Finance, Not Trade, Runs the Global Economy

Towers of Detroit’s financial district. Photo: Jeffrey St. Clair.

For much of the last half-century, the study of global exchange rates has been treated as a branch of physics. In the hallowed halls of neoclassical economics, there is a belief in a “natural” state of things, an equilibrium where trade balances and productivity levels act as gravity, pulling currencies back toward their fundamental value. If a country runs a persistent trade surplus, its currency should rise; if its factories become more efficient than its neighbors...