Cash Constraints and Credit Corsets: The Chimera of Interenterprise Credit

Consider (with apologies to Adam Smith) an efficient pin producer selling half her production in the convertible currency market (where buyers are picky) and the rest in the domestic market to inefficient, financially shaky (state-owned) enterprises. The pins are similar but not identical, with only good pins sold in the convertible currency market and both good and bad pins in the domestic market. The firm can switch from producing one to the other with some retooling, but gearing up to sell more in the convertible currency market requires time and effort. The pin producer buys the necessary labor and steel each morning, ships the goods each afternoon, receives payment, and in turn pays suppliers and labor. The pin producer therefore has neither a cash surplus nor a deficit. To keep things simple, there is no banking system.