Full text: Comment on the paper by A. Bhaduri and E. Matzner

the tax will operate. It may even be that we can not foresee the actual 
effects without any experience of it. 
III. The authors have stressed the fiscal side of their proposal. The 
Tobin tax could bring a large revenue to the treasury (although we have 
to remember that the more effective it would be in curbing speculation, 
the less revenue it would yield). It is probably not difficult to 
administrate if the control over the banks and the stock exchange can be 
assumed; the multinationals who act as their own banks to a great extent 
might be more difficult to handle. 
The tax would be very attractive if we could assume that it does not hurt 
consumption. But if Schulmeister (1988) is right and the speculative 
gains are ultimately paid by the normal trade this would be a fortiori 
true for the Tobin tax which would thus be shifted as a whole to the 
import prices. 
Since the Tobin tax is ostentatiously directed against speculation one 
might well ask why it should be restricted to a particular form of it and 
not applied more generally to the stock and bond markets. The increased 
stream of payments across frontiers is after all only a symptom of the 
ascendency of finance over industry (the casino society). Such an 
extension would deserve attention, if for no other reason but that the 
opposition against such a tax would no doubt come from these wider 
circles who would think that the tax on exchange might be only the thin 
edge of a general speculation tax. 
The authors never mention the capital gains tax although this has the 
same thrust against speculation as the Tobin tax; this is probably 
because it plays no role in this context in Europe, but it exists at 
present in the U.S. to the extent of 25 p.c. and it applies to the wider 
range of speculation. For larger speculative gains of say 6 to 8 p.c. 
(the averages given by Schulmeister for speculation in exchange markets 
where positions over a number of weeks are held ) the capital gains tax 
would be more effective than a small transactions tax. 
IV. I want to express my sympathy with Dornbush's differentiation between 
current and capital balance - or between the legitimate requirements of 
trade and the doubtful demands of capital transfer - and his declared 
intention to throw, not like Tobin, sand but rocks into the machinery of 
international finance. Indeed, whatever the merits of Bhaduri-Matzner 1 s 
proposal, it does not really address the basic problem of international 
capital movements. But these are the ultimate cause of the large exchange 
rate fluctuations which are only overlaid and reinforced by speculation. 
And it is the capital movements which are the decisive danger to 
autonomous economic policy. They are motivated either by differences in 
interest rate, or by taxation, or by fear of owners for the security of 
their capital or by the intention to blackmail a government which 
threatens the interests of the rentiers. Now it is in the nature of these 
capital movements that you cannot deal with them by means of a mechanism, 
so to say automatically, but only by discretionary measures. 
It is of course true that the Dornbush proposal involves the creation of 
an elaborate administrative machinery (although on the face of it this 
needs not be more complicated than the system of refunds of turnover tax 
for export which we had in the time before the value added tax). Of 
course, once you are able to differentiate between kinds of transactions 
you might just as well licence and control the capital movements 
directly. No doubt this goes against the grain of the entire theory and 
practice of our post war international financial system. There is however 
no way of getting round this problem. The capital movements are the 
equivalent of terrorism in the financial system: They are a power above 
governments and they are powerful because governments are unable or 
unwilling to cooperate and close their ears against the claims of reason 
and justice. The cooperative solution of the international financial 
problem is the Keynes plan for a payments union. But we have to remind

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