For Whom Tolls 
the Monetary Union:

The Three Lessons of the
European Monetary Union

by 

Alain Parguez, 
January-March 2000.

The Campaign for a North American Monetary Union 
or an American Monetary Union

	For some years, there has been a crusade preached in both Canada and Mexico for the creation of a North American Monetary Union (NAMU) modelled upon the European Monetary Union. More ambitious plans are even targeting an American Monetary Union encompassing all the countries from Chile and Argentina to Canada. There are indeed dissenting opinions amid the supporters of a single currency. Some are wishing to have the U.S. dollar as the single currency, while others invoke the European model to support a new currency, which ought to be substituted for all existing currencies, including the U.S. dollar. All are postulating that the U.S.A. will agree with their agenda of Monetary Union, which is not yet obvious. Canadian and Mexican supporters of the Monetary Union usually refer to the famous International Monetary Stability Act introduced by Senator Connie Mack on November 9, 1999, but this Act is not yet law, and it is, to say the least, highly ambiguous, as will be shown.

	Monetary Union supporters in North America use to dally increasingly with three major arguments. The first is embedded into an absolute determinist view of history, some kind of geopolitical historical materialism. North America is already quasi-perfectly integrated relative to the rest of the world in terms of trade and financial markets. This move to integration is the logical consequence of geography. Monetary Union is the ultimate logical consequence of integration. Any other monetary system is doomed to fail because it would contradict the real infrastructure of the North American zone. 

A second argument emphasizes that, in a North American Monetary Union, all members including the U.S.A., ought to be equal because none would have the least power of control over the currency. The single North American currency is poised to be a purely private currency, which must be managed independently of any kind of political intervention. Such an argument is obviously contradicting those who advocate monetary union to increase the degree of freedom of domestic policies relative to the U.S.A. authorities. For instance, postulating that the U.S. Federal Reserve has an absolute control over the North American economy, within a North American monetary union, the Federal Reserve as the central bank of the United States would be deprived of its discretionary power. Either an independent new North American central bank would be substituted for the existing U.S. Federal Reserve (new North American single currency) or all member states ought to have an equal vote in the Federal Reserve’s policy (U.S. dollar as the new North American currency). Since an overwhelming majority of NAMU supporters prefer the solution of the U.S. dollar being the new single currency, we can sum up as follows the campaign for Monetary Union in North American: Monetary Union is beyond any choice because 

I
	II	III	
Absolute determinism	All members will be in a better situation.
	Optimal adjustment of market laws.	
It is imposed by integration.	More powers for Canada and Mexico. U.S.A. will loose nothing.		

	Proposition III is obviously needed to explain why the U.S.A. must join a Monetary Union, which is dedicated to suppress any specific treatment of the United States economy by the reformed Federal Reserve. Those market laws are the sine-qua-non-condition to remove the last obstacle to a perfect long-run integration. Within the NAMU, U.S. firms and banks would no more suffer from fluctuations in exchange rates resulting from domestic mismanagement in Canada and Mexico. No fixed exchange-rate system could bestow such an insurance policy since, in the context of free exchange rate markets, no pegged exchange rate can survive domestic policies contradicting objective market laws!

	Since the campaign started in the mid-nineties of the twentieth century, the European Monetary Union has been the compulsory model. It is used as the proof of the geopolitical materialist determinism. The very geographical infrastructure of Europe led to economic integration but, in the long run, European economic integration resulted in monetary union. The European model would also prove that monetary union bestows on all member states an equal power in the management of the currency and therefore in economic and social policy. This consequence of European Monetary Union is often emphasized in Canada and Mexico by those who dream of softer constraints on domestic policies. At least, European Monetary Union should be the living proof that monetary union is the prerequisite for sound domestic policies fitting the requirements of global markets. By creating their new single currency, European proved that, in a world of unfettered financial markets, no fixed-exchange-rate system can survive while flexible exchange rates are obviously jeopardizing integration.

	European Monetary Union is both the ultimate proof of the necessity of monetary union and of its feasibility. This paper is addressing the objective foundation of this ebullient enthusiasm for the Euro by proving that it displays an absolute misunderstanding of both the economic theory of monetary unions and the specific nature of the European model. We can therefore prove that the European model cannot fit the hopes of its North American supporters, none of whom would be better off in her/his respective countries in a NAMU mimicking the Euro.

The Underlying Economics of the European Monetary Union

	The structure of the European Union (EU) stemming from the treaties of Maastricht (1991) and Amsterdam (1997) is the logical consequence of its underlying economics. A careful reading of the authorized literature – the Emerson Report (1990) and the Fitoussi Report (1998) – proves that what could be dubbed “Euro Economics” has two major theoretical foundations. On one side, it is rooted into the general theory of monetary union, which had been spelled out in the sixties of the twentieth century by Mundell. The pure theory of monetary union is nothing but a generalization of the neo-classical theory of money of Mengerian pedigree. Menger (1892) wished to demonstrate why a monetary economy evolved out of barter as the outcome of the free choice of individual transactors optimizing their wealth. A single currency must evolve out of a multi-currency transaction space by the same process. 

	On the other side, the generalization of the Mengerian theory has been successful because of the influence of a powerful group of French (and some German) economists and technocrats on the historical process leading to the Euro. What could be dubbed the “techno-classical” group transmogrified the abstract Mengerian theory into a set of economic principles that could be the infrastructure of monetary union. They could succeed because of the undaunted support, since the very start, of the political establishment, which believed that monetary union was the sine-qua-non of an enlightened new order protecting economic management from the whimsical constraint of “the people”.

The Pure Mengerian Theory of Monetary Union

	Karl Menger is the true founder of the pure neo-classical theory of money. In his major contribution, he wants to prove that the emergence of money is the logical outcome of the maximization of their wealth by individual transactors. Money is therefore logically independent of any kind of exogenous intervention by the state, which proves that money must be protected from the state. 

Menger starts from a pure barter economy. There is a given transaction space (T), in which the set of individual homogeneous transactions (n) has to maximize wealth for each of them, by getting the optimal bunch of commodities out of given initial allocation. Menger assumes that both the sets of commodities (m) and their available quantities (qm) are given. He also assumes that, for each individual, there is a unique solution for the transaction process bestowing a maximum wealth in terms of utility upon him/her. Starting from an initial collection, qi0 (m1, m2), each transactor i has to untertake Θ transactions to reach its optimal solution qi* (mk, mk’). During this tâtonnement process, i has to barter his/her endowment against commodities which have zero user value but that allow him/her to undertake new transactions. Menger assumes that, for each commodity, there is a unique set of equilibrium relative prices, p* (its “normal price”), reflecting its marginal utility. When a transactor acquires a commodity k just to trade it at once, he/she has to pay a price, pr, higher than the “normal price”. The discrepancy (p*r – pk) is the loss the transactor has to accept because of the absence of a medium of exchange. The greater is the number of transactions Θ, the greater is the loss of wealth during the tatonnement. Θ is positively related to both the number of transactions and commodities.

	All transactors being rational, they must strive to minimize their losses. Each of them is searching for a commodity - the “normal price” -, which is equal to its effective price. Such a commodity, if its exists, has for the transactor i the intrinsic characteristic of being the medium of exchange. The core of Menger’s theory is that, ultimately, all transactors are to agree that there is a unique commodity m*, which is the medium of exchange. m* being the specific commodity-money, its “normal price” is always equal to its acquisition price. The normal price of money is equal to its marginal utility, the user value of money. There is therefore for all transactors a positive demand for commodity-money, which, in Mengerian terms, reflects the amount of money they want to hold for its specific use. 

	As soon as m* has been chosen, we are in a monetary economy with zero transaction cost. A monetary economy has therefore spontaneously evolved out of barter without any exogenous collective intervention. Wishing to demonstrate that there is only the one solution, Menger has to assume that all transactors can get the same information on what he calls the “objective marketability” of commodities, their maximum (p* - p), which reflects their intrinsic characteristics. His theory is ultimately encapsulated in three theorems: 

I.	The ultimate existence condition of equilibrium with an optimal allocation of resources is the existence of money.

II.	Money always spontaneously evolves out of barter because all agents are obliged to minimize their losses by bestowing on a commodity the nature of money. There is only one solution, since there can be only one commodity enjoying the characteristic of being endowed with a perfect marketability.

III.	This commodity provides all transactors with the greatest and the same user value (marginal utility), which explains its specific demand.

The Neo-Mengerian Theory of Monetary Union

	The modern theory of monetary union explains why a single currency spontaneously evolves out of a multi-currency exchange system. It has been mostly elaborated by Mundell (1968, 1969, 1971). It is obviously a generalization of the Mengerian theory of money. The multi-currency economy is the Mengerian barter economy, while the single currency solution is the Mengerian monetary economy.

	Let (T) be the transaction space including m sub-spaces, each corresponding to a domestic currency. All transactors i are now obliged to undertake transactions within the new (T) to get their optimal bunch of commodities. In the course of their process, any i has to acquire a commodity-money mk, which does not provide i with a specific user value. Transactors i are obliged to acquire mk just to undertake transactions in the k sub-space. In Megerian terms, the normal price of mk is therefore inferior to its effective price. The equation (p*mk – pr) reflects the losses individuals have to incur because of the absence of a single currency.

	Striving to minimize their losses, rational transactors must find the commodity on which they can bestow the nature of money within (T) because its “normal price” is always equal to its effective price. The existence condition of an equilibrium with Pareto-optimality requires that the solution must be unique. The single currency is the outcome of a new tâtonnement process undertaken by rational individuals without any exogenous intervention. As soon as an agreement is reached, the single currency m* is replacing existing currencies for all kind of transactions. The tâtonnement is successful if and only if, as in Menger’s theory, all transactors can be informed of the objective marketability of all competing commodities. There must be therefore a commodity, which is intrinsically endowed for all transactors with the greatest and the same user value (marginal utility). From the general theory of value, which is the core of neo-classical economics, stems the conclusion that, for all transactors, there is exists a specific demand for a specific commodity which becomes the money of the (T) space. Like in Menger’s pure theory, this demand reflects the amount of the singly currency rational individuals want to hold. 

