Labourers might receive partial payment for their efforts in kind, or at large mills, in scrip that could only be used for purchases in the company store. The monetisation of the economy, based on secure monetary values, severed many of these ties of dependency. With money in their pockets, accepted as legal tender everywhere, the farmer or labourer was able to choose. This is also freedom. Nor did the party receiving payment, e.g. the town merchants to know more about the customer than that he had money in his pocket and could pay for the goods. Eitrheim, Ø. and L.F. Øksendal (forthcoming): On secure monetary values and freedom. 6  BIS central bankers’ speeches  In Norway, the aim of shielding the monetary system from the government was already embodied in the Constitution of Norway adopted on 17 May 1814. The drafters of the constitution formulated the following in Article 75(c): “It devolves upon the Storting ... to supervise the monetary affairs of the Realm”. This provision strongly censured the Danish King’s monetary policy during wartime. In future, representatives appointed by citizens, not the Crown, were to have final responsibility for the monetary system.27 The King’s scope for taxation by means of inflation was curtailed. The Storting, which was supposed to meet every third year, was not equipped to assume day-to-day responsibility for the monetary system. “Someone” had to do this on behalf of the Storting. That “someone” became Norges Bank, which was established in 1814.
This is probably due to the modernisation of the functioning of the economy through the 1980s and 1990s, which resulted in more efficient markets. In addition, growth in labour productivity reflected a marked fall in sickness absence in 2004. The outlook for the Norwegian economy Monetary policy influences the economy with a lag. Norges Bank therefore has to be forward-looking in its interest rate setting. Developments in prices and capacity utilisation in Norway are influenced by both domestic conditions and economic developments in other countries. Since the end of June, global money and credit markets have been characterised by sharp fluctuations, liquidity shortages and reduced risk willingness. The turbulence stems from problems in the US mortgage market. Defaults on subprime mortgages in the US began in the second half of 2006. Securities portfolios had been developed around these mortgages. Uncertainty arose among banks and investors that were directly or indirectly exposed to losses on subprime mortgages. Expected losses on mortgage-backed securities rose. Investors became gradually less willing to take risk. The premium on corporate securities increased markedly. The credit premium has been highest on the lowest rated securities, i.e. securities backed by subprime loans. Another effect of the turbulence is credit migration, i.e. that the rating of securities has changed as the consequences of the unrest have become apparent. For example, a security that had an AAA rating, may now be rated AA or lower. The turmoil spread rapidly to other parts of the financial markets.