The Freeman 1972 - The Ludwig von Mises Institute

182 THE FREEMAN MarchThen foreign governments, buriedin dollars (at the artificially lowprice), begin to demand gold (heldby our government at an artificiallylow 1934 price). One interventionleads to another, usually.But not always.The exception came on August15. Basically, the President hadthree choices. First, balance thebudget and stop the monetary inflation- maybe even use the surplusof revenue over expendituresto reduce the national debt. Unfortunatelyfor political purposes,such an action would have riskeddepression and high unemployment(given the previous policiesof monetary expansion and thedownwardly inflexible wage ratesthat prevailed in a unionized economy).20 Second, continuing thedeficits, he could let all of our gold(their gold, really, given our promiseto pay on demand) flow out.Third, the President could haveestablished floating exchange ratesand cut the redeemability of thedollar in terms of gold. This is exactlywhat he did. It involved areturn to free market pricing ofinternational monetary exchanges.He believed that it was preferableto do this than to take either ofthe first two steps. In this sense,pressures internationally on thedollar forced the President to returnto a policy which was closerto the free market than the policyof fixed exchange rates which. hadbeen established by the IMF in1947. Naturally, to make the operationtruly conservative, he shouldhave maintained the free convertibilityof gold provision and reestablishedit domestically withAmerican citizens. This did notdetract from the basic move whichhe made ; namely, to reestablishfree floating exchange rates inwhich voluntary transactions ofmoney internationally can prevail.By returning to fixed exchangerates on December 19, the Presidentthereby abandoned the advancemade on August 15, reestablishingthe rigidities thatlead toward economic discontinuities.Yet what did we find betweenAugust 15 and December 19?Many advocates of free marketeconomics were howling bloodymurder! "Free pricing is fine, andall that, but, given prior interventionsby the government. . . ."Leonard Read is right : "We aresinking in a sea of butS."21Return to GoldWhat is the proper position withrespect to valid internationalmoney? Clearly, a money systemwhich is the product of free men,voluntarily exchanging scarce economicresources. Professor MurrayRothbard has given us a pictureof what such a system might be: