The Freeman 1972 - The Ludwig von Mises Institute

1972 FIXED EXCHANGE RATES AND MONETARY CRISES 179troIs are called price and wagecontrols.On August 15, 1971, the Presidentof the United States announcedthe unmitigated failureof the IMF agreements of 1944.The gold-exchange standard nolonger operated, as it had for 25years, to shield this country fromthe effects of its own· policies ofmonetary inflation. So it wasscrapped. Bretton Woods is dead,Arthur Okun announced a fewhours later. Conservative economists- a few of them at leasthadbeen saying that since 1945.The President announced that thecure for this unparalleled economicfailure of international financewould be the complete abandonmentof fixed exchange rates internationally.International pricecontrols over the free exchange ofmoney, we were told, were clearlyleading to economic disaster. Indeed,that was exactly where suchcontrols were leading, as all interferencewith prices will invariablylead.Domestically, however, voluntarypricing had led to anotherdisaster: higher prices. The Presidentfailed to mention that Federaldeficits financed through FederalReserve fiat money creationhad caused prices to rise. So to"cure" domestic economic affairs,the President imposed price andwage controls. There is a peculiarsort of irony here. In order to curean international economic disasterwhich had been caused by pricecontrols, the President allowed thedollar to float. In order to cure thedomestic economic disaster, thePresident imposed domestic pricecontrols.Controls in internationa.l monetaryaffairs are specifically designedby bureaucrats to hide theeffects of policies of domestic monetaryinflation. Similarly, controlson domestic prices are designed tohide the effects of those same policiesof domestic monetary inflation.If the purpose of controls isto hide effects rather than to removecauses, then they involve theuse of fraud.What the advocates of a freemarket should desire is that theprice system be left completely uncontrolled,in order that it mightregister the subtle and unsubtleshifts in economic external conditions.Only then can entrepreneurspredict the future with anydegree of success. Only then willthose who wish to buy at the bestpossible price be served. Everyoneshould count the cost of his actions.Price controls interfere withsuch cost accounting.Exposing InflationAdvocates of floating exchangerates may be advocates of domesticmonetary inflation. But so can ad-