Disorder and Public Concern Around Globalization E-Book

Mario Amendola

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 288

Veröffentlichungsjahr: 2019

Beschreibung

Disorder and Public Concern Around Globalization examines the contrast between an idealized vision and a realistic view of globalization. Both are inscribed in the contemporary debate within political and economic theory. This opposition highlights the conditions under which wealth creation and equitable distribution can outweigh the mere diversion of value and deepening of inequalities. This book shows how facts and ideas can explain the shape currently taken by globalization, the latest innovation of market economies. Still, the unpredictable path followed depends on the attitudes of entrepreneurs and capital holders who arbitrate between short- and long-term timescales, between value creation and rent collection: attitudes driven by the same organizations and institutions that shape markets, structure the social order and ensure the viability of the current transition.

Leseprobe

Table of Contents

Cover

Introduction

1 The New Transition

1.1. The world of yesterday

1.2. Toward an economy of supply

1.3. Withdrawal of the State

1.4. Idealized globalization

1.5. Between dream and reality

1.6. Viability in question

2 The Constraints of Innovation

2.1. A truly industrial world

2.2. Roundabout production

2.3. A creative destruction process

2.4. Coordination requirement

2.5. Coordination power

2.6. The shortcomings of globalization

3 Entrepreneurs at the Crossroads

3.1. The entrepreneur out of time

3.2. The entrepreneur, master of time

3.3. Market connections

3.4. Competition revisited

3.5. Between value creation and diversion

3.6. Globalized entrepreneurship

4 The Time of Finance

4.1. Idealized financial markets

4.2. A contrasted reality

4.3. Capital and commitment

4.4. Corporate value

4.5. Influence of the funding structure

4.6. The risk of financial decommitment

5 The Return of Inequalities and Rents

5.1. The false argument of technology

5.2. A weakened growth potential

5.3. The perverse effect of household debt

5.4. Toward a rent-seekers economy

5.5. Social order in question

5.6. The new segmentation

6 The State in View of the Globalization Challenge

6.1. Free trade in question

6.2. The illusory promise of structural reforms

6.3. The obsession with competitiveness

6.4. The dilemma of borders

6.5. The temporal coherence of public action

6.6. The institutional challenge

7 Liberalism Revisited

7.1. Trust and regulation

7.2. Classical and bastardized liberalism

7.3. The State and the common good

7.4. Liberal democracy

7.5. The challenge of globalization

7.6. An open and equitable society

Conclusion

References

Index

End User License Agreement

Guide

Cover

Table of Contents

Begin Reading

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Series Editor

Jacques Le Cacheux

Disorder and Public Concern Around Globalization

Mario Amendola

Jean-Luc Gaffard

First published 2019 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address:

ISTE Ltd 27-37 St George’s Road London SW19 4EU UKwww.iste.co.uk

John Wiley & Sons, Inc. 111 River Street Hoboken, NJ 07030 USAwww.wiley.com

© ISTE Ltd 2019

The rights of Mario Amendola and Jean-Luc Gaffard to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Library of Congress Control Number: 2018966973

British Library Cataloguing-in-Publication Data

A CIP record for this book is available from the British Library

ISBN 978-1-78630-405-6

Introduction

Rebellion is born of the spectacle of irrationality… But its blind impulse is to demand order in the midst of chaos, and unity in the very heart of the ephemeral.

Albert Camus The Rebel (1951)

After many years of tranquility consisting of an uninterrupted and general improvement in living standards and a victory over the communist world, the Western world and especially Europe, who are committed toward achieving economic and monetary union, again face uncertainty. Governments seem to no longer have the compass that would allow them to find the way to a satisfactory growth, even while the idea that we could enter an era of secular stagnation emerged.

A disorder then establishes in acts and in minds leading to the irrationality that can emerge from a world’s state resulting from an undermined consensus and a return to old and discredited ideas. A demand for order in the midst of chaos is thus all the more necessary.

It is certainly difficult for the economist, concerned with rigor and recognition, to conceive disorder and irrationality. The economist wants to imagine a world in which equilibrium is assured by some sort of Laplace’s Demon, intelligence that knows all the forces that animate nature and for which nothing would be uncertain. He/she may think that the globalization of trade could enable the emergence of a global economy made up of ultimately autonomous individuals, who would no longer have to yield to any regulation impeding the proper functioning of the market, which would then curiously become more similar to the supposedly omniscient planning of the centralized economies of the communist era.

