Reflation without capital controls fails when the central bank abets flight.

Evidence

The Popular Front increased wages, reduced working time, and reformed the structure of the Bank of France so that the Regents did not control the governing council. This was all very laudable, but it simply led to another round of capital flight, interest-rate increases, and more deflation. Reflationary policy, in the absence of effective capital controls, means that capital flight wins, especially when it is aided and abetted by the central bank. When the leader of the popular front Léon Blum suggested capital controls to make reflation and greater spending possible, he was forced out by the increasing capital flight that the Bank of France once again did nothing to forestall. — Mark Blyth, Austerity, 553

Categorization

• XREF: Connects to the modern debate on capital controls in the Eurozone and to Mattei’s account of institutional constraints on progressive fiscal policy. — connects to: A central bank can actively engineer capital flight to discipline elected governments — Mark Blyth, Austerity: The History of a Dangerous…, 551; Reflation on the gold standard fails without a supportive central bank — Mark Blyth, Austerity: The History of a Dangerous…, 549; France’s convertibility guarantee enabled capital flight that depleted reserves and forced devaluation (+1 more)

Broader Connections

• France’s convertibility guarantee enabled capital flight that depleted reserves and forced devaluation #exemplifies (0.85)
• Currency pegs fail when markets can bet against limited reserves and force devaluation. #corroborates (0.80) — Mark Blyth, Austerity, 213