid welfare expenditures thus faces an "instrumental" overdemand of the politically less committed monetary policy because monetary policy does not possess the weapons to break through a profound investment lethargy or to eliminate overblown investment risks. The only power monetary policy possesses is its braking effect. It can refract every upswing through monetary drying out—a skill which has been demonstrated repeatedly in modern times—while others foot the bill.