This globalization is, however, far from marking the end of history, as would agree an economist who neither believes in perpetual tranquility nor permanent chaos. The necessary order is always fragile. It is major and economic events that, putting societies in great difficulty, reveal the true nature of the problems these must solve in order to continue to exist. Financial instability, mass unemployment and international trade imbalances are never definitively overcome. These ills do not result from a divine curse, nor do they constitute a black swan. They are the result of individual and collective behaviors whose coordination is disrupted by the irruption of novelty, when its failure, brought about by finance mistakes, brings the economy out of its stability corridor.

Wealth creation and individual as well as collective well-being improvement conditions are yet and always to be implemented, simply because they reflect societal choices and policy arbitrations. There is no ready to use toolkit available in the hands of economic experts who would only have to designate the best possible decisions to policy makers. Conflicting interests are then inevitable and the political debate is necessary to make possible, through interest negotiation, a wealth creation process.

Without doubt there are forces contributing to secular stagnation, as witnessed by societies over centuries or millennia. It is not possible to rule out the fact that episodes of strong growth that studded the past hundred and 50 years are of an exceptional nature. There is, however, an intellectual laziness specific to economists who want to stick to the effects of phenomena perceived fundamentally as extraneous to the economy, be they natural constraints, technical revolutions or demographic movements.

The weight of beliefs combined with that of general poverty could, over the centuries, impose the vision of a closed world, subject to forces over which humanity has no control, where a human being is the toy of God or of relentless historical developments. The rupture, of which contemporary societies are heirs, came from the moment when man freed himself from these chains and thought himself master of his destiny, for better or for worse.

In this new world, there are no peculiar dynamics of populations, technologies or preferences, that is, independent of institutions. Technologies as preferences do not exist prior to economic and social choices that would be dictated by them. They are on the contrary, the result. Innovation, far from being reducible to the simple diffusion of scientific and technical knowledge, is the economic and social process that makes them emerge at the pace of the ruptures it causes. Private behaviors and public policies, conceived in response to the distortions and imbalances inherent in evolution, determine sequences and bifurcations that structure evolution step after step. Time flows in one direction, but there seems to be no single way out, no historical fatality and predetermined path. Experience shows that there are several effective varieties of capitalism that current globalization is jeopardizing, but without implying that they should be extinguished in favor of a presumed optimal variety.

Episodes of tranquility, steady growth and great moderation, as observed in the early 2000s, created the danger that the weight of uncertainty and irreversibility may lose attention. The effects of time were suspended for a moment, or, more precisely, the mechanical and static vision of a reversible time, which was too often approved by economists, prevailed until instability once again became topical and the ignored forces of uncertainty and irreversibility generated disorder. It was now time to try to contain them and to this end to recognize the contingency of the laws that guide the behavior of individuals and the evolution of societies.

The new globalization, which is none other than the last break to date specific to the essence of capitalism, does not escape the dilemma of contingency and ambiguity of the passage of time. Ecological transition, which is the other dimension of the changes in progress, also does not escape this dilemma. The nature and causes of the wealth of nations have not significantly changed since the beginning of industrial capitalism.

Growth continues to be the fruit of the emergence of innovation that begins a period of turmoil, distortion and creative destruction, whose difficulties are related at the required time to produce the new state of the world. Coordination requirements are not less than in the past. Stakeholders are always entrepreneurs and financiers who have to recurrently arbitrate between the short and long term, as well as between value diversion and creation. It is still public authorities facing the same dilemma and guarantors of the institutional and organizational choices that have to shape the markets, structure social links and ensure the viability of ongoing transitions.

Today’s world, like that of yesterday, is torn between short- and long-term requirements, more fundamentally between yielding to the belief in a bright future laid out in advance, whatever happens in the immediate future, and the conviction that only the mastery of current disorders makes it possible to envisage and build a reasonably quiet future.

Conviction should therefore take advantage of the need for political debate to find, through interest negotiation and preservation of diversity, the way of controlling time and creating wealth. This is the essence of a political as well as economic liberalism that recognizes the place of both the market and public authority in this project, which is always working on constituting individuals in society. This is also the essence of democracy that includes the political form likely to ensure the proper functioning of an economy whose evolution is never written, but is carried out on the way. Thus, tension is maintained between a need for stability at the heart of the exercise of democratic power and the systematic questioning of economic and social organization.

