It was sometime in the 1960's. My uncle was teaching in Bulgaria. He wanted to buy stuff in Britain, but wasn't allowed to take much money out of Bulgaria. My father was farming in Britain. He wanted to buy stuff in Bulgaria, but wasn't allowed to take much money out of Britain.
My uncle and father thought up a Cunning Plan. My father went to Bulgaria, where my uncle gave him money, and my father bought stuff. My uncle went to Britain, where my father gave him money, and my uncle bought stuff.
The Cunning Plan was possibly illegal? But it was Pareto Improving. My uncle preferred buying British stuff to buying Bulgarian stuff. My father preferred buying Bulgarian stuff to buying British stuff. The Bulgarian government wouldn't care whether it was my uncle or my father buying Bulgarian stuff. The British government wouldn't care whether it was my father or my uncle buying British stuff. (Even if they had hoarded money, instead of buying stuff, I can't see why either government would care whether it was my uncle or my father hoarding the money.)
The Cunning Plan was economically equivalent to barter. It was exactly as if my uncle had bought Bulgarian stuff, my father had bought British stuff, and then the two had swapped the stuff.
The Cunning Plan worked because my uncle and father knew each other, and trusted each other. What was needed was some sort of internet dating site, so that people like my uncle and my father could find each other, with the host checking that both sides could be trusted. But the dating site would need to be open to threesomes too, for cases where someone in Albania wants to buy stuff in Britain, someone in Britain wants to buy stuff in Chad Cyprus, and someone in Chad Cyprus wants to buy stuff in Albania. Or foursomes. Or orgies with all sorts of people from all sorts of countries taking part to greater or lesser extents.
What would happen if there were more farmers in Britain wanting to meet teachers in Bulgaria than vice versa? You would need some sort of price to adjust, so British farmers would get a worse deal, which would discourage some, and Bulgarian teachers would get a better deal, which would encourage some more.
If the British or Bulgarian governments tried to fix the price in that dating market, that would cause problems. There could be an excess demand or excess supply. Which would create all sorts of problems, and lead to rationing, because some British farmers or Bulgarian teachers wouldn't be able to find a partner. So the governments might need to decide who gets priority in finding a partner. And then people would start to think up even more Cunning Plans to get round those government decisions.
Or, we could forget all about exchange controls and Cunning Plans, and just have flexible exchange rates.
Worthwhile Canadian Initiative 
Genny:
Just a partial response (I’m working this morning)
1. Krugman: I think I’m awaiting your response to the article that I proposed. Can you get the article that I proposed?
2. Versailles: No, we get a more balanced view in Canadian schools, one which was recently reinforced by my reading of Margaret McMillian’s “Paris 1919” (I think in the UK the title was “The Peacemakers”) which talked about the politics behind the Treaty of Versailles. However, given your education, I can now better understand the apparent reverence in which you hold sovereign debt. So, are any German professors or journalists EU officials being charged in connection with Greece’s default? I ask only because you suggest that commenting on its potential advantages is criminal in your neck of the woods….
3. Austrian banks: I’ve been making the point that their regulators point out the risk exposure on their balance sheets. You are, I think, trying to point out that they have given a good rate of return in the last year or two, particularly when compared to some American banks. I’m not saying anything about American banks and I’m not sure why you’re bringing them up. I’m also not sure why you’re pointing ot returns rather than risk exposure, but I noted that you seem to have stated that there is a risk-return tradeoff here.
But to work….but let me know about Krugman!
Simon,
OK, let us focus on just this one thing, the Krugman paper:
From “speculative attack on fixed exchange rate regimes paper? I used to know that one and can say some things about how it fit into the literature.” I assume you mean his
Paul Krugman “A Model of Balance-of-Payments Crises” JOURNAL OF MONEY, CREDIT, AND BANKING, vol. I I , no. 3 (August 1979) page 311 – 325
I have this, can therefore discuss it, and it looks in general suitable to find out,
what I dont seem to see, but you, the economics professor with a sizeable h-index.
But I am not your “Genny”, I also do not “Simmy” or “Sissy” you : – )
Krugman: ok. Will try to get to it in the next few days.
Professor: Finance, not economics. (Odd, I know, as I’ve never taken a course in Finance.)
h-index: you’ll find lots with bigger and smaller.
Genny: I am Simon van Norden. You are not “genauer” (or have lead us to believe that this is just a pseudonym.) And, ever since you started playing with people’s names, I mistakenly assumed that you did not mind it and were not doing it to annoy (because that would be childish.)
Simon,
let us not get side tracked from the Krugman paper. I wait for you.
Like you, I can smile a little bit about things like h-index, this is much easier, when one has one: – )
I am a wanderer between several very different worlds, from folks at the very bottom to venture capitalists.
And using a handle like genauer is the only way to do that. I was not aware that I “played” with others names, but I looked back and take the hint.
Well, while I am waiting for the paper review,
maybe I serve up some gossip:
http://www.cyprus-mail.com/andreas-vgenopoulos/former-laiki-boss-demands-publication-bank-probes/20130402 pointing fingers at Orphanides
And talking with a guy by the handle “Carolus Galviensis”, in an Irish econ blog entry about their 9th IMF review)
about
– when the Röpke (one of the fathers of Ordnungspolitik) 1944 Civitas Humana was lent out at Kent County Library, and
– which version of Götterdämmerung might be the best
– walmart and their surprise that labor laws are enforced by the police
http://ftalphaville.ft.com/2013/04/05/1449852/cyprus-where-the-vicious-circle-stopped/ some interesting comments there
Some folks here might remember discussions about gasoline prices here,
interesting developments:
http://ftalphaville.ft.com/2013/04/05/1449952/something-is-happening-in-brent/
Simon,
I was wondering, it is now 2 weekends later, should I still wait for a response, or …. ?