The Two Kinds of Neo-Mengerian Solutions

	The pure logic of the Mengerian model requires that the single currency m* is one of the initially competing currencies. Complying with Menger’s theory of “intrinsic marketability”, Mundell emphasized two fundamental characteristics of existing currencies, their initial transaction spaces and the “quality of management” of their respective economies relative to the neo-classical theory of values. The transaction space of a currency reflects the number of transactions involving this currency each transactor can expect to undertake to reach its optimum under the constraint of cost minimization. It is determined by the reflective size of its underlying economy in terms of real income, trade balance and available savings. The quality of management is reflected by the long-run rate of inflation, which is determined by the growth of the money supply relative to the demand for money. Ultimately, the rate of inflation all rational agents can expect is depending upon the size of the budget deficit. Like Menger himself, Neo-Mengerians believe that, since money arises independently of the state, the last resort cause of inflation is the budget deficit, which accounts for the so-called ”Seignorage”. “Seignorage” is the amount of real wealth exacted by the state through inflation by creating “false rights” to wealth. “Seignorage” is therefore equal to the excess of state outlays over legal taxes, which is accounting for the deficit. 

	In the simplest case, there is therefore only one commodity-money, which must be chosen because its transaction space is obviously the greater for all rational agents which its underlying economic benefits from the lowest budget deficit sustaining the lowest expected rate of inflation. What could be the outcome of the tâtonnement when there is no obvious unique solution amid the set of existing currencies? In accordance with the pure Neo-Mengerian theory, we can assume that, as soon as rational individuals discover the indeterminate nature of the initial set, they understand that they have to agree to the creation of a new specific commodity-currency. Such an agreement is entirely rooted in the pure utility maximization of individual transactors. The new single currency is a composite commodity endowed with the highest equal user value or marginal utility for all individual transactors. It is therefore ruled by the general theory of value sustaining the existence of money in neo-classical economics (Parguez and Seccareccia 2000). Its supply must be scarce enough to generate zero expected inflation, which requires as a prerequisite at least a permanent zero budget deficit in each member economy.

The Solutions of the Neo-Mengerian Theory 
for North America and Europe

	From the perspective of pure theory, if the (T) set is North America, the unique solution is obvious for all rational agents. There must be a single currency, and the U.S. dollar is to be chosen. Its own transaction set is of such magnitude that it is incommensurate with the Canadian dollar and the Mexican peso respective transaction sets. In terms of sound management in the long run, the U.S. economy is better off than Mexico’s and Canada’s own economies.

	If the (T) set is Europe, there is an absolute indeterminate choice if we look at the set of existing European currencies. Even if the choice was between the DM and the FF, none has a transaction set incommensurate relative to the other. None is obviously better managed than the other relative to the rules of the neo-classical theory of value. Rational agents must choose a new composite commodity. The Euro has been apparently imposed by an agreement between European states. According to Neo-Mengerian theory, the treaty is just a veil. There is underneath the hidden reality, which is the implicit outcome of a tâtonnement process undertaken by rational individuals. The treaty is not the nefarious exogenous intervention imposing a false money but a purely endogenous intervention of some Walrasian auctioneer allowing individual agents to reach their optimal situation. 

The Contribution of the “European Techno-Classical School”

	The Mengerian theory was successful in Europe because it became the hardcore of the very long-run plan, which unfolded from the late thirties of the twentieth century to its ultimate achievement, the treaties of Maastricht (1991) and Amsterdam (1997). For a least sixty years, the European plan had been carefully promoted by a powerful lobby, which can be dubbed “The European Techno-Classical School”. It was deemed “European” because all its members in Germany, but mostly in France, dreamed of a “New Order in Europe” rejecting the American model they loathed because of its unfettered financial markets, ruled by speculation and, of course, the Soviet statist model. Europeans wished to implement a managed capitalism ruled by the laws of pure reason instead of greed like in the United States. The notion of the “New European Order” was crucial for prominent players in the plan, like the Redressement Français experts around the French politician André Tardieu, François Perroux in the post-war ear during the later forties, fifties and sixties, as well as Jacques Rueff, one of the masterminds of the plan. For all of them, economics and society were interwoven. Installing a new social order in Europe was both the logical consequence of the “Economic New Order” and its existence condition (Rueff 1945 and Perroux 1954) . The Europeans despised the old-style parliamentary democracy since the start of the plan because, according the Rueff (1945, 1958), it is poised to supersede the natural laws of economics, the general neo-classical theory of value, by the whimsical interests of “the people” rooted in the “false rights” created by the state. The future Europe was to be organized by some enlightened despotism, a European Kantian-Walrasian Auctioneer. Even players like Jean Monnet, who did not share the staunch anti-Americanism of other Europeans, were convinced of the inconsistency between the natural economic order and formal democracy. 

	Perroux (1954) had explained why such a plan could be successful in Europe and only in Europe. The so-called “European core” – France, Germany, Italy, Spain, the Benelux countries, and Portugal – had been protected against the corrupting seeds of the greed-led American market culture. European elites understand that a true “Order” is the existence condition of a managed capitalism strong enough to fight for hegemony with American capitalism. “Order” is the core of European culture, while Americans cannot grasp what a “Natural Order” means.

	The “New Order” had to be supported by enough integrated space. Ferguson (1997) has emphasized the impact of what he dubs “geographical determinism” upon the European planners, both in Germany and in France. Following the French historian Fernand Braudel (1980), Perroux and others like Monnet believed that the available space, in terms of integrated markets, was the ultimate infrastructure of the economy. To compete with U.S. capitalism, European capitalism needs a Europe-wide supporting space.

	The European plan ought to succeed because none of the players were pure academics! All of them must be deemed “technocrats”. The notion of “technocracy” has not been invented by Burnham and the likes of him. It was spelled out as early as the late-twenties in France by Le Redressement Français and many others like Rueff himself. The technocrats had key positions in the pre-war structure of both the private sector and the state, including the Army, because of their expertise in science. All of them believed that society was to be organized on purely scientific principles, which excluded any debate. Form this postulate, they deduced that society had to fit economic laws which are beyond any discussion. Rueff, Perroux, and all the Europeans were obsessed by the scientific Kantian imperative of protecting the management of the economy from the vain and whimsical forces of ignorance of “politics”. Being part of a power structure, the Europeans loathed intellectual or academic debates. They knew that, in order to impose their agenda, they had to thrive on power by convincing prominent political leaders. In their search for power, they succeeded in gaining the undaunted support first of the conservative center, center-right catholic parties, next de Gaulle, who had always been pro-European, and ultimately François Mitterand, who has been the true inspired leader European planners dreamed of since the late thirties. 

	French leaders played a crucial part in the unification of Europe, because, since the end of World War II, France had sized leadership in Europe. Contrary to some old-fashioned interpretations, the European plan was ultimately drafted by France and imposed by France on a reluctant Germany. Obviously, in the late thirties and early forties, there were German contributions to the European plan. As shown by Smith and Stirk (1990), under the sponsorship of the German Finance Minister, Walter Funk, a first plan of a European Monetary Union for the after-war period had been drafted in 1942. There had been similar drafts in France in 1941/1942, sponsored by the so-called “École des Cadres” and powerful technocrats of the Vichy regime (Smith and Stirk 1990). After the collapse of the Nazi regime, Germany was not a player in the European game for a long time. However, the time was ripe for France.

	Pro-European technocrats must be deemed “classical” because, from Rueff and Perroux to modern players like the so-called French Regulation School of Aglietta and the likes, their view of economics is entrenched into a set of postulates that were, according to Keynes, the essence of classical economics. Rueff and Aglietta, one of the leading experts of the European Commission on monetary questions, share an absolute loathing of Keynes (Parguez 1998) with Jacques Delors, one of the most influential architects of the Monetary Union.

	In a Mengerian monetary union, there is a unique set of prices, including labour, in terms of the single commodity-money, which generates general equilibrium and optimal allocation of resources. Assuming perfectly flexible markets and therefore no exogenous interventions, the tâtonnement will always impose the equilibrium prices. Say’s Law is ruling because real output cannot be constrained by aggregate demand as soon as the transaction set is rooted in a commodity-money, which is scarce enough to provide all individuals with the required constant user value. The single currency must therefore be absolutely exogenous relative to the demand for commodities, including the demand for money of individuals. The European Central Bank (ECB) therefore determines the supply of money. From Rueff to Agliatta and Fitoussi (1999), another leading French expert, exogenity of money is simultaneously an equilibrium condition and the existence condition of money. Complying with the Mengerian logic, they believe that money does not exist if it does not have an intrinsic value high enough to induce rational individuals to hold it. Money cannot acquire this required value if it is not scarce. Money is scarce if and only if it is managed by a central bank, which is pledged to maintain permanent zero inflation. In the long run, money exists if and only if it is perfectly exogenous. In the very terms of Rueff (1945), a true money is more scarce than gold, which explains the soundness of the expected single currency. 

