The Job Guarantee: Key to a Sound Currency and Successful Foreign Trade

The key to foreign trade is a sound currency. This is especially true for a country like the UK, which buys lots of imports. Exporters need to feel confident that the currency is worth accepting in exchange for exports.

Maintaining a sound currency is harder than it may seem. Various techniques have been tried. A classic one is the gold standard. The government maintains a buffer stock of gold and agrees to sell it for its currency at a fixed price. If its currency begins to look soft, people just swap it for gold. This stabilises the currency by sterilizing the excess. The policy also signals the government’s commitment to sound currency: if it tries to cheat by buying things with an inflated currency, all it ends up doing is draining its gold buffer.

There are many problems with the gold standard. It holds the government back from responding to periods of high unemployment with aggressive fiscal policy. It also drives a lot of pointless investment in gold speculation – pointless because gold isn’t actually useful for very much.

The job guarantee uses the same principle as the gold standard with labour instead of gold. By hiring everyone willing to work at a living wage, the government maintains a buffer stock of labour. If the currency looks soft, people will hire workers out of the buffer stock, effectively swapping cash for labour. Again this sterilizes excess cash, since the government is no longer issuing currency to pay the workers who are now privately employed. On the other hand, if people prefer to hold currency, they can leave workers in the guarantee programme and keep their cash.

Again there is an automatic stabilizer on the currency. Again, the government signals its commitment to sound money: if it tries to pay with inflated currency, it just ends up draining its labour buffer. The job guarantee has all the advantages of the gold standard, with the added bonus of guaranteeing 0% unemployment at a living wage and driving investment in people rather than gold.

It is the most effective sound money policy possible. The gold standard makes a nation’s currency ‘as good as gold’, by backing it with the promise of gold at a certain price. The job guarantee makes the nation’s currency better than gold, by backing it with the promise of labour at a living wage – far more useful than gold.

And sound money, again, is the key to foreign trade. This is worth mentioning because some people think that foreign trade grounds an argument against the job guarantee. They mistakenly see it as inflationary, overlooking the fact that it prevents inflation by providing a price-guaranteed buffer stock in which people can invest if they prefer not to hold cash. The buffer absorbs any currency rejection, ensuring that all currency in circulation is accepted at the going price-level.

The job guarantee is the key to sound money and successful foreign trade. Do you want your nation to have zero unemployment, a guaranteed living wage, and a favourable position in a global market? Then pressure your politicians to support the job guarantee.

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6 thoughts on “The Job Guarantee: Key to a Sound Currency and Successful Foreign Trade

  1. NeilW

    “Exporters need to feel confident that the currency is worth accepting in exchange for exports.”

    Do they? What’s their alternative? Not make the sale and let the trade go to a competitor nation with a more helpful central bank policy? (Or even just a competitor with a more helpful bank).

    The alternative to exporting for a foreign currency is to not make something, contract your production and sack your staff. Because you are in competition with lots of other competitors from lots of other nations – all of whom do not see eye to eye. There isn’t a greenfield elsewhere where you can simply offload the spare production if you suddenly don’t like the colour of somebody’s paper.

    One of the problems with the ‘external sector’ view is that it lumps China, Russia and the USA in the same box and assumes they will react in the same way. That’s not realistic and therefore the external sector abstraction is too coarse to be valuable. It leads to inappropriate thinking about a world of currency zones set in competition with each other.

    Reply
    1. axdouglas Post author

      Yeah, ok, and I mostly agree with your line on this: http://www.3spoken.co.uk/2014/02/its-exporters-stupid.html

      But think of it this way: if a nation can be silly enough to sustain unnecessary unemployment because it trembles at the thought of its own government running a deficit, it can be silly enough, in principle, to do so because it trembles to hold the bonds of foreign nations.

      I know people exaggerate the need of a country to maintain a sound currency in order to maintain its trade balance. You’re right that the exporters themselves will help maintain the soundness of the importer’s currency. But the point still stands, I think, that if you had a job guarantee you’d have a sound currency, whether you needed it or not. Plus you’d be running at full capacity. I don’t see the downside.

      Reply
      1. NeilW

        The problem with a nation silly enough to sustain unnecessary unemployment is that it probably has a central bank that uses the same obsolete tactics as the England Football team.

        You need a Job Guarantee, a tight Minsky banking structure and a focus on maintaining the domestic economy to allow a stable currency.

        The vulnerability comes from begin able to create currency (by borrowing) to directly settle FX trades. You want people selling short to have to settle with old money, not new.

      2. axdouglas Post author

        I may have missed your last point, but is it that you need banking regulation to stop people borrowing to short fx forwards, etc.? If so, I agree, and it follows that I exaggerated in calling the Job Guarantee THE key to a sound currency.

        My main purpose, however, was to debunk the myth that foreign trade poses a *problem* for the JG.

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