Fixed or Flexible Exchange Rates - Wolfgang Stützel vs. the German Council of Economic Experts
Wolfgang Stützel (1925-1987) was one of the most creative economists in Germany after WW II. Among other things, he was a member of the German Council of Economic Experts (1966-1968). Apart from his systematic treatment of balance mechanics, Stützel was a staunch defender of fixed exchange rates – a position that led to his early resignation from the Council. I was able to study intensively Stützel’s literary remains at the Saarland University, consisting of about 50 files with his published and unpublished papers as well as 6 files containing documents about his term at the Council. The aim of this consultation (and the content of this paper resulting from this consultation) was, initially, to retrace the arguments concerning fixed vs. flexible exchange rates, as they can still be important – all the more as Stützel used remarkable arguments that have been partially forgotten. The inspection of the papers led to the following results: Indeed the discussion about the pros and cons of flexible (or fixed) exchange produced arguments that are relevant today when thinking about the constitution of the European Monetary Union, e.g. concerning the distribution of adjustment burdens when inflation rates differ between countries: Stützel objected against an appreciation of the D-Mark in the 1960s as he wanted to allow a higher inflation rate in Germany to avoid a still higher upward trend in other countries – he already was an opponent of the purely national view on economic policy. One can also find parallels to the recent debate about the significance of TARGET balances. The paper discusses these arguments and their modern parallels. The existing correspondence makes clear that the quarrel between Stützel and the other members of the Council resulted from a fundamental difference concerning the significance of dissenting opinions in the reports of the Council. Stützel – in contrast to his fellow-members - wanted divergences of opinions to be disclosed. Already during the work on the first report Stützel was involved in, the correspondence shows that the other members did not want to include Stützel’s dissenting opinion on government debt. The resulting dispute – that sharpened on the topic of exchange rates – which will be retraced in the paper led to Stützel’s resignation and to arbitration proceedings that finally concluded that Stützel’s participation rights were illegally restricted. Therefore, Stützel can be regarded as a trailblazer for the dissentier opinion(s) that are now common in the Council’s reports.
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Keywords: exchange rates, revaluation, Ger
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