	There are two versions of an exogenous money system. Either banks’ supply of loans is controlled by the ECB or banks cannot create money because they are pure intermediaries between savers and borrowers. Rueff, Perroux and most of the French technocrats postulate that banks do not create money because they usually support a very crude and naïve version of the real loanable funds. Banks are pure intermediaries between savers and borrowers. Their loans are just recycling ex-ante real savings or deposits. Market forces adjust ex-ante investment (demand for savings) to ex-ante deposits (supply of savings) through fluctuations in the real rate of interest. From the start, French technocrats have never doubted the classical postulate that ex-ante deposits make loans. This postulate has been encapsulated into the institutional structure of the European Monetary Union. Since the Central Bank is the sole source of money, it must be protected against the profligacy of spendthrift “politicians” courting an ignorant electorate. Rueff (1945) had spelled out the famous “false rights” doctrine, which became the cornerstone of the planned monetary union economics. When the state is running a deficit, a share of its outlays is financed by the creation of money by the central bank. Rueff assumed that the deficit allowed the state to pay income to non-productive individuals (in the context of social programs and policy of subsidies). The creation of money reflects the amount of “false rights” given to non-productive agents on available output. By spending their “false rights”, non-producers induce inflation, which leads to the forced transfer of a share of the output from desiring producers to the politicians’ “clientele” in Rueffian terms (those who vote for them because they live on their profligacy). From the perspective of producers, the creation of money for the state is a tax contradicting the optimal allocation of resources. 

	The “false rights” doctrine led Rueff and his followers to the conclusion that the central bank must never create money for any kind of political authority. It must therefore be absolutely independent of the member states of the future monetary union. This independence must be protected by two constraints into the institutional structure of the monetary union: 

I.	The European Central Bank is absolutely forbidden to create money that could finance member states’ outlays.

II.	Member states have to at least target balanced budgets.

The second constraint is not redundant because the state could sell bonds to banks. Since banks cannot lend more than their ex-ante deposits, they are obliged to cut their supply of savings to the private sector. The excess demand for savings in the real capital market propels a rise in the real rate of interest, which restores equilibrium. Classical technocrats discovered the famous “crowding-out effect” of state deficits in the late forties. Nothing has changed in the underlying economics of fiscal austerity between Rueff (1945) and the experts, who contributed to the Emerson Report (1990) and the Fitoussi Report (1999).

	Many prominent German economists rallied the French school in the last stage of the European plan, which ensured the absolute triumph of its economic agenda. For instance, both the so-called “Berlin school” (Rise 1986) and the “Bremen school” (Heinsohn and Steiger 2000) agree on the exogeneity of the money supply. They also argee on the postulate that the sole source of money is the central bank. They disagree on the role of the scarcity principle in the determination of the money supply. For Heinsohn and Steiger, it would benefit Germany, if the new currency is sounder and therefore more scarce than the Deutschmark. They have reproached the Bundesbank for its profligacy in financing the nefarious “economic reconstruction of the East” after reunification (Heinsohn and Steiger 1996), what they deem a laboratory experiment of the “monetary Keynesianism” advocated by the “Berlin school”. The Bundesbank was not sufficiently independent of the political power and too keen to substitute short-term welfare into the cast for the scarcity theory of value. Heinsohn and Steiger spell out the pure Mengerian doctrine of central banking in a monetary union. Since the existence condition of a monetary union is to replace weak domestic economics by a new commodity with the greatest relative user value, the central bank must be able to freely determine the “degree of scarcity” of the single currency. Its sole constraint is to maintain permanent zero expected inflation for all rational agents by adjusting the money supply to the normal long-run demand for the currency. The rate of growth of the normal demand for money is determined by the central bank assuming a long-run general equilibrium. As experts for the European Commission, Heinsohn and Steiger and their likes could impose an interpretation of the role of the European Central Bank, which converged with the techno-classical French doctrine on bestowing an absolute independence of the central bank relative to existing political powers.

The Effective Structure of the European Monetary Union: 
The Laboratory Experiment of the Mengerian Agenda

Unfolding the European Plan

	The European plan has been implemented in four stages, the outcome of which was the expected monetary union:

Stage 1
		Stage 2		Stage 3		Stage 4	
Building the (T) space.	

->
	The determination of an equilibrium of relative prices of currencies. 	

->	Single composite currency	

=>
	Improving the (T) space.

European Common Market -> European Union	
->
	The fixed exchange rate system of the European Monetary System (EMS)	
->	Maastricht Treaty (1991), Amster-dam Treaty (1997).	
=>
	New European Order	
			->
	Growth and Stabi-lity Pact (1997)	=>		

1957 - 1990		
1979 – 1990		
1991 – 1999		
1999 - 	

The First Stage

	The first stage has been implemented according to three principles. The first is the Free Market Rule. Within the Common Market area and its enlarged avatar - the European Union (EU) -, all individuals may freely undertake transactions involving any kind of commodities, including savings and currencies. There is a set of perfectly competitive markets for all commodities because all obstacles to market laws are removed. 

The second principle is deemed the Market Order Rule, which is the first step towards the “European New Order”. Market laws are enforced by a set of institutions that are independent from direct democratic control. On one side, the legislative power is bestowed on the European Council, the assembly of Prime Ministers and Presidents, which can pass laws to impose market norms of perfect flexibility. No elected assembly can discuss those laws, which supersede all domestic laws and constitutional rules. On the other side, a purely technocratic institution, the European Commission, the dream of the techno-classical school turned into reality, exercises the executive power. The European Commission has the initiative of laws. It drafts laws, which are submitted to the European Council, which votes under a qualified majority rule ensuring the power of the hardcore European countries, France and Germany. The Commission is also empowered to promulgate decrees or “directives” both to apply the laws and to compensate for the lack of legislation under conditions of reasonable emergency. At last, there is a Supreme European Court to which all individuals (aka ”competitors”) can appeal to have nullified all domestic laws contradicting European laws and decrees. The Court is the twin of the American Supreme Court of the “New Deal”. It abides to the so-called “Spirit of Market Order” as the supreme source of law as long as plaintiffs abide themselves to this principle of ordered markets. As has been shown, market as an “order” to be spontaneously imposed upon non-rational individuals was a crucial part of the European techno-classical school. 

	The third principle is deemed the Enlargement Adjustment Rule. The Common Market had been shaped, in the like of the old Carolingian Holy Empire, around a France-German axis. In the course of time, the European Order was extended to the United Kingdom, Southern Europe, Scandinavia and central Europe, always in the like of the Roman Christian religion under the sponsorship of the Carolingian Emperors! Enlargement has been controlled by the core countries relying on the spatial determinism of the Franco-German school. Each time, what mattered were the gains in terms of wealth all the national transactors of the core had to expect from the integration of new countries into the (T) set. The amount of expected gains should depend upon the “natural” integration of those countries into the economic sphere of the core countries reflecting objective exogenous characteristics. In Mengerian terms, effective integration was pre-determined by “objective marketability” of countries. 

The Second Stage

	The so-called “European Monetary System” (EMS) was a transitory stage allowing to discover the long-run equilibrium of the relative prices of European commodity currencies. The system operated as a Walrasian tâtonnement, the two players of which being the European central banks and the market for currencies. Central banks agreed on a set of margins of fluctuations between relative prices of currencies. For each currency, a maximum and a minimum price in return for other currencies was determined. All members of the EMS pledged to undertake domestic policies aiming at convincing the market of the sustainability of targeted exchange rates as soon as the late seventies. Those policies included fiscal deflation and high real interest rates to attain the market-desired zero inflation state. If the targeted set of relative prices of currencies was not endorsed by the market, two alternatives were open during this stage: Either countries had to impose a more stringent fiscal deflation by higher interests rates or a new set of relative prices of currencies would have to be proposed by the market. 

	Ultimately, in the mid-nineties, this tâtonnement led to the determination of a set of relative exchange rates, which could be deemed the “long-term equilibrium level”. Margins of fluctuations were quasi zero, and targeted prices met perfectly market expectations. In the course of time, all EMS countries had endeavoured to deflate enough their own economies to convince the market of endorsing the announced set of relative exchange rates (Parguez 1998), which explains why, to account for the empirical impact of monetary union on the European economy, we should start at least in the early seventies!

	So harsh was the bulk of constraints that the United Kingdom, even during the era of conservative Prime Minister Margaret Thatcher, did not join the EMS while the EMS constraints became the last resort existence condition of deflation policies in France, Spain and Germany until the demise of Eastern Germany (Parguez 1991).

The Two Last Stages

As soon as relative equilibrium prices of currencies were known, the time of monetary union was ripe. The new currency could be created as a composite commodity under condition of optimal allocation of resources. The conversion of assets denominated in former currencies into assets denominated in Euro can now be operated under the assumption that no asset-holder benefits from “windfall” gains or suffers from “windfall” losses. The new optimal composite currency is recognized by the Treaty of Maastricht, which has been supplemented by the Growth and Stability Pact. Both are determining the mandatory rules of the new European Monetary Union. What is obviously at stake is to convince the market of the intrinsic value of the new commodity-money. The new currency could not fit the requirements of optimal resource allocation and therefore survive if a specific permanent demand for it did not arise from the choices of individual transactions. The Euro would remain unscathed in the long run if it could be protected against erratic people-orientated domestic policies. The endorsement of the new currency must increase the efficiency of resource allocation and, henceforth, the New European Order could evolve into a world leading power.

	Having doubted the EMS, the United Kingdom did no enter the Monetary Union, and, in the beginning of the twenty-first century, the debate is still raging. For historical reasons, in the United Kingdom, there had never been the same unbridled enthusiasm relative to monetary union than in France (and, to a much lower extent, in Germany).

Implementing the European Plan: 
The Effective Rules of the European Monetary Union

	They must be divided into three sets of rules. The first set is defining the role and power of the supreme guardian of the currency, the European Central Bank. A second set of rules is adjusting fiscal policy of member states to the Central Bank stewardship by suppressing any degree of freedom of member states. A last set of rules is ensuring that full employment and welfare are no more constraints imposed on member states. Those rules should be unscathed in the long run because any kind of non-enlightened intervention of politics has shrewdly been removed.

The Supreme Stewardship of the European Central Bank

	The ECB is sworn to endow the currency with the required relative user value, in intrinsic marginal utility relative to other commodities, including other area commodity-currencies like the U.S. dollar. We know from the underlying economics of the union, that relative prices of commodities reflect their relative scarcities, which explains how the ECB has to steward the Euro.