In view of this challenge, policy makers, far from the claim of constraining the real starting from the absolute of thought, have the duty to rely on observation to analyze the conditions in which it is possible, along the way, to maintain a permanently fragile order. Instead of responding to the very easy and ultimately dangerous search for the uniformity of rules recognizing the self-regulation of markets that would have been identified by economists in quest of the ideal, they have to foster institutions that guarantee a spirit of measure and compromise.

The thread that links the following chapters is in line with the perspective outlined above and is based on the conviction – stimulated by current debates on the nature and characteristics of ongoing globalization – that major shocks, in creating enormous difficulties for human societies, reveal the true nature of the problems that these societies must overcome to continue to exist and progress.

Such phenomena, which generate significant economic and social upheavals, are by their nature processes whose configuration cannot result from a “choice” between several alternatives with outcomes that could be established a priori.

By “process” we mean an evolution whose successive stages and orientations depend on trial and error, which at every moment creates imbalances and conflicts requiring specific coordination to address and resolve them in order to make society viable and prevent it from collapsing.

This coordination activity naturally takes place over time in accordance with the evolving nature of ongoing changes and with the aim of handling the obstacles that arise at every stage, as a result of the gradual transformation of production capacity at the heart of changes in the operation and functioning of the economy.

The required arbitrations are based on established institutional and organizational forms that guide both private and public actions conducted over time. These forms determine the time horizon that is crucial for the type of decisions taken and the results achieved.

Chapter 1 deals with the split that has occurred in economic facts and ideas since the 1970s with regard to the conditions of regulation of economic activity, in other words relations between the market and the State. The new transition undertaken is perceived as oscillating between an idealized world, in which all regulation would be excluded because it has become unnecessary and a lived world, whose viability would not in any way be assured.

In Chapter 2, it is argued that innovation presented by current globalization does not exempt the need to consider the permanent features of structural changes that are characteristic of market economies. The phenomena of creative destruction are regarded as being at the heart of the change process, requiring the implementation of coordination powers with the conditions governing its exercise being largely dependent on stakeholders’ ability to fit into the long term.

Chapter 3 details the entrepreneurial function by proposing to contrast the entrepreneur who coordinates a wealth-creating activity and is part of the long term, with those who exercise their talent mainly for the purpose of diverting value and are part of the short term. The nature of the company is thus questioned at the same time as the ambivalent role of so-called market imperfections is highlighted.

Chapter 4 establishes that two types of financial intermediaries (shareholders or bankers) correspond to the two types of entrepreneur according to the relationship that they have with time. Some engage in the long term with the companies they finance, while others speculate in the short term. Thus, the issue is not the relevance of finance in itself but the degree of patience of capital owners involved in the regulation and organization of the financial sector inevitably altered by globalization.

Chapter 5 focuses on demonstrating that the recent widening of inequalities is largely the result of the behavior of entrepreneurs and financiers, their choice, conditioned by institutions, of prioritizing immediate results and formation of what amounts to annuities. This evolution is not viewed as the testimony of the emergence of a new world order responding to new technological or market conditions but as the outcome of political and social choices compromising the stability of national societies and the international society.

Chapter 6 argues that the control of change requires the recognition of the role of institutions, which are not reducible with regard to the intangible rules embodied in numerical indicators but are diverse because of historical, cultural, social or political differences revealed by their national roots. Nations are therefore still regarded as essential places of coordination since distortions are most visible and felt at their level and have to be addressed under the condition of mastering the articulation of imbalances in time and space.

In Chapter 7, attempts are made to dissociate classical from bastardized liberalism that structured the dominant discourse on globalization and seeks to reduce public action to the application of intangible rules enacted by the doctrine. It then serves as a reminder of what the common good, rule of law and liberal democracy are all about, the real purpose being to make the necessary arbitrations to respond to recurring conflicts of interest and reconcile equity and efficiency in an open society. It then seeks to establish the danger of globalization if it was to follow a slope leading to dualism within various societies and the withdrawal of States that would end up favoring confrontation because of the inability to rely on regulatory cooperation.

