Some Aspects of the Theory of Economic Policy in a World of Capital Mobility *

Professor Marco Fanno’s best-known contribution to the English literature of economics is his monograph on Normal and Abnormal International Capital Transfers. ¹ That monograph brought contemporary economic theory to bear on the economic effects of and policy problems raised by the abnormal capital movements – both intergovernmental and private – that plagued the interwar years and ultimately destroyed the international economic system that had evolved during the long period of peace before the First World War. Since Professor Fanno wrote, the international economic system has been reconstructed on lines in many respects parallel to those of the period with which he was concerned, and many of the same problems have returned to plague the governments and monetary authorities of the major countries. In particular, the national economic policy-makers have had to contend both with the international mobility of capital in response to interest rate movements, and with speculative capital movements. Moreover, their difficulties have been aggravated by the modern acceptance of explicit governmental responsibility for the maintenance of a high level of employment, a commitment which sharpens the conflict between external and internal equilibrium familiar to international monetary theorists since the period just after the First World War.