The Two Markets

The exigencies of national sovereignty

We noted above that rebalancing involves shifts in conditions: reductions in prices and wages and/or migration of labor. One involves intervention to keep wages from declining. Another involves barriers to migration.

Barriers to migration are inherent in the world in which we live, because nations are inherent in that world. Nationhood entails a range of cultural differences, not least of which is language; and sovereignty, which is an expression of nationhood, imposes enforceable national boundaries. These factors all serve to restrict migration.

Where these barriers do not exist, and where production levels are insufficient to employ labor, or where conditions are less satisfactory than elsewhere, people will migrate to where working conditions are better. In the case of our two economies above, the migration of labor will drive wages down in the export economy and push wages up in the import economy. But barriers to migration keep this rebalancing from taking place. Nations restrict the flow of migration because it will lead to declines in wages, a more difficult job market, and to an increased burden on social services, besides the fact that national culture and identity may be endangered by influxes of foreign migrant peoples carrying with them their own cultures, mores, and religions. The capacity for nations to assimilate immigrants is finite, and only made more difficult by mass migrations, in which it is large groups and not individuals that have to be assimilated. In that case, the distinction between migration and invasion becomes blurred.

Regardless of these difficulties, the imbalance remains. How is it to be redressed? One way is by a more exclusive focus on wage and price declines – deflation. This is a hard road, and is nowadays politically unfeasible. There is another solution, involving currency regimes. Jane Jacobs, for one, expounds this in her above-mentioned book. It is the solution of floating currencies, which enable an alternative means of rebalancing. We will take up this option below.