I.	According to the European version of exogeneity of money, the ECB is fixing at will the supply of Euro. Commercial banks do not matter. Either their supply of credit is slavishly depending upon the supply of legal tender by the ECB or they do not create money at all. It has been proven in the first part that the Treaty of Maastricht does not dally with banks because experts believed that banks were pure intermediaries recycling ex-ante real savings. 

II.	The ECB has to use it absolute power on the supply of the Euro to ensure that, in the long run, all rational transactors are able bet on a zero inflation policy. Such a commitment to permanent zero expected inflation did not exist for former European central banks (and, of course, for the U.S. Federal Reserve). Again, the neo-Mengerian doctrine of techno-classical pedigree lying underneath the veil of treaties explains the paramount postulate that, ultimately, inflation reflects an excess supply of money (Parguez 1998). In the long run, zero inflation is attained when the ECB creates just enough money to saturate what it has estimated as the long-run normal demand for money as part of real savings. Since the ECB operating in the like a Walrasian auctioneer cannot know ex-ante the long-run equilibrium prices, it has to undertake some tâtonnement by fixing short-term rates, the price of the commodity-currency. It is logically empowered to determine interest rates because individual banks ignoring equilibrium prices can supply credits in excess over their ex-ante deposits. They would be bankrupted had those banks not the last resort possibility to balance their books by selling assets to the Central Bank. The Central Bank’s power over interest rates stems from the inability of banks to create money. The Central Bank controls interest rates through open-market operations to prevent banks to be short of money!
	The ECB must increase interest rates when it fears that overoptimistic expectations of banks led them to supply loans in excess of their deposits, which reflects an excess of ex-ante investment over ex-ante savings for a given structure of savings, and therefore an assumed given normal desired stock of money. The rise in interest rates must impose a fall in ex-ante investment and the supply of credit as well, which is restoring the portfolio equilibrium. The whole mechanism relies on the Rueffian postulate that, when banks supply loans in excess of deposits, they are instantaneously short of money since loans cannot create deposits.

III.	According to the scarcity principle, the open market should not automatically bail banks out of bankruptcy. In a perfect exogenous money system, individual banks must always be uncertain relative to the policy of the Central Bank. They would therefore strive to adjust their supply of loans to the deposits they could borrow to other banks. Heinsohn and Steiger (1996) emphasized this principle adamantly in their advisory on the powers of the ECB. It has therefore been logically granted the power to impose upon banks any kind of controls its finds useful to prevent any excess supply of loans (including mandatory reserves).

IV.	In any case, the underlying economics of the Monetary Union rejects the notion of exogenous interest rates. When the Central Bank has to increase interest rates, it is because existing rates are too low to maintain equilibrium in the market for savings. The Central Bank must curb bankers’ spontaneous profligacy in their supply of loans by forcing upon them the natural rate of interest, which is obviously perfectly endogenous.

V.	It is also the ECB, which is ultimately responsible for attaining the normal relative price of the new currency relative to the U.S. dollar, the U.K. pound and the Yen (and other currencies). It has understood its mission as being the guide of the market, which must be convinced to hold hoardings in Euro rather than in other currencies. As long as the market is convinced of the zero expected inflation target, its faith being reinforced by relative higher rates of interest, it ought to deem the Euro – in Rueffian terms – as the “quintessential gold” (Parguez 1999). The Euro should replace the U.S. dollar as the major reserves currency, and, in accordance with Rueffian logic, the United States should not be the hegemonic power any more.

Protecting the ECB Stewardship: 
The Enslavement of Fiscal Policy

	It is of such a paramount importance that nobody understands why some enthusiast pro-Europeans dally with the mysterious new freedom bestowed on member states.

I.	The ECB is forbidden to create money at the request of member states and European authorities. The prohibition had never been enshrined into a constitution. It is now a major part of the constitution of the European Union. It makes sense in the context of the Mengerian economics of Rueffian pedigree lying underneath. It prevents the creation of money to finance excess state outlays relative to ex-ante taxes. It protects the market against the distribution of “false rights”. In technical terms, the prohibition collides with the general law of circulation of a monetary union (Parguez 2000). The state cannot finance its expenditures out of ex-post taxes generated by future incomes. The state is obliged to finance its outlays by the creation of money resulting from credits guaranteed by the Central Bank - the state-banking branch - to the Treasury – the state spending branch. Under the prohibition, the Central Bank can no more create money through book-credits to the Treasury. The Rueffian prohibition is jeopardizing the law of circulation, which is the essence of modern economics. 

II.	To understand the harshness of fiscal constraints supplementing the prohibition, we have to integrate the Maastricht rules and the Growth and Stability Pact into a consistent framework germane to the underlying economics.
	The fundamental principle is that, in the medium run, each member state must target a fiscal surplus. If there is a purely endogenous slump, a state could let “automatic stabilizers” generate an aggregate deficit if it does not exceed 3% of the GDP. Three conditions are to be met by the state incurring a deficit. It must not be the result of policies of expansion. It cannot jeopardize the public debt threshold of 60% of the GDP. Finally, the state must be sure that there will be future surpluses high enough to allow the state to exact over the cycle a net surplus. According to the Growth and Stability Pact interpreted by the European Commission and the European Central Bank, the initial slump must be of “abnormal magnitude”, and it must have occurred while the state was undertaking a policy of “fiscal responsibility” already targeting a balanced budget. Since deficits have an automatic negative impact on growth (“false rights” postulate), all member states have permanently to target surpluses because they cannot be sure that future surpluses will evolve out of destabilizing deficits. The surplus target is perfectly in accordance with the obsession of Mengerian techno-classical school relative to fiscal deficits. The sine-qua non for a sound policy is to target a permanent surplus as some insurance against an exogenous shock. 
	Some readers of the Growth and Stability Pact could be confused by the notion of “automatic stabilizers”. The context helps us to understand what is at stake. The experts who drafted the Pact were not bastard Keynesians. Deficits do nothing to bail an economy out of a slump, which has been initiated by excess ex-ante investment over ex-ante savings and/or exogenous real wages in excess over their long-run productivity. What matters is just that the state cannot be blamed for its unwanted deficit! It can escape from the penalty imposed on guilty states by the Growth and Stability Pact. 
	What is now the constitution of the European Union is so obsessed by the absolute supremacy of neo-classical economics as the ultimate source of law, that it creates a Supreme Economic Court. Any state can be indicted for excess deficits before the European Council in its capacity of Supreme Court and condemned to pay a fine equal to 0.5% of its PNB per year of excess deficit!

Removing Employment and Welfare 
From Macro-Economic Policy

	This major aspect of the European Monetary Union is dealt in Appendix II to the Growth and Stability Pact at the request of France. It is indeed a textbook example of the techno-classical French doctrine which could have been underwritten by Rueff and the Redressemement Français experts.

I.	The sole cause of unemployment in a perfect monetary union is the absolute inelasticity of the supply curve of labour, which deems the sheer absence of flexibility within the labour market. The maximum demand for labour is given by real “normal” wage, which is equal to the “normal” marginal productivity of labour. “Normality” refers to long-run general equilibrium conditions with optimality of resource allocation and sustainable living standards under the same qualification. In any period, there is a unique real wage, which is simultaneously meeting the resource allocation norm and the living standard constraint. Rueff had compared this equality to the neo-Wicksellian equality between the real rate of interest and the real rate of profit, which is the equilibrium condition in the market for savings. Unemployment occurs when holders of the labour force ration their supply either by asking for a higher real wage (wage rationing) or because their effective productivity is so inferior to its normal level that the corresponding real wage is deemed unsustainable (productivity rationing). In the later case, the equilibrium real wage is either below the minimum legal rate or insufficient to provide the socially normal consumption while being always above the subsistence level wage rate.

II.	The appendix II solution is that unemployment is a purely social problem, which must be addressed by directly removing the causes of supply rationing. It includes an agenda of reforms, which is strongly pushed by both the European Commission and the European Central Bank. In the long run, the monetary union could be jeopardized if an absolute flexibility is not imposed on labour suppliers because high unemployment could lure politicians into nefarious Keynesian policies (Fitoussi 1999).
	Reforms must include lower minimum wages, the substitution of jobs-training for pure welfare programs reducing the desire to work, more efficient organization of work and the suppression of any restraint on the right to fire inefficient workers and employees, etc. Many governments have shrewdly imposed flexibility under the disguise, like in France, of the “social treatment of unemployment” encompassing the mandatory reduction of work-time to 35 hours. More and more, workers are paid below the official minimum wage or are forced to retire instead of being fired. Involuntary retired workers and employees are obviously not benefiting from pensions lower than the normal level. 
	In any case, the European solution to unemployment relies upon the possibility of getting rid of the reluctance of “irrational” workers and employees. Here lies the role the notion of a new “natural rate of unemployment”, the “Non Expected Inflation Rate of Unemployment” (NEIRU), in the success of the monetary union (Parguez 1999). The NEIRU is not explicitly mentioned in the Growth and Stability Pact but it is the logical consequence of its whole underlying economics. What is the NEIRU but the level of unemployment reflecting the zero elasticity of the supply curve of labour. It is therefore the amount of unemployment that must be maintained as long as there is no creation of “false rights” by the Central Bank renouncing its zero inflation target.
	In the context of the monetary union and the level of unemployment, the NEIRU is henceforth sustaining the expectation of zero inflation by rational savers. Sooner or later, the NEIRU will oblige labour suppliers to change their supply curve by accepting flexibility. The NEIRU is ultimately the rate of unemployment that must remove any Keynesian temptation, and, therefore, it is the best road to sustainable full employment.

The Protecting Institutional Structure

	All European institutions have been craftily built to remove any damaging intervention of the non-enlightened people. Money must be unscathed from the perils of democracy! The Mengerian monetary union is therefore contradicting the very notion of a European federation.

