Academic journal article Romanian Journal of European Affairs

The Theory of Political Monetary (Dis)Integration; A Minority Report from the Perspective of Austrian Economics

Academic journal article Romanian Journal of European Affairs

The Theory of Political Monetary (Dis)Integration; A Minority Report from the Perspective of Austrian Economics

Article excerpt

Abstract**:

The issue of monetary disintegration gains an increasing place in the interest of political economists and policy makers alike. Until recently, the process through which two states that previously shared a common currency decide to abandon it and choose national currencies instead was a marginal and accidental event in history. It was met in the case of political disintegration of state constructions such as Czechoslovakia, Soviet Union or Yugoslavia, typically built through military aggression and experiencing widespread economic planning. Today, world may experience another type of monetary disintegration. In this case, it is the result of a deep economic crisis affecting the democratic process of integration in Western Europe. The difficulties experienced by some of the member states of the Euro-zone as well as the debate around the correct path towards solving them has raised the scenario that at least some of these countries will abandon their membership of the European Monetary System. The hallmark characteristic of these states is their open and predominantly market-oriented economies. Their return to a planned economy as well as complete autarchy from the rest of the global and regional economy is highly improbable. But they have also a monetary system based on political money and massive wealth redistribution is possible through the monetary mechanism.

Keywords: money, integration, European Union, monetary competition

JEL code: E42, G01, P22

The debate on the nature of money is one of the most challenging and controversial issues in political economy. According to Ludwig von Mises, the core issue in monetary economics lies in the explanation of the formation and dynamics of the purchasing power of the monetary unit: "the central element in the economic problem of money is the objective exchange value of money, popularly called its purchasing power. This is the necessary starting point of all discussion" (Mises, 1 981 , p. 1 1 7). All other issues are derivative or formalistic.

The fundamental controversy in this field of study is determined by the fact that monetary economists are divided between what could be called realists and nominalists. The first category considers that money is a market phenomenon which was appropriated and manipulated by the state. They do not ignore the legal dimension of state regulations but argue that the reality of the economic processes is a result of independent laws that shape them. The state cannot fix by decree the purchasing power of the monetary unit as this is a result of the interplay between demand and supply for money of all the users ofthat currency in a society. The second category considers that money is a state phenomenon, established and defined exclusively by political authority. The state could manipulate the money supply as it sees fit. According to Mises, however, "the nominalistic monetary theories of the present day are, characterized by their inability to contribute a single word toward the solution of the chief problem of monetary theory ... namely, that of explaining the exchange ratios between money and other economic goods. For their authors, the economic problem of value and prices simply does not exist" (Mises, 198 1, p. 77).

In this paper, we opt for a realistic perspective on the monetary phenomenon and employ principles advanced by Austrian economics to scrutinize the challenging processes of monetary integration and disintegration. We differentiate between market monetary integration and political monetary integration. In the first case, we consider a realistic and economic process of monetary integration, undergone in a free market. In the second case, we identify political monetary integration as a political process designed by states.

We define the political monetary integration as a process through which two or more states decide to adopt the same currency as a legal tender. By contrary, monetary disintegration is a process through which one or more states decide to abandon a previously common currency and adopt different currencies from that moment on. …

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