The Freeman 1972 - The Ludwig von Mises Institute

1972 FIXED EXCHANGE RATES AND MONETARY CRISES 169on the other hand, include not onlythe creators of the Bretton Woodsagreement that established the InternationalMonetary Fund butalso a number of conservativeeconomists.! How is it possiblethat the camps could be. dividedin this fashion?To answer this, one has to examinethe contexts. Ludwig vonMises, for instance, believes intotal freedom in the monetarysphere: the government should belimited to the enforcement of contracts,whatever the exchangemedium might be in any particularcontractual ,obligation. MiltonFriedman also wants to see allcitizens free to own gold and tomake contracts in gold, but hethinks the central bank shouldguarantee a constant increase inthe supply of money each year.Mises would reject such a proposalas inflationary, unless the legaltender provision of Federal ReserveNotes were abolished andpeople were thereby free to avoiddoing business in fiat money. Butneither man wants to see any infringementon the right of menand women on either side of theborder or ocean to make bargainswith each other, even if thosebargains involve the exchange ofnational monetary units, presentor future.The Keynesians, who would preferFriedman's views on monetarymanagement to Mises' full goldcoin standard, find themselvesworking together with conservativeeconomists who support agoldstandard and are anti-inflationaryin perspective. Both the Keynesiansand these conservativesfavor the esbiblishment of government-enforcedlimits on the range'of prices that can legally exist betweenone currency unit and anyother. Unfortunately, no economistseems to be able to agree with anyof his colleagues as to the preciseacceptable range of price flexibilityorthe legal mechanism used toenforce such a range; this indicatesthe nature of the problem.Year after year, the publicationsof the International Finance Sectionof the Department of Economicsof Princeton Universitypour out Essa,ysin InternationalFinance. We read of crawling pegsand running pegs, of parities andcurrency swaps, of paper gold andinternational trust. What does itall mean? .80 far, no one has evenbeen able to define a Eurodollar,let alone explain how it works; orif someone can, no colleague agreeswith him. 2No Faith in FreedomThe Keynesian economist simplydoes not trust the free market'sunhampered price mechanism toclear itself of supplies of scarceeconomic resources. Thus, we need