I.	The European Central Bank is totally independent of both member states and European institutions. Independence means that none of those institutions may influence the Central Bank and that the Central Bank cannot be obliged to justify and even explain it policy. 
	The Central Bank is indeed obliged to present reports to the European Commission, the European Council and the European Parliament but this constraint collides with the rule of absolute secrecy, which forbids the Central Bank to explain its policy. Reports are therefore void of substance since the Bank has no comment on its decisions, and they cannot lead to some control, which would contradict the sovereignty of the Bank.
	To save this sovereignty, the Treaty of Maastricht has carefully shaped the organization of the Bank. The President, the Directory including the Vice-President and four other members exercise the supreme power. All are appointed for eight years by the European Council amid those who are “perfectly known within the financial community for their outstanding expertise” (paragraph 109A of the Treaty of Maastricht). They cannot be dismissed during their mandate even by an unanimous decision of the European Council. The last rule is usual for central bankers, but the first is crucial because it is the guarantee that the President and the Board must be either former central bankers or presidents of private banks. In any case, paragraph 109A establishes private banks as the constituency of the President and Directory of the ECB.
	Many supporters of the Monetary Union invoke paragraph 10 of the Maastricht Protocol on the European Central Bank relative to the organization of the ECB, according to which the presidents of national central banks are members of the Council of Governors. It would be therefore misleading to believe that the Monetary Union is a loss of sovereignty on the currency for member states. All would have an equal vote in the determination of the union monetary policy.
	Such a democratic vision is contradicting the very nature of the monetary union. National central bankers are parts of the European Monetary System of central Banks, which is run by the ECB (paragraph 8 of the Maastricht Protocol on the European Central Bank). Since the Bank enjoys an absolute independence relative to member states, national central banks must enjoy the same independence relative to their respective countries (paragraph 14-3 of the Maastricht Protocol on the European Central Bank). National central banks are just the national branches of the ECB. Member states as such do not participate in the Council of Governors, which is a purely technocratic assembly. Governors are sworn to ignore the special interests of their countries (paragraph 14-3 and 14-4 of the Maastricht Protocol on the European Central Bank).

II.	The rules, which constrain fiscal policies, cannot be amended. They are monitored and interpreted by the European Commission and the ECB. According to paragraph 4 of the Maastricht Protocol on the European Central Bank, the ECB “has the power to issue advisories in all matters related to its mission”. Since the Bank is monitoring fiscal land social policy as well, as soon as some domestic legislation is jeopardizing the value of the currency according to its own sovereign “judgement”, it issues an advisory requiring the repealing of this piece of legislation. It is also required to issue advisories on domestic budgets when they are not explicitly targeting surpluses. Those advisories are not mandatory regulations, but no member state may indulge in ignoring them. The Bank has the right to ask the Commission to issue mandatory directives imposing the required change. Since all European institutions must help the ECB to fulfil its mission, the Commission is obliged to issue the desired directives.

III.	The European Parliament is deprived of any powers. It does not participate in the nomination of the President, Board or Council of Governors of the ECB. The Bank has to present a report to the European Parliament but this report cannot be discussed and, in any case, as we have shown, cannot include any material that could inform the Parliament. It is obviously forbidden to issue advisories to the Bank, where members would have some disagreement with the Bank’s policy. It is therefore straightforward that the European Monetary Union is not a federation because a federation would jeopardize the sovereignty of the scarcity principle. 

The Lessons of the European Monetary Union 
for North America or the United States

	Those who refer to the European Monetary Union are right because it is the perfect model of monetary union. We have shown that the Mengerian theory of money is the sole logical explanation of a monetary union. Since the start, the European plan has been rooted in the general Mengerian theory. The ultimate existence condition of the single currency is the neo-classical theory of value emphasizing the paramount role of the scarcity principle as the source of the intrinsic value of the currency. A single commodity-currency that fits the scarcity principle of the Mengerian theory has evolved into a set of propositions determining the structure of the monetary union. It has been proven in the second part that the techno-classical school in France (and Germany), over the course of the sixty years of unfolding the European plan, has succeeded in deducing from the abstract Mengerian theory the economic and institutional rules of the new monetary order.

	There are therefore two alternatives: either supporters of monetary union are truly committed to their economic argument and they must copy the European Monetary Order, just taking care of some logical differences. Or they ignore this model, which proves that, for them, economics is worth nothing! Let us assume that it is the first alternative, which explains the campaign. It is henceforth possible to discover whether Canadians and Mexicans will be better off by the virtues of a single currency.

The Economic Structure of a North American Monetary Union

	We have already proven that the single currency must be the U.S. dollar. Albeit the solution is imposed by economic logic, it is raising some thorny questions stemming from the absence in North America of a long-run historical process evolving ultimately into the single currency.

I.	Establishing the U.S. dollar as a single currency requires the determination of the rates of conversion of assets and liabilities denominated in Canadian dollar and Mexican peso. Neither U.S. citizens nor Canadians and Mexicans must earn or loose from the conversion. The conversion rates must be the long-run equilibrium relative prices leading to an optimal allocation of resources within the North American (T) set. In Europe, they had been discovered by the tâtonnement process of the European Monetary System. In North America, they must be discovered by taking their time-adjusted average from the creation of the (T) set, the North American Free Trade Agreement (NAFTA), to the very day of the monetary union. Time-adjustment should help to ignore erratic fluctuations that cannot be deemed normal market response to unsound policies. It must therefore reflect the long-run depreciation of the Canadian dollar and the Mexican peso relative to the U.S. dollar. Since the conversion is not a political question, it ought to be monitored by the steward of the new union, the U.S. Federal Reserve. For assets and liabilities, the Federal Reserve would have to check all the books of Mexican and Canadian financial institutions. According to a rule imposed in Europe by the European Commission, some penalty could be applied for dubious assets relative to sound market constraints. Dubious assets would converted at lower rates than the normal rate. Banks should balance their books by reducing their liabilities. In any case, since banks are pure intermediaries like in the European Monetary Union, banks’ book adjustment cannot hinge on the money supply.

II.	Within the new union, the Federal Reserve plays the part of the ECB. It has to maintain a zero expected inflation from Chiapas to Nunavut by fixing the rate of growth of the money supply. Like its sister union, the NAMU is logically abiding to a strong version of the exogeneity of money as a mere consequence of the scarcity principle. Since the European Monetary union postulates that banks cannot create money, the architects of the NAMU are poised to rely on the same postulate because it cannot be rejected without unravelling the whole monetary union economics. Modern Neo-Mengerians in the likes of Mundell endorse the Rueffian theorem: The sine-qua-non of a general theory of value is that it is only the Central Bank, which may create money while banks handle the circulation of ex-ante savings. This strong exogeneity theory of money explains why debates of monetary union in North America ignore the role of banks and only address the supply of “legal tender” by the Federal Reserve.
	For the same reason as in Europe, the Federal Reserve will indirectly control the money supply by fixing interest rates through open-market operations bailing out of insolvent banks, which have supplies loans in excess over their ex-ante deposits. The new Federal Reserve is committed to impose the level of interest rates adjusting ex-ante savings to ex-ante investments, which is the prerequisite for a sound currency sustained by zero inflation. Implementing a singly supply of money target and therefore a unique set of interest rates could be more difficult in North America than in Europe because of a long-run discrepancy in inflation rates, which must be explained in Mengerian terms by a very unequal pledge to market laws. There has not been the same long-run structural adjustment than within the European (T) set (stage I of the European plan).
	The new Federal Reserve could operate in two steps. In the first step, it sets the supply continental norm and the corresponding average interest rates. In a second step, it allocates the supply of money between the United States, Mexico and Canada. The more the new Federal Reserve fears inflation in Canada and Mexico because of their reluctance to get rid of their non pro-market legislation, the lower should be their share in the money supply. Accordingly, the new Federal Reserve would impose higher rates on Canadian and Mexican banks. No leakage of ex-ante savings should be feared in the United States because lower expected inflation and more pro-market environment should generate higher rates of return on savings invested in the United States.
	The new Federal Reserve will be granted the same power of monitoring domestic legislation than the European Central Bank. It should blame the Canadian unemployment insurance and welfare like the ECB, which never stops intervening for the sake of the Europe. 

III.	Since the ECB is sovereign relative to member states, the same absolute sovereignty must be bestowed on the new Federal Reserve. The new Federal Reserve ought not to be the central bank of member states since its model, the ECB, is not the central bank of member states. 
	Canada and Mexico will loose their national central bank as central banks the priority of which is the specific interest of their respective economies as they understand it. Logically, following the European model, they will be integrated into the American system of central banks under the supreme authority of the new Federal Reserve. The new Federal Reserve should be granted a constitutional independence relative to all member states, including the United States government. Both the Mexican central bank and the Bank of Canada would become independent from their respective governments. They should become mere domestic branches of the new Federal Reserve, which could help it to undertake its discriminatory policy. In accordance with the European model, their presidents could be part of the Council of Governors of the new Federal Reserve. They will never be advocates of the special interests of Canada and Mexico, which, as such, must be ousted from the decisions of the new Federal Reserve. Neither in North America nor in Europe, monetary union is a monetary democracy!

IV.	The new Federal Reserve must be protected by the more stringent fiscal rules than in Europe because nothing has been undertaken in the long run to overcome the spontaneous profligacy of Mexican and Canadian politicians. Neither Mexico nor Canada has passed through the same fiscal austerity “purgatory” than the Europeans for the last thirty years before the official implementation of the single currency. Any financing of state outlays by the new Federal Reserve must be at once prohibited. Canada, Mexico and the United States must commit themselves to permanent surpluses (including social security) to accelerate the repayment of their public debt. Given their past performances relative to inflation in the terms of the monetary union orthodoxy, required surpluses must be greater for Mexico and Canada than for the United States. Those fiscal constraints are to be enshrined into the Treaty of NAMU, and there should be sanctions imposed on countries running insufficient surpluses. Both for Mexico and Canada, a domestic fiscal deflation is required to endow the E-US dollar with enough intrinsic value to compete successfully with the Euro. 

