The Freeman 1972 - The Ludwig von Mises Institute

1972 FIXED EXCHANGE RATES AND MONETARY CRISES 183Why not freely fluctuating' exchangerates? Fine, let us have freelyfluctuating exchange rates on ourcompletely free market; let the Rothbardsand Browns and GMs fluctuateat whatever rate they will exchangefor gold or for each other. ThetI~ouble is that they would never reachthis exalted state because they wouldnever gain acceptance in exchangemoneys at all, and therefore the problemof exchange rates would neverarise.On a really free market, then, therewould be freely fluctuating exchangerates, but only between genuine commoditymoneys, since the paper-namemoneys could never gain enough acceptanceto enter the field. Specifically,.since gold and silver have historicallybeen the leading commoditymoneys, gold and silver would probablyboth be moneys, and would exchangeat freely fluctuating rates.Different groups and communities ofpeople would pick one or the othermoney as their unit of accounting. 22Floating exchange rates reflectwhat the prevailing external economicconditions really are. Therule governing the operation offloating exchange rates is identicalto the rule operating in allcomputer affairs: "Garbage in,garbage out." If prevailing economicconditions on the internationalmarkets are inflationary,then floating exchange rates willrespond appropriately, making'thebest of a very bad situation. If afull gold coin standard exists internationally,then floating exchangerates will make the bestof a very good situation. Floatingexchange rates are nothing moreand nothing less than freely fluctuatingvoluntary prices,on internationalmarkets (even if the primaryparticipants are nationalcentral banks). Like all otherforms of free pricing, floating exchangerates make things betterthan .things would be under coerciveprice controls. Floating exchangerates should not be regardedas some kind of economicpanacea for the world's inflationaryconditions, except insofar asfree pricing is always a panaceain relationship to the conditionswhich exist under governmentimposedprices. No matter whatother external conditions may be ­inflationary, deflationary, relativelystable, gold standard, fiat standard,electric money standard, orany other standard conceivable tothe mind of man - free pricing isalwa,ys preferable to fiat pri,ce controls.Always.There is no doubt that domesticmonetary inflation, especially ifcarried on by a majority of nationalgovernments, produces greatuncertaintiesininternationaltrade.There is also little doubt thatfloating exchange rates impose theburden of dealing with these economicuncertainties on the shoul-