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| Immediately after the Second World War, the Scottish mandarin Donald MacDougall had expounded the proposition that the world faced a dollar shortage which was likely to be endemic and semi permanent. |
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| His popular theme was that America had a surplus of goods and commodities that the rest of the world needed and there was nothing in return that the Americans needed. |
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| Trade would therefore become a one way flow from America to the rest of the world with nothing going back to pay for it. The basic economic problem was therefore to manage a dollar shortage. |
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| Now an opposite theme is developing; the world has a surplus of goods that America is willing to consume and claims to need very little that the Americans produce; this has led to a glut of dollars which can only be accommodated by an accumulation of dollar surpluses. |
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| As the Nobel laureate Merton Miller once teasingly wrote, Americans pay for goods by providing dollars for which they can have an unlimited surplus as they have only to print paper in return for commodities. |
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| So long as the rest of the world is willing to hold the bulk of their exchange reserves in dollars, there is no obvious reason for Americans not to exchange their monopolistic capacity to produce dollars for goods. Once again trade becomes a one way flow. |
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| The Americans are however obviously agitated by this simple logic. They are now seeking to put pressure on the surplus producing countries like China, and Japan to revalue their currencies so that Americans have to pay more for importing goods from abroad. |
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| For conventional reasons Americans are unwilling to achieve the same economic effect by producing so many more dollars that they can easily flood the world with a glut of their currency. |
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| The obvious reason must be that they do not want American prices to rise; but then there lies a contradiction; for if other countries revalue the exchange rate, their goods will be more expensive for the American importer; thus what they are seeking to do is to make foreign goods more expensive for Americans without effecting the price of domestic goods. |
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| But that in a free market cannot happen; if foreign goods compete with American produced goods, an increase in prices through a revaluation must surely lead to an increase in price for American goods; if, on the other hand, foreign goods do not compete with American goods, that is if in some way, foreign goods are unique, then an increase in prices will only lead to more dollars accumulating to foreigners, thereby increasing the dollar glut. |
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Prima facie, the economics of persuading other countries to re-value is surely logically equivalent to devaluing one
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