1The New Transition

Globalization, such as it emerged at the turn of the 1990s, marked what some have called the end of history and the advent of an ultimately fully accomplished market economy.

Rather than talking about the end of history, it would be better to recognize, in this globalization, a new and undoubtedly remarkable episode, of what is at the heart of industrial capitalism, namely the recurrent emergence of novelty. Capitalism is not and has never been a stabilized state of society complying with unchanged rules or standards intended to establish an ideal model. Its forms evolved as new challenges were to be overcome. The problem posed by globalization is that of mastering the transition undertaken.

The breaks observed put the established ideas to the test every time. These ideas were too often rooted in the illusion of the optimality or simply the appropriateness of the rules and behaviors in force. Current globalization is no exception. Though the issue in the early 2000s was that of great moderation, meaning that the economy, now free of any discretionary intervention, would experience strong growth without inflation or unemployment, the crisis however contradicted this belief. Banks had to be rescued by States, which then acquired a regulatory function though questioned for several decades. The ideas in vogue, especially those that extolled the expected benefits of globalization, were at odds. Yet, they resisted because it is true that decision makers often remain prisoners of old ideas, sometimes very old, in this case, of an approximate reading of Walras and theoreticians of general equilibrium, which led them to prescribe flexibility measures intended to allow economies to move closer1.

A debate runs through the history of economic ideas that opposes proponents of the existence of an imminent order to agnostics who recognize the recurrence of disorders that arise from irreversibility and uncertainty at the heart of the evolution of market economies.

What supporters of pure and perfect competition have in common with proponents of the possibility of an idealized final state of communism is the idea of wanting to exclude all forms of individual or collective power. The absence of the State in the intellectual construct of the former echoes its disappearance, which is the dream of the latter. The perception of the inevitability of disorder can, on the contrary, only lead to the recognition of the permanency and necessity of the exercise of power, which no doubt has a coercive virtue but more prosaically a coordination function. The globalization we experience, far from eliminating power, changes the conditions of its exercise. The old question remains of what makes a society, the necessity and means to allow individuals to coordinate, and what helps not to eliminate once and for all but to manage conflicts? The impossibility of aggregating individual preferences to make a coherent collective choice, far from constituting a justification for a world devoid of any powers, reveals the need for intermediation, in fact of private or public organizations, exercising authority and power whose boundaries must be known2.

1.1. The world of yesterday

For our contemporaries, the world of yesterday is the one that emerged from the Great Depression and Second World War. State intervention appeared, then, as the essential complement to the market in the function of coordination of economic activity, and thus, in the wealth creation process. This was not because the State was considered omniscient, but because of the role it could play in regulating aggregate demand, by damping out fluctuations that originated in the private sphere, while possibly allowing an increasing of budget deficit and assuming an increase in public debt when the issue of private debt reduction had to be addressed.

The mandate of public authority was not to substitute itself for the market but to help it function better. Its mission was not only motivated by social concerns; it was also on grounds of economic efficiency. It was equally as absurd to think that an integral laissez-faire attitude would likely ensure growth and well-being compared to thinking that the same objective could be achieved by central planning. Keynes refused to have a moral reading of the economy, and rather adopted an ultimately technical approach. For him, the issue was preserving the market economy while not believing that laissez-faire was the key to its effectiveness.

The world that complies with new guidelines is that of developed market economies. It interacts with the communist and developing worlds by having little or no substantial economic ties with them. It witnessed, from the late 1940s and for about three decades, strong and steady growth as well as full employment. The institutional environment associates regulatory State and industrial oligopolies far from a situation of pure and perfect competition3. The State uses fiscal policy to regulate economic trends in effect to arbitrate between inflation and unemployment rates within narrow limits. It ensures the regularity of major public investments in infrastructure and research. Private companies evolve by focusing more on medium-term planning of their objectives and investments. They are able to mobilize huge amounts of capital to cope with technological development and expanding markets. Corporate planning and aggregate demand regulation are intrinsically linked here, with demand regulation making companies’ forecasts less uncertain, their commitments less risky and the decision-making horizon more distant.

High availability of liquidity results in persistently low interest rates and financiers devoid of real powers. A technostructure is established which shows an accentuated separation between capital ownership and companies’ management and strategic solidarity between companies’ senior executives and management. Despite substantial differences in the organization of powers within companies, agreement regarding the need for equitable sharing of the benefits of growth with employees is made at all levels. This necessity has become a true strategic axis.

