“You will have a perfect and fair measure”
Then begins a new series of columns marking the 50th anniversary of the collapse of the Bretton Woods gold standard established in the closing months of World War II. A related editorial appears nearby.
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The 50th anniversary of the collapse, on August 15, 1971, of the Bretton Woods monetary system is a momentous moment in the history of money. It should provide the opportunity for a thoughtful discussion focused on the path to reform, our invaluable constitutional foundation, and the restoration of honest money.
Let us avoid an academic food struggle between economists over previous international monetary systems. We should not be discussing the classic gold standard versus the Bretton Woods indexed exchange rate system, as these are just variations on the more important topic of gold convertibility and the role of government in the regulation of money.
We cannot even usefully return to the debate over the old fixed versus flexible arguments that were part of Milton Friedman’s rationale for freely floating rates in the 1960s; the theoretical models of the two positions have been assaulted by reality.
Instead, we should be talking about the money itself ?? what is its fundamental objective, its relation to productive economic growth? and whether today’s dysfunctional international monetary regime deserves to be called any system.
As the former head of the International Monetary Fund, Jacques de Larosière, pointed out at a conference in February 2014 in Vienna, the monetary arrangements dominated by the central bank today foster volatility, persistent imbalances. , disorderly capital movements, monetary misalignments. ?
These, he warned, were all major factors in the credit and debt explosion that precipitated the 2008 global financial crisis. Such an unanchored approach, he said, does not amount to a “non-system”? but something much worse: an ?? anti-system. ??
It’s time to think creatively about money. We have to remember what this means as a measure, how does it facilitate voluntary trade and opportunities ?? how it can lead to greater shared prosperity while remaining compatible with freedom, individualism and free enterprise. We are at a time when everything is on the table. Because the wisdom of the mechanisms of central banks to conduct monetary policy is called into question at the very moment when alternative private currencies are making ever more credible offers of legitimacy.
Looking back and looking ahead, we can see that the most relevant and thought-provoking perspectives emphasize the importance of productive economic activity and an open global market. The crucial role of money is to provide clear price signals to optimize the rewards of entrepreneurial effort and the increase in human knowledge.
Adam Smith wrote his treatise ?? The wealth of nations ?? at a time when nations forged a global monetary system by defining their currencies in terms of precise weights of gold and silver. A level playing field in monetary terms resulting from a system that is inherently disciplined by forces independent of government control ?? where the economic decisions of individuals are not held hostage by the ambitions of politicians ?? served deeply liberal goals such as the rule of law, private property and the equal protection of human rights.
Modern day visionaries also focus on the integrity of market signals conveyed by money. When Elon Musk says, “I think of money as an information system,”? it goes to the heart of the money unit of account function and emphasizes the importance of the clarity of the price signal. When he tweets that “goods and services are the real economy, all money is just bookkeeping,”? it illuminates the same reasoning that led our constitutional drafters to include the power to mint and regulate the value of American currency, and foreign currency, in the same sentence of our Constitution that grants Congress the power to fix our standard of weights and measures.
Money is supposed to be a reliable measure, a meaningful unit of account and a reliable store of value. When are these qualities undermined ?? especially by the government ?? in order to redirect economic performance to the risk of global financial instability, the dynamism and productive potential of free market forces are diminished.
The political arguments for maintaining government control over the issuance of money tend to invoke short-term goals framed in terms such as “stimulus”? and the need for the central bank ?? support ?? for an economy. Such calls are greeted with grim warnings of long-term unsustainability. monetary authorities who nevertheless take pleasure in it.
?? But you will have a perfect and fair weight, you will have a perfect and fair measurement, ??? goes the passage from the book of Deuteronomy (25:15), that your days may be prolonged in the land which the LORD your God gives you. The biblical injunction against dishonest measures can be interpreted as an allusion to sustainability not only in economic terms but also in the moral realm.
As noted by Robert Bartley, editor of the Wall Street Journal’s editorial page for more than 30 years, economist Robert Mundell was right to believe that the only closed economy is the global economy. It is time to start building an ethical international monetary system.
Judy Shelton, economist, is a senior fellow at the Independent Institute and author of “Money Meltdown.” Image: The conference room at the Mount Washington Hotel, Bretton Woods, New Hampshire, where in 1944 the Bretton Woods Treaty was drawn up. Via Wikipedia Commons.