V.	North American-wide fiscal deflation must help to suppress all obstacles to perfect market flexibility, especially in the market for labour. Long-run surpluses most be mostly attained by saving on social non-pro-market programs (education, health, subsidies to farmers, etc.) and cutting taxes for corporations. There must be one single flexible labour market from Yukon to Guatemala like the assumed single market from Algarve to the border of Poland! What is lacking in North America is the strong “enlightened despotic power”, which exist in Europe to enforce flexibility. The success of the E-dollar requires the creation of a supra-national technocratic agency - the North American Commission -, which, at the request of the new Federal Reserve, could issue executive orders repealing all pieces of domestic legislation, which are an obstacle to perfect flexibility. The American Council of Presidents and Prime Ministers should appoint the North American Commission, in which the United States should have a leading role for reason of pure logic. The United States economy is the anchor of the union, in terms of transaction space and sound management, which makes its currency the most marketable of the existing currencies. The United States must therefore be a source of inspiration for the North American Commission. In some way, the E-dollar is a composite currency in which the relative share of the former non-E US dollar is obviously overwhelming.
	For the same reason, the United States should have a majority right vote in the North American Council, which could pass laws drafted by the North American Commission and the new Federal Reserve, the E-Fed. Such a majority right is not a question of politics, it is the mere consequence of the underlying economics of the monetary union, which is a unique foundation! Those laws could supersede any domestic laws including American domestic laws.

The Consequences of Such a North American Monetary Union

	Canadians are the most eager to embrace the monetary union with the United States, but most of them want to ignore that such a monetary union must also include Mexico. A monetary union has to allow participants to a predetermined (T) set to get their optimal allocation of resources. NAFTA has created a Mengerian (T) set including Mexico, and all future members of an enlarged NAFTA. Setting up the consequences of a monetary union for Canada requires to consider Canada as a partner of Mexico. 

The Impact of the Exogeneity of Money Postulate

I.	The unbridled faith in the postulate explains why Canadian advocates in the NAMU are never raising the role of banks. They only dally with the stock of the so-called legal tender assuming that the required stock of E-dollars will be attained by asking for the repayment of U.S. bonds held by the Bank of Canada. Since in modern non-command economies like Mexico and Canada, money is perfectly endogenous, Canadian and Mexican banks will create E-dollars to finance their loans. Even in the context of a monetary union, banks are never lending their ex-ante deposits generated by thriftiness. Since the new Federal Reserve, the E-Fed, is committed to maintain the stability of the financial system, it will be obliged to create the ex-post reserves through open market operations (or the “discount window”). Such a commitment could collide with the scarcity principle of which the E-Fed is the steward. Even if we assumed that the President of the E-Fed has been converted to the Franco-German doctrine, he could not ignore the increase in loans reflecting an unexpected increase in the velocity of money. He should therefore increase the level of interest rates to impose a fall in the demand for loans until it is again equal to ex-ante deposits. Since the E-Fed is fixing a unique level of interest rates, the credit squeeze will be the same everywhere in the monetary union. 
	Let us assume some profligacy of Mexican banks in their loans to their shareholders. According to a scarcity-led Federal Reserve, there is an unexpected increase in the average velocity of money jeopardizing the value of the E-dollar. Canadians will bear the same credit squeeze than Mexicans albeit Canadian banks have been cautious in their credit worthiness rules. The more the E-Fed is pledged to scarcity while being unable to ration the “supply of money”, the more it will react to the endogeneity of money by raising interest rates.

II.	The E-Fed will follow the effective policy of the European Central Bank. Endogeneity of money is obviously also colliding in Europe with the exogeneity postulate in its Menger-Rueff interpretation. It has been explained that the ECB is the steward of its constituency, the European banks. It has therefore pursued the policy of creating ex-post reserves to validate ex-ante loans through its natural departments. Unexpected excess loans are dealt with by the blinding glasses of the Franco-German orthodoxy since they are deemed non-forecast increase in the velocity of money or non-cautious financial innovations. Being dangerous for the relative value of the currency, excess loans must be suppressed by interest rate hikes in real terms. Because of its ignorance of endogeneity of money, the European Monetary Union has bestowed on the ECB an arbitrary power in the determination of interest rates. Every time the ECB has raised interest rates, it has argued that it was acting in its role of steward of the scarcity of money to curb excess loans relative to the outer world it had not expected.

III.	Every time the ECB has raised short-term interest rates, it has explained that private banks could raise at will their own rates. The true meaning of the famous paragraph 109 of the Maastricht Protocol on the European Central Bank is thus obvious. The monetary union has enshrined in law the role of the ECB as cornucopia for private banks. There is much more to expect for banks because of prohibition. In a non-command economy, the flux/reflux principle of the monetary circuit applies to the state. The state cannot finance its outlays out of its future taxes. It has to finance them by money creation, which ought to be undertaken by the central bank (Parguez 2000). Because the central bank is now forbidden to create money for member states, each of them has to substitute private bankers for their former central bank as the source of money creation. Blinded by their economic ideology, European technocrats, especially those of French pedigree, never understood this constraint (for the same reason, they could not discover that banks create money). In any case, the Rueffian “false rights” doctrine is imposing an amazing burden on any member state since they have both to pay interest to banks on their borrowings and to comply with their credit-worthiness norms. For the sake of the prohibition, all links between member states and the so-called “national central banks” are to be cut. For a given average of profit desired by banks, interest rates being ultimately decreed by the ECB, it can increase at will the state interest burden. The ECB begins to understand that the prohibition extends far beyond the “monetarization of deficits”, and it requires the repealing of institutional links between the Treasury of member states and national central banks. 
	The same constraint will apply to all members of the NAMU. All must be relative to their former national banks in the same situation that Canadian provinces are relative to the Bank of Canada. Canada will have to meet its outlay commitments by borrowing from private banks. While the Canadian government has been obsessed by the debt burden, monetary union must outrageously increase its debt burden depending upon the E-Fed policy. Any interest rate hike decreed by the E-Fed to tame over-speculation in Mexico will automatically increase the debt burden of Canada.

The Impact of the Fiscal Rules

	All Canadians who reproached the Liberal government in the late nineties for its profligacy and serendipity relative to market judgement ought to rejoice. Thanks to the NAMU, the dogma of permanent higher surpluses generated by remorseless squeeze of non-pro-market outlays would be carved in stone, and those surpluses will be used to get rid of the public debt. For the United States, the new laws are also to be carved in Mount Rushmore, and then, in retrospect, U.S. President Bill Clinton will appear as a spendthrift Keynesian. For some time, there have been in the United States some conservative technocrats like Paul Volker for whom, in the like of the French techno-classical school, sound money was not consistent, in the long run, with the post-new deal democracy (Greider 1987). Volker and the likes of him including Mundell do believe that “fiscal soundness” must be protected from the special interests in the Congress. They endorse therefore a monetary union, as the second best relative to a pure gold standard because it would help to bypass the usual democratic process by installing some supra-national set of rule (Greider 1987 and 1992). This growing contempt for democracy of a part of the U.S. elite (Ferguson 1995) has an echo in Canada and Mexico.

	Fiscal deflation is a twin of the exogeneity of money. We have shown that it is deeply rooted in the absolute loathing of the Keynesian principle of effective demand. Becoming converted to monetary union is to abjure Keynes and his legacy, which could explain why so many former Marxists or Neo-Marxists both in Europe and North America take an oath to the monetary union (the best example is the former regulation school in France - Parguez 1990). Since Say’s Law and supply-side economies do not rule in modern non-command economies, the fiscal rules of monetary union lead to a permanent squeeze of aggregate demand, which generates an increasing involuntary unemployment. Such has been the case in Europe for the thirty years before the official implementation of the single currency on January 1, 1999. The sole member of the European Union, which in the early eighties had refused to enter into the monetary union by rejecting the European monetary tâtonnement - the United Kingdom -, is the sole European country enjoying a dramatic fall in unemployment. 

	Were Canada, Mexico and the United States agreeing on a monetary union, they would have permanently to deflate their economies and accept a permanent high level of unemployment. Some could invoke the miracle of the new economy of the late nineties! Rising surpluses have been matched by strong growth without inflation and quasi-full employment in the United States. It would be time to reap the benefits of the new economy by building the monetary union. But there are no miracles in economics. In the United States, and in Canada to a lesser extent, the deflationary impact of fiscal policy has been more than compensated for by an amazing growth of private debt. Neither the U.S. Federal Reserve nor the Bank of Canada have been worried by this private debt because a growing share of it had for collateral stocks, the value of which has been inflated by a profligacy of bank credits financing speculation (like in the twenties, when experts already dallied with the new economy). It seemed that there had been a net increase in private wealth because of the value of stocks was growing at a much quicker pace than loans. 

Let us assume that there is a new E-Fed modelled upon the ECB, which is obviously much more conservative than the U.S. Federal Reserve of the “miracle era”. The ECB has been an outspoken critic of the carelessness of the U.S. Federal Reserve since the start. Believing in real ex-ante savings as the normal source of loans, it is opposed in the like of the former pre-union Banque de France to loans financing household acquisitions of consumption goods. The ECB deems therefore the existing financial structure of the United States and Canada, in Minskian terms, very unstable and worrying. There is no doubt that a supra-national E-Fed will be much more cautious than the existing one. It will strive to impose a credit crunch by interest rate hikes acting in the spirit of Paul Volker, when he engineered the big slump of the early eighties. In his own words quoted by Greider (1987), “restoring the market order required to liquidate excess capital and excess labour relative to normal ex-ante savings”. The success of monetary union is therefore linked with the destruction of the compensating role of private net debt during the new economy boom. The United States economy will suffer but the bulk of the credit crunch will be borne by Mexico and Canada, where the rise in real incomes has been inexistent or quite lower than in the United States. A credit crunch will induce much more squeeze on aggregate demand in Canada and Mexico than in the United States.

