Will To Depreciate

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Will To Depreciate

We should add that the will to depreciate is not all that strong. For some years, Arye been a largely absentee professor at the University of Geneva, at the institute there which concerns itself with international affairs. No question is asked us so often as 'Why can't we let the euro fall a bit??They could. But so long as the Swiss do not want internal inflation, they can't have much depredation. The Swiss want also to maintain their reputation as reliable bankers who deal in a currency with reliable purchasing power, and banking is, politically, an extremely influential industry in Switzerland. So the tourist and watch industries have, in some measure, been sacrificed to stable prices.

This, we should tell you, is our explanation; it's not a question to which everyone in Switzerland gives a clear answer. But the basic point is clear: the temptation to depreciate a currency in order to get a trade advantage is not nearly so great as was once imagined. Still, isn't there a chance that currency depreciation could lead to protectionism? We hear a lot about a return to protection. That chance or danger exists. In the not distant past the dollar was a bit high in relation to the yen. This and the efficiency of the Japanese caused buyers to swarm into Japan, Japanese goods to pour into the United States.

In consequence, there was agitation for tariffs or quotas on Japanese textiles, steel and television sets.

It has continued as the yen has gained.

But the urge for protection must also be kept in perspective Much of it now comes from textile or shoe manufacturers, national industries where firms are fairly numerous and small.

And from the associated trade unions.

Or it comes from older and inefficient national industries, of which steel is the best example.

Our steel industry has been drifting into obsolescence for years. And the large firms, as the industry itself recognizes, have been poorly managed - a domain of bureaucratic meat-heads. There isn't much agitation for protection by the large international firms, those producing automobiles, chemicals, computers and the like. This brings us back to the role and power of the large transnational corporation. For this firm, operating as it does across national boundaries, tariffs are a nuisance. It wants to produce at the place of greatest overall advantage as regards cost, consumer persuasion, getting what it needs from the government; often it will want to produce in one country, assemble in another. And, as We've said, you will always be less concerned about foreign competition if you own the competitor. But more important than such ownership is the understanding between large transnational firms that prices should not be cut, that to do so is a disaster for all. Oligopolistic understanding operates, as one would expect, across national frontiers. Car or computer people don't engage in cut-throat price competition. So, in an economy dominated by large corporations with international operations, there is built-in insurance against a protectionist revival.

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Monetary Protection

Although the effect soon wears off. It takes more of the depreciated currency to buy raw materials, food and other things the country has to import. As these go up in price, manufacturing costs rise, and so does the cost of living. That puts pressure on wages and leads to further rises in costs. So, before long, the products the country has to sell are marked up. The advantage from the depreciation is gone. And not only is the advantage temporary; not many countries now want to encourage and suffer the inflation which is involved. The Swiss and the Germans, as we?ve said, have chosen to let their currencies... see: Monetary Protection

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