Rethinking the economics of capital mobility and capital controls

Vol. 29 No. 3 (2009)

Jul-Sep / 2009
Published July 1, 2009

How to Cite

Palley, Thomas I. 2009. “Rethinking the Economics of Capital Mobility and Capital Controls”. Brazilian Journal of Political Economy 29 (3):15-34.

Rethinking the economics of capital mobility and capital controls

Thomas I. Palley
independent economist working in Washington DC
Brazilian Journal of Political Economy, Vol. 29 No. 3 (2009), Jul-Sep / 2009, Pages 15-34


This paper reexamines the issue of international financial capital mobility, which is today’s economic orthodoxy. Discussion is often framed in terms of the impossible trinity. That framing distorts discussion by representing capital mobility as having equal significance with sovereign monetary policy and control over exchange rates. It also distorts discussion by ignoring possibilities for coordinated monetary policy and exchange rates, and for managed capital flows. The case for capital mobility rests on neo-classical economic efficiency arguments and neo-liberal political arguments. The case against capital mobility is based on Keynesian macroeconomic inefficiency arguments, neo-Walrasian market failure arguments, and neo-Marxian arguments regarding distortion of the social structure of accumulation. Close examination shows the case for capital mobility to be extremely flimsy, pointing to the ideological dimension behind today’s policy orthodoxy.

JEL Classification: F00; F32; F33.

Keywords: capital mobility capital controls impossible trinity