Laffer Supports the Despres View

Laffer supported the view offered by his Stanford advisor Emile Despres that the United States was providing a service to the world in exporting an abundance of dollars in exchange for an abundance of imports. Other countries preferred the dollar as banked money and as an investment medium. They were not going to redeem in gold suddenly and en masse. They were holding the dollar because they preferred that currency, that monetary medium, over all others.

Laffer expressed this view in his research time and again in the 1960s and early 1970s, including in this paper of 1970, “International Financial Intermediation: Interpretation and Empirical Analysis.” As Laffer pointed out in this article, “For the United States, the financial intermediary nation”—i.e., the nation everyone looks to for currency supply and banking services—“the increase in domestically held money does not come solely from [trade] surpluses.” For “Being the intermediary nation, the United States is the world’s producer of money and, therefore, the increase in domestically held money equals the amount of domestically produced money less the overall payments deficit.”

View the paper here.