a system of pegged parities that relied on the debts in reserve currencies, mostly dollars, to meet growing needs for official reserves. Trif fin and his followers saw the remedy as the internationalization of reserves and reserve assets; their ultimate solution was a world central bank. Others diagnosed the problem less in terms of liquidity than in the inadequa cies of balance of payments adjustment mech anisms in the modern world. The inadequa cies were especially evident under the fixed parity gold-exchange standard when, as in the 1960s, the reserve currency center was struc turally in chronic deficit. These analysts sought better and more symmetrical rules of the game for adjustments by surplus and deficit countries, usually including more flexi bility in the setting of exchange parities, crawling pegs, and the like. Many economists, of whom Milton Friedman was an eloquent and persuasive spokesman, had all along advocated floating exchange rates, deter mined in private markets without official interventions. By the early 1970s the third view was the dominant one in the economics profession, though not among central bankers and private financiers. And all of a sudden, thanks to Nixon and Connally, we got our wish. Or at least we got as much of it as anyone could reasonably have hoped, since it could never have been expected that governments would eschew all intervention in exchange markets. Now after five to seven years?depending how one counts?of unclean floating there are many second thoughts. Some economists share the nostalgia of men of affairs for the gold standard or its equivalent, for a fixed anchor for the world's money, for stability of official parities. Some economists, those who emphasize the rationality of expectations and the flexibility of prices in all markets, doubt that it makes much difference whether exchange rates are fixed or flexible, provided only that government policies are predictable. Clearly, flexible rates have not been the pana-, cea which their more extravagant advocates had hoped; international monetary problems have not disappeared from headlines or from the agenda of anxieties of central banks and governments. I believe that the basic problem today is not the exchange rate regime, whether fixed or floating. Debate on the regime evades and obscures the essential problem. That is the excessive international?or better, inter currency?mobility of private financial capi tal. The biggest thing that happened in the world monetary system since the 1950s was This paper is Prof. Tobin's presidential address at the 1978 conference of the Eastern Economic Association, Wash. D C.
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