The Impact of Absolute Flexibility

For reasons of pure logic, the most vocal advocates in Canada of a total dismantling of the old Canadian welfare state must applaud the NAMU. Relative to what is to be expected in terms of a frontal attack against all disincentives to work and obstacles to productivity, once again, both the Mulroney and the Chrétien regimes of the nineties will be deemed adversaries of free markets. Within the European Monetary Union, the ECB is the watchdog of unfettered markets accusing most governments of being responsible for high unemployment because of their reluctance to get rid of their special programs and labour laws. Seconded by the European Commission, the ECB has targeted the social democrat German government for its addiction to welfare and support of unions. The Bank has even explicitly rejected any kind of intervention to bail out a corporation because its bankruptcy could lead to the firing of its labour force. In its own terms, an explanation of the relative fall of the Euro is the German policy of protecting employment by subsidizing corporations. North American supporters of the European model can therefore bet on an assault upon all kinds of regulations and programs, which are deemed non-pro-market by the E-Fed.

	Like in Europe, the E-Fed will monitor the two aspects of the flexibility agenda. Undaunted commitment to flexibility requires first an absolute harmonization of taxes, social programs, union rights, and environmental laws form Mexico to Canada. It obviously also imposes a union-wide free market for saving lending to the repealing of the Canadian Banking Act. The second aspect of flexibility is to suppress, step by step, all kinds of regulations raising production costs beyond their normal level or squeezing incomes of the most productive agents. Taxes are to be cut to fit the United States norm (but they could be increased in Mexico to provide the state with revenue). Social programs and union rights must be slashed to fit the United States model, because, in Rueffian terms, they allow Canadians to enjoy excess weal wages relative to their low productivity compared to United States standards. At last, a sound E-dollar does not fit with strong environmental standards.

	What should ensure the success of this free trade “remorseless agenda” (Rueff 1945) is that it would be unscathed from overcautious politicians. The Canadian Parliament will be deprived of counterbalancing power in the like of European parliaments. Flexibility must have a strong impact on the level of real wages because an harmonized prices structure should adjust Canadian and United States real wages to their Mexican level. Adjustment could allow for a modest rise in real wages but it should impose falling real wages in Canada and the United States.

	Ultimately, those who want a NAMU must refer to the European model, which explains why monetary union must be rejected.

Toll for Everybody or 
an Ominious Omen: the Bells of Frankfurt

The Unexpected Weakness of the Euro

	It has been explained in the first part of this paper that amid Canadians crusading for a monetary union in North America, there seem to be two groups. Some of them preach monetary vision to guarantee Canada against constraints of globalization, while others, the most vocal group, want monetary union to abolish any degree of freedom for Canada in its spurious fight against market laws. All agree on three postulates. The first is that monetary union is imposed by the ongoing economic infrastructure. The second postulate emphasizes that Canadians will be better off within a monetary union. The third is that the very existence of European Monetary Union proves the truth of the first two principles.

	The birth of the Euro on January 1, 1999, has been celebrated as the new coronation of Charlemagne in accordance with the first postulate. Financial markets were to crown the Euro as the Empress of currencies poised to become the strongest currency in the world. The Euro must supersede the dollar bestowing imperium on Europe, such was the credo of those who had achieved the European plan.

	Now, in the spring of 2000, the Euro has been increasingly falling, not only vis-à-vis to the U.S. dollar, but also vis-à-vis to the Yen, the Pound and the Swiss franc. European authorities are stunned by this unexpected collapse and they scorn the market for its ignorance of long-run fundamentals. In its palatial see in Frankfurt, the European Central Bank cannot understand why initial hopes failed while the French and German governments never stop preaching the sanctity of the Euro. It is obvious that, sooner or later, initial faith will be replaced by profound doubt.

	There is nothing mysterious in the collapse of the Euro. It was born a weak currency (Parguez 1998) because it enshrines the most extreme aspect of the neo-classical theory of money. We have shown that a monetary union is rooted in three postulates: 

I.	The structural homogeneity of its members.

II.	The currency is the result of a spontaneous market process, and the market maintains its intrinsic value.

III.	A supporting order is needed to convince the market in a world of imperfect information.

It is obvious that there is no structural homogeneity of American states or Canadian provinces. The existence condition of a unique currency is the American and the Canadian federal state overcoming the natural inequality between states and provinces through macroeconomic policy. Since, according to the second postulate, there is no unifying state and therefore no underlying macroeconomic policy within a monetary union, harmonization ought to be attained before monetary union by a pure market process. Were such an harmonization absent, markets would never endorse the new currency, which, according to the second postulate, would be a fake currency. Euro architects believed that their convergence norms ought to trigger a market process of harmonization. They have failed because convergence norms could not ensure perfect harmonization. Countries can reach balanced budgets and declining public debt ratios while having non-homogenous economic and social structures. The failure has been worsened by the so-called “enlargement of the monetary union” aiming at including eastern European countries like Poland and the Czech Republic as well as southern European countries like Greece and Turkey. They could comply with the convergence norms by imposing harsh austerity policies on their people but that could not overcome their backward economic and social structures relative to the European core. Nothing can be done to reduce natural pre-union inequalities without contradicting the second postulate, which is the true existence condition of the monetary union. Euro architects have ensnared themselves in an ideological warp from which there is no escape.

	Since free-market forces ultimately generate the currency, it cannot be backed by a unifying state. The structure of the European Monetary Union reveals this absolute logical inconsistency between monetary union and federal unification. Monetary union exists to exclude the scourge of unification leading to some state power denying market forces. Here lies the explanation of the faith of Euro architects into the ascendency of the Euro relative to the U.S. dollar. Being a state-ruled currency, the U.S. dollar cannot compete with the first currency freed from state power and therefore from people’s shortsighted interests. Since markets, have been blinded by false information, they must be enlightened by a set of supporting rules convincing them of the intrinsic value of the new currency. The third postulate rejects any kind of explicit macroeconomic policy at the European level while there should also be no more economic policy as such at the member state level. What is just needed is a sovereign central bank targeting zero expected inflation and a set of automatic fiscal constraints. It is therefore impossible to compare the creation of the Euro with, for instance, the U.S. dollar of the first congress. The new U.S. dollar was backed by a new state supporting a new nation while the Euro is only backed by postulated market forces!

	Had Europeans not been blinded by their own rhetoric, they would have understood why the markets they relied on disavowed their hopes. 

	Menger’s postulate is wrong. Within a nation space, the state is the existence condition of the currency. On the one side, the state decrees that debt - tax liabilities and private liabilities - may only be discharged by payments denominated in assets of the currency. On the other side, the state ensures that society is always provided with enough currency units to discharge of ongoing debts, which is the endogeneity principle. Currency units are injected in the flux phase of the monetary circuit by state expenditures and bank loans financing private expenditures. They are destroyed in the reflux phase when debt liabilities, including tax liabilities, are discharged. Bank loans may generate new currency units because the state has decreed that banks deposits denominated in state currency units could be used to discharge of all debts, including tax debts. Bank loans are henceforth automatically backed by the banking branch of the state - the central bank. Herein is the logical explanation of the absolute endogeneity of reserves, the proof that the central bank must never try to control the creation of money.

	In the long run, a currency survives if every temporary holder is certain that it has a value or purchasing power accounting for the right to acquire a share of the real wealth generated by the creation of units of the currency in the flux phase. Since the whole creation of currency units is backed by the state, which is the ultimate issuer (directly or indirectly by endorsing bank loans), value is bestowed on the currency by bets on the ability of the state to increase real wealth by creating new units of the currency. From the positive theory of money therefore stems the following fundamental anti-Mengerian proposition:

The sole source of value for a currency are the bets on the capacity of the state fiscal policy to sustain the growth of real wealth.
 
	The role of foreign exchange markets is to determine the relative value of currencies. The exchange rate of Euro in terms of U.S. dollar is the ratio of the value of the Euro in terms of the U.S. dollar’s own value. From the anti-Mengerian theory of value stems the exchange-rate theorem:

The exchange rate of the Euro in terms of U.S. dollar reflects the bets on the long run efficiency of fiscal policy in the Euro area relative to the efficiency of fiscal policy in the United States. Exchange rates do not depend on central bank policy as long as it contradicts fiscal policy.

	This explains why, since the start, the Euro has been a weak currency. Since Euro is a stateless currency, there is no fiscal policy market operators can bet on to determine its value. Automatic fiscal constraints cannot be substituted for an active long-run fiscal policy at the supra-national level. Supra-national coordination of national fiscal policies is forbidden because it would be the first step towards a European state contradicting the “essence” of the monetary union. The value of the Euro is therefore indeterminate, being bereft of any anchor.

	All market operators may bet on the value of the dollar, which is perfectly given by the long-run fiscal policy in the United States. The existence condition of bets on the efficiency of fiscal policy is a postulated causality explaining growth of real wealthy by the long-run fiscal policy. Expected strong growth of real wealth sustains bets on a very efficient fiscal policy. Since the mid-nineties of the twentieth century, real growth in the United States has been so strong that it has achieved the lowest unemployment rate since the early sixties (between 3% and 4%) while allowing a rise in real wages. Herein is the proof of the ability of the federal state to sustain the growth of real wealth and therefore of the rising value of the U.S. dollar. Obviously, unemployment still exists, and growth has been partly generated by an unsustainable private indebtedness compensating for federal surpluses. Those omens are not yet shadowing the bets on future growth, which is the anchor of the continuous rise in the value of the U.S. dollar.

