hallam@Etna.ai.mit.edu wrote:

Similarly your point about government control of currency is somewhat puzzling. Are you arguing that we are less prosperous today than we were in the 1920's? If so that would be a somewhat curious argument which you will no doubt share with us. The only modern country I know of which does not control its currency is Lichenstein which uses the Swiss Franc,

There are dozens - Jersey, Isle of Man, Andorra, ...

I'm not sure what lessons can be learnt from a country whose chief ecconomic activities are gambling and facilitating tax evasion however.

Ever heard of Goodhearts law? (something along the lines of "efforts to regulate something will result in it moving somewhere unregulated"). Gary -- pub 1024/C001D00D 1996/01/22 Gary Howland <gary@systemics.com> Key fingerprint = 0C FB 60 61 4D 3B 24 7D 1C 89 1D BE 1F EE 09 06

hallam@Etna.ai.mit.edu wrote:

Jersey and the Isle of Man are not independent soverign nations. The Manx parliament is subordinate to the English Privy Council and Jersey is similarly an anachronism. Andora is ruled jointly by the French President and a Spanish Bishop (or is it the other way round?).

Andorra is a self governing sovereign nation - the French president and Spanish bishop play only titular roles. Regarding Jersey and the Isle of Man, I misunderstood the requirement for the countries to be independant - we were after all discussing countries which have no control over their currencies. Still, there are many non-independant countries that do not use the currency of the country they are dependent on - for example Bermuda and BVI (both UK dependent) use the US dollar. Many of the Caribbean islands which are UK dependent (eg. Anguilla) use East Caribbean dollars. There are also several independent sovereign nations that have no control over their own currency (eg. Liechtenstein (the one you mentioned), Andorra, Monaco, Nauru, Marshall Islands, Micronesia and Pueto Rico). One could even argue that countries such as Cuba have relinquished control over their own currency by tying their Peso to the US dollar (which is also widely used in Cuba). The same could perhaps be said of Luxembourg.

Fogive my skepticism but I don't think that any ecconomist would seriously suggest these as usefull models for modern industrial societies. The chief industries being parasitic on those of larger nations.

First of all, "parasitic" is a very derogatory term to apply to these nations. They are no more parasitic than out of town supermarkets. Second, you suggest Liechenstein as a useful model for a modern industrial society that has no control over its currency, but then go on to criticise Andorra as a useful model. Why? Third, you have missed the point I was making, that of Goodhearts law, which loosely states that "attempts by the government to regulate or tax one channel of banking business quickly lead to the same business being conducted through a different channel which is untaxed or unregulated". Surely the fact that every large nation has its banking tax havens (eg. UK has the Channel Islands, the US has the Caribbean islands) is proof of this? Gary -- pub 1024/C001D00D 1996/01/22 Gary Howland <gary@systemics.com> Key fingerprint = 0C FB 60 61 4D 3B 24 7D 1C 89 1D BE 1F EE 09 06

First of all, "parasitic" is a very derogatory term to apply to these nations. They are no more parasitic than out of town supermarkets.

A parasite is omething that lives off a host to its detriment. It is easy for a small island nation to be parasitic off larger ones. The problem for the USA, UK, Germany etc is that there are no larger nations for them to be parasites of, nor are their native peoples to steal land from or colonies to exploit. In short someone, somewhere has to do some work.

Second, you suggest Liechenstein as a useful model for a modern industrial society that has no control over its currency, but then go on to criticise Andorra as a useful model. Why?

Actually I discounted both as models. I don't consider the ecconomy of a country of less than a million to be particularly informative in considering the ecconomies of countries of fifty or a thousand times that number for the reasons advanced above.

Third, you have missed the point I was making, that of Goodhearts law, which loosely states that "attempts by the government to regulate or tax one channel of banking business quickly lead to the same business being conducted through a different channel which is untaxed or unregulated". Surely the fact that every large nation has its banking tax havens (eg. UK has the Channel Islands, the US has the Caribbean islands) is proof of this?

I'm very skeptical about any idea that is referred to as a "law". The experience of science is that natural laws are no more constant than human ones. In the social sciences such terms tend to indicate no more than the existence of physics envy. The greatest danger is when the title "law" causes the importance of an effect to be mistaken. Just because an effect can be observed and explained does not mean that it is the only effect. To call something a "law" is almost guaranteed to lead to biased analysis. Goodhearts theorem is overbroad as stated. The banking industry will clearly attempt to move to the most beneficial channels. That does not necessarily mean unregulated. A banker's main product is trust. The fact that a bank is regulated by government increases consumer confidence and trust. If I place my money in Midland bank UK I know that those deposits are guaranteed by the government of the UK. Even if the bank itself becomes illiquid I can recover my money. The cost of this security is regulation which I am as a customer happy to take the benefit of. The fact that a proportion of money is diverted through tax havens does not imply that all money will be so diverted. The major banking centers of the world continue to be London, Geneva, New York and Tokyo, all of which are heavilly regulated. The final factor you exclude is that of ecconomic imperialism. Small countries don't have unlimited opportunities to exercise their sovereignty as the govt. of Panama discovered. While a country has the theoretical right to become a drug trafficing haven it faces the risk of sanctions ranging from ecconomic pressure to invasion and occupation. Similarly the Swiss govt no longer offers the same anonymity it once did. Phill