The success of this world was, of course, the result of national policies implemented in the aftermath of the war, but it would not have happened if a relative cohesion of international economic relations had not been obtained because of Bretton Woods’ agreements. The real objective of these agreements was to reconcile a domestic macroeconomic regulation power based on the existence of internal stabilizers and the search for social justice (through, in particular, unemployment, health and pension insurance) with a necessary international discipline likely to guarantee gradual trade liberalization. The external objectives of trade liberalization were subordinated to domestic objectives, for example full employment, growth and social welfare. The margin for maneuver left to each nation, including terms of external trade exchange, enabled the development of various forms of capitalism distinguished by different approaches to corporate governance, labor markets operation and social regimes. The internal growth of different countries enhanced trade liberalization much more than liberalization-favored growth4.

At the time, the restricted circle of Western countries and Japan obtained the means to manage global imbalances resulting from structural changes and differences between countries, while maintaining control over international capital movements. Such control constituted an arrangement that was intended to be permanent. It went hand in hand with fixed (and adjustable) exchange rates such as to guarantee relative independence of domestic economic policies. The required independence was strengthened by two provisions. The first lay in the possibility for each country to request funding from the International Monetary Fund, guarantor of financial stability, in order to address the temporary difficulties in external payments. The second was the possibility of parity changes in the presence of what appeared to be a fundamental imbalance.

Moreover, fixed exchange rates were a favorable peg for the implementation of corporate development strategies. The choice of progressivity in tariff and non-tariff barrier dismantling gave these same companies time to adapt, reducing the destruction of capital which was its consequence, in accordance with the recommendations formulated long ago, in ultimately analogous circumstances, by Adam Smith5.

This world was too soon perceived as relying solely on the implementation of some principles of aggregate demand regulation responding to the existence of cyclical coordination failures that could be resolved immediately. The existence of structural changes, though at the heart of capitalist market economies, was ignored, along with the awareness of the time needed for the required adjustments to take place. However, significant changes occurred that had, as sources, the development of social and military programs in the United States in the late 1990s that obviously had nothing to do with any cyclical regulation and questioned the major balances.

This world lost its coherence at the turn of the 1970s. The break with the existing economic and political order resulted in a shock on raw material prices and especially on oil prices, following tensions on the markets owing in particular to strong growth driven by the US public deficit. The situation for States and companies was shattered. States had to deal with the issue of loss of control of the economy as inflation and unemployment rose. Companies had to face the additional challenge of technological change brought about by oil price increas and opening of new markets in a context of liberalization of capital movements. Beyond the ups and downs of the moment and the necessary choice of controlling an inflation that became too strong, a revolution took place in the field of ideas whose effects on behavior gradually spread.

1.2. Toward an economy of supply

The strong and steady growth experienced by Western world economies in the three decades following the end of the Second World War paradoxically brought back ideas that the Great Depression had torn apart. The rules of perfect competition became reference rules, albeit not becoming, in the immediate future, rules of conduct. The ruse of reason consisted of separating the short from the long term. In the short term, the State’s ability to regulate demand was still, for a moment, recognized. In the long term, market forces were judged to be the only truly effective forces. Demand could fluctuate but around a trend that obeyed the conditions of labor supply and technology only and constituting an attracting force for the economy.

In the long term, no place was given to money and financial system whose neutrality was postulated. Banks became pure intermediaries between ultimate lenders (households) and ultimate borrowers (companies), their behavior affecting in no way the volumes saved and invested and the trend pattern followed by the economy. There was no alternative to savings invested in corporate investment. The amount of money in circulation, controlled by the Central Bank, was supposed to grow at a rate equivalent to the potential growth rate of the economy.

As for the State, its long-term action was limited to ensuring compliance with full competition rules. In the short term, it could at most control and limit demand fluctuations around the growth path determined solely by supply forces6.

The economy thus described is a scale model of general market equilibrium defined by Walras. Technological and demographic offer determine potential growth and income distribution. Compliance with competition rules help in getting the best out of them. Prices and factor remunerations are flexible and instantly clear markets. Technologies are at constant returns, if not decreasing7. A possible undermining of scientific and technological progress and productivity gains is, in this perspective, only likely to explain the entry into an era of secular stagnation8.