	The omens are much worse for the Euro. Since the mid-nineties, real growth in the Euro area has been increasingly lower than in the United States, in terms of unemployment and real incomes. For countries like France, Germany, Spain or Italy, the official rate of unemployment in the spring of 2000 is still at least thrice or more than the U.S. rate, while officials are reproaching the markets to ignore “outstanding fundamentals”. However, the “fundamentals” are not “outstanding” - they are bleak. The Euro countries have lagged behind the United States because they have imposed on themselves, at least since the late seventies, fiscal policies of deflation. As we have shown, the implementation of the monetary union has worsened the constraint upon fiscal policies because of the consent of markets to the new currency was needed. In the whole Euro area, in the spring of 2000, expected fiscal policies have to fit the surplus norm, which explains why they cannot sustain the growth of real aggregate demand. 

On the one side, markets may bet on the steadily rising value of the U.S. dollar while, on the other side, they lack the anchor that would help them to find the true value of the Euro. The Euro is therefore some bottomless self-dissolving currency, which is enough to explain why the exchange rate of the Euro in terms of U.S. dollar has been falling since its inception. 

The Destabilizing Impact of the Euro Weakness

	According to Smithin (2000), the creation of the Euro could have been a wise policy because it would help to increase a weak currency and employment within the Euro zone by substituting a weak currency for strong previous national currencies. However, Smithin adds the caveat that “given the trade diversion activities of the last several decades leading up to the establishment of the single currency, there is reason to doubt how much benefit the region as a whole would actually obtain from a deprecating currency” (Smithin 2000). In Smithin’s model, exchange rates are controlled by central bank policies. A depreciation of the Euro is the outcome of the low interest policy of the ECB (cheap Euro policy). 

	We may doubt this interpretation because there never was a cheap Euro policy of the ECB. It could do nothing to stop the depreciation of the currency because, as we have shown, it was powerless to intervene in a process, which does not depend upon its wishes and deeds. Many times the ECB raised its interest rate, but failed to convince the markets because relative interest rates have no impact, or a very marginal one, on the bets on the future course of relative fiscal policies.

	However, Smithin is perfectly right to doubt the contribution to growth in the Euro region of a depreciating Euro. The share of trade with the outer world is too small in percentage of the GDP to sustain growth while compensating for fiscal policy deflation. It has been increasingly declining since the early days of the European plan forty years ago. Two negative effects of the depreciation of the currency must overcome the rise in exports. The first is the increase in the U.S. dollar value of imports of raw materials and consumption goods, which could determine a fall in expected profits because of rising costs and a crowding-out of domestic production of consumption of goods by imports, assuming stagnant real incomes unchanged preferences. European firms ought to curb domestic employment inducing a cumulative process of deflation. 

The second is embedded into the policy response functions of European governments and European institutions, the ECB and the European commission. None of them is poised to bow to market judgement. They cannot passively endorse the failure of a plan, which started fifty years ago. They will do everything to save the Euro from its collapse by ultimately convincing the markets of the strength of the beleaguered currency. Interest rates being inefficient, fiscal constraints will become more and more stringent while the so-called “flexibility” norms are to be imposed at a quicker pace. A dramatic example of such a response is the Lisbon Declaration (January 2000) in which European governments pledge to force the “new regulations” encompassing all aspects of the Amsterdam Treaty Protocol relative to the labour market. A strong Euro would need private pensions, private social security, total flexibility of labour conditions, pro-market reform of schools and universities, etc…

	Since those policies must squeeze employment and growth relative to the United States, they are to accelerate the depreciation of the Euro, which could trigger a true accumulative process of deflation, which in turn could seriously destabilize the world economy. Europeans still strive to overcome the impact of their policies by imposing more demanding fiscal constraints generating a lower exchange rate to which they will respond by more fiscal deflation … . European governments, especially in France and Germany, encouraged by the European institutions they control, could be doomed to repeat the mistakes of the Gold zone in the thirties (Parguez 1999). 

	According to the Emerson and Fitoussi reports, the creation of the Euro has helped to stabilize the world financial structures by alleviating the burden of financing the world economy, which the United States had to bear. Instead of one world economy currencies, there are now two or three - the U.S. dollar, the Euro and maybe the Yen, the famous currency “triad” of mainstream literature. The strength of the Euro would allow the United States to reduce their current account deficit without squeezing the world economy by a lack of U.S. dollars as the Euro is substituted for the U.S. dollar in an increasing number of transactions. Rueff’s dream would become reality, the U.S. dollar being a mere regional currency. The United States could no more acquire “false rights” on the world output. The weakening valueless Euro cannot fit the requirement of a new “quintessential” gold (Parguez 1999b). In the long run, it must squeeze imports of the Euro zone, income and price effects overcoming the rigidity of consumers’ preferences, and increase exports. Euro zone firms will turn to exports because of the price effect and also because of the income effect resulting from the squeeze of domestic consumption. The evanescent Euro leads to growing trade surpluses for the Euro zone, which must squeeze the outer world economy. Emerging economies and East-Asia economies cannot bet on growing exports to a Euro zone isolated by its weak currency. The United States must be the sole last resort importer for economies relying on exports as the unique source of growth or aggregate demand. On the other side, the evanescent Euro is subsidizing Euro zone exports relative to exports from strong currency economies like the United States, the United Kingdom, or Switzerland. We have shown that the growth of exports in the Euro zone cannot supersede the impact of fiscal deflation imposed to save the currency. Its impact on the world economy is therefore negative. The “stabilizing” impact of the Euro zone is therefore doubtful: 

The Euro zone must increase the United States trade deficit instead of reducing its size. The U.S. dollar must remain the world’s unique currency supporting the growth of international trade. The currency triad cannot exist.

A Dire Warning For Advocates 
of Monetary Union Outside the Euro Zone

	The bells have tolled in the see of the ECB which, form Frankfurt, should have extolled the purity of the Euro with respect to the Mengerian dogma. The Euro will never be the empress of currencies. Such a blatant failure is a dire warning for those who praise monetary union in North America. Herein is the proof that the second postulate is invalid. None could be better off in a NAMU reflecting the Mengerian European model.

	The United States will never endorse a monetary union albeit it could dilute the power of the non-enlightened electorate and therefore tempt those who dream of some technocratic new order. It has been proven that the existence condition of a monetary union is a supra-national stateless currency. Such a currency is an anchorless one because it is not backed by a genuine long-run fiscal policy. Its sole support is a stringent fiscal automatic constraint. It is therefore a weak currency. Substituting a zonal new enlarged-dollar for their own dollar would oblige the United States to substitute a strong currency for a weak currency. Like the new Euro zone, the United States ought to target a permanent fiscal deflation. It is henceforth obvious that a monetary union has been ousted from the sensible political agenda in North America.

	There remains the alternative of unilateral “dollarization” independent of a formal monetary union. By a mere act of parliament, Canada could decree that its currency is not the U.S. dollar without any institutional link between the Bank of Canada and the U.S. Federal Reserve System. Canadian banks would be able to create at will U.S. dollar deposits to finance their loans, and they should be free from any exogenous constraint. Such a solution seems to fit the endogenous nature of money! It is a mere illusion because, according to the positive theory of money, the endogenity principle applies to loans denominated in a predetermined currency unit over which the state has an absolute monopoly. Were Canadian banks granting loans denominated in U.S. dollars, they would account for fake or rather false U.S. dollar units deprived of any value. Those false U.S. dollars would be a pure currency inflation. By indulging in a unilateral “U.S. dollarization”, Canada would substitute a false currency bereft of purchasing power for its own currency, which is bestowed with a perfectly determined value. 

	The Canadian federal state cannot bestow on Canadian banks the right to issue units of U.S. dollars because it has no right to do so. A state has an absolute monopoly right on the unit in which its currency is denominated. In economic terms, this right is an exclusive property right, which is the support of the currency value. According to the fundamental proposition of the theory of money that has been spelled out, the existence condition of the value bestowed on a currency is that every temporary holder believes in the efficient use of the property right of the state. Were Canada bold enough to allow Canadian banks to issue U.S. dollar units, that would contradict the property right of the federal state of the United States. The Canadian U.S. dollars would be false U.S. dollars bereft of value and would therefore be rejected by all potential holders. The situation could be compared to the case of a monopolist supplying water to a town that issuing rights to use the water. Let us introduce a bold newcomer issuing new rights to use the water. They must be valueless “false rights”. This analogy has been spelled out by Mossler (1998) and the Neo-Chartalist School to prove that a state cannot give to others a right it cannot acquire rightly. 

	The bells would therefore stir a sinister echo in the country where a state steals the currency right of another states. This conclusion is not contradicted by the dollarization of countries like Panama and the Kiribati Islands Republic. Both are not stealing the monopoly right of the United States federal state because they operate on a 100% U.S. dollar reserve. In those countries, both the state and the banks are just recycling deposits in U.S. dollars in the United States as if they were parts of the United States.

Assuming that Canada wishes to get rid of its currency, there are ultimately three alternatives between which those who are doubting the Canadian currency, choose accordingly:

Monetary Union	Unilateral U.S. Dollarization	Becoming Part of 
the United States
	
Nobody would benefit from this solution. 	Canada is the ultimate looser.	Is Canada ready to become Panama or the Kiribati Islands Republic?	
Everybody looses, especially the United States.	A false money is substituted for a true currency.	Are the United States ready to integrate Canada and destroy the world balance of power?	
A monetary union is doomed because it collides with the nature of money.
	The solution also collides with the nature of money.	N/a 	
Therefore: 
absolute impossibility	Therefore: 
absolute impossibility	Therefore: 
Highly improbable solution at least for the years to come	

	None is a relevant and sensible choice. Beyond the Mengerian determinism and the staunch anti-American European rhetoric, the empress of currencies is naked. Nothing allows a country to escape form the burden of sovereignty on the currency: it is an economic constraint, which is the last resort existence condition of the modern monetary world economy. For anyone hearing the bells of Frankfurt herein lies the warning of the deadly dangers of the Euro temptation. They teach a hard lesson … maybe those who created the first stateless currency have unleashed the seeds of catastrophe in the world economy because of their fanatical faith in an ideology denying all the characteristics of the modern economy. As always, the iron law of materialist determinism has been the disguise of a choice driven by ideology.

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