Description
Among the scholars of international political economy, the concept of capital flows or capital mobility is widely accepted. It (a) describes a complex phenomenon of cross-border flows of money and finance and (b) plays a central role in the global economy. Neoliberal orthodoxy and the Washington Consensus promote it, arguing that unfettered capital flows benefit capital-starved countries. Yet, not least that a number of prominent mainstream economists acknowledged this phenomenon as one of the most controversial and least understood. These bits of controversy and obscurity have different origins. One of them has been due to traditional usage of various metaphors of motion, while explaining the phenomenon within the established analytical framework. It disciplines our imagination of money and capital as a standalone object, while leaving behind the essential nature of money and capital as a social relationship. To make sense of capital "flows" this paper follows the path of a more radical critique. One that was briefly outlined by Woodruff (2005) and Mosler (2010,2022,2023). Both of them, and seemingly independently of each other, reject the metaphor of motion. It is "deeply misleading" to the former and an "innocent fraud" to the latter. Instead, as a starting point they advocated for the analytical framework based on the balance sheets of transacting economic units such as households, firms, governments, etc. In other words, this is an analysis of the debt-credit relationships. The latter are social. These relationships are (a) the most essential of human relationships and (b) precise, not abstract. They are denominated in a money of account, which is key concept. Institutionalized usage by residents of a jurisdiction of the domestic and foreign moneys of account in denominating own financial positions (in assets and liabilities), while transacting with counterparties domestically and abroad, play key role in the dynamics of the said economy. They are dynamic, being created, re-assigned and then destroyed on a daily basis. There are two types of relationships: horizontal and vertical. Both are observable in domestic as well as in cross-border transactions. It is because of the vertical type of cross-border relationships, which are denominated in the foreign money of account, we observe what is still conventionally described as capital "inflow/surge" or "outflow/flight." This imprecise description suggests there have been points of departure and destination continuously for the object of money/capital. Instead, simultaneous reconfigurations of financial positions (balance sheets) of the economic units domestically and abroad does take place.