The paradox is that the economies of the period in which this analysis was made – in the 1950s and 1960s – did not fulfill any of the conditions of this general equilibrium9. Many prices and wages were controlled, the others were not very flexible. Economies of scale were omnipresent. The State acted on the economy but also on growth capacities through massive public investments, and this, in the dominant economy (the United States) as in catching-up economies (Western European countries and Japan).

This gap between facts and theory never seems to have really posed a problem. There was a period when the so-called Schumpeterian hypothesis was adopted, according to which obtaining a monopoly rent was an incentive to innovate as well as a growth factor. But this situation was quickly circumscribed to the case of backward economies placed in catch-up position, as was the case with European economies after the Second World War, whereas in the case of economies considered to be on the technological frontier, the idea of maintaining or establishing the conditions for competition as close as possible to the ideal type took root again in the 1980s10. We are thus called upon to return to the findings of the canonical model. Not without maintaining the confusion with regard to the reality of the competition phenomenon defined as a state of the market and not a process consists of conflict and rivalry.

The observation that work productivity, far from being regular, follows cycles does not in any way question this doctrine. If there are any fluctuations, they are attributed to random – positive and negative – productivity shocks, which are, however, of low amplitude. These are supposedly natural and optimal equilibrium fluctuations, as they take place in an environment of full competition and comply with the behavior of individuals seeking to maximize their utility. Only price rigidities are then assumed to prevent this economy from being at the potentially highest level of production and must be addressed11.

1.3. Withdrawal of the State

While the idea that growth obeys only supply forces persisted, the idea that the State maintains a short-term regulatory role was undermined. The Keynesian vulgate, which was established in the late 1960s, was part of the belief in the possibility for governments to meticulously and almost instantly regulate the economy mainly through public budgets. This belief lost ground on contact with a new reality, the simultaneous rise in inflation and unemployment, and finally yielded to another belief: that governments are permanently incapable of providing discretionary regulation and cannot and should not oppose supposedly self-regulating market forces.

The flow of ideas took place progressively. Even before the problem of the simultaneous increase in inflation and unemployment arose, the debate concerned the respective merits of monetary and fiscal policies between economists sharing the same formal construct, and the same economic model, to the point that everyone intended to follow the Keynesian theory like Friedman, leader of the monetarist theory. The cleavage, which remained apparent on an empirical field, related to the existence or not of a crowding-out effect of private expenditure by public expenditure following a revival of the latter and the ensuing increase in interest rates. A positive response to this question, as per the monetarists, was already questioning the government’s regulation ability, especially since the subsequent choice of prioritizing monetary policy led to the exclusion of any discretionary approach to establish a strict rule, the monetary rule, consisting of establishing a growth rate of the quantity of money equal to the product growth rate.

The explanation of the simultaneous increase in inflation and unemployment was at the origin of a real revolution in the history of ideas12. The inverse relationship between inflation and unemployment rate – the famous Phillips curve – is maintained insofar as we continue to consider that an increase in unemployment is an obstacle to wage demands and price increase that may follow. But to this is added the perfectly legitimate observation according to which current inflation rate is all the more higher than the expected inflation rate is itself. The economy is in equilibrium when this expectation is confirmed. Its corresponding unemployment rate is called the natural unemployment rate. In this perspective, any revival of activity through budget or monetary means from this position is doomed to failure. Increase in demand weighs on prices, leads to an upward revision of anticipated prices and subsequently an increase in wages, that is, a drop in profitability with the consequence, sooner or later, of rendering inevitable a return to the initial production level and thus, the unemployment rate13.

In doing so, the inflation issue is dissociated from the employment issue. Inflation once more becomes a purely monetary phenomenon, following excess money creation by the Central Bank that controls it, and unemployment is a real phenomenon, indicative of demographic conditions and the way in which labor, goods and services markets operate. The dichotomy between real and monetary phenomena, at the heart of Walrasian general market equilibrium theory, is reestablished.

Under the new doctrine, the Central Bank now has a primary, if not sole, objective, which includes controlling the inflation rate by controlling the money supply or subsequently, the interest rate. The Central Bank becomes independent and is headed by a Governor convinced by the new ideas, so that monetary policy decisions escape