From Bretton Woods to World Inflation

April 7, 1945

In the last dozen years the “silver Senators” have had a political influence fantastically out of proportion to their numbers or to the interests they represent. These Senators come from only a small handful of States. Silver production is a very minor source of the income even of these states. For the country as a whole it accounts for less than one-twentieth of 1 per cent of the national income. Yet the silver bloc in Congress has insisted upon and obtained measures forcing the Treasury to buy huge stocks of unneeded silver. These were bought far above the market price from domestic producers and at an artificially boosted price from foreign holders. The result has been an inexcusable waste of the public funds. Incidentally, the policy did great harm to the economy of China, about which the silver Senators had professed to be especially solicitous.

Now some of the silver Senators are turning their attention toward the Bretton Woods agreements. What they see in them principally seems to be one more opportunity to “do something for silver.” They want “world recognition of silver as a monetary metal.”

Misgivings have been expressed regarding the proposed International Monetary Fund. One reason for these misgivings is that the Fund as at present conceived may postpone rather than expedite a return to the international gold standard. Only to the extent that the international gold standard is eventually restored is the world likely in the long run to have stable exchanges, a great volume of international trade, and a final escape from the chaos of nationally “managed” currencies. The injection of the silver issue would merely delay such a result and further confuse public thought. The exchange rate of a nation on a silver standard would necessarily fluctuate constantly in relation to those nations on a gold standard. Bimetallism or symmetallism, on the other hand, would merely introduce needless complications and a new controversial issue at a time when we particularly need to avoid as many controversial issues as possible, possible.

Some amendments are needed if the Bretton Woods agreements are to accomplish the ends that their sponsors have in view. But these amendments should be designed to simplify the agreements, not to complicate them. No amendment is likely to be in the right direction unless it is sincere and disinterested. There can be no excuse for amendments merely calculated to embarrass the working of the agreements, or designed to appease some selfish interest or pressure group.

The agreements signed at Bretton Woods would end by creating more chaos in international trade and economic relations, not less. Under the old gold standard each country was responsible for keeping its own currency sound. Under the Bretton Woods system, an international Fund would be forced to buy depreciated currencies far above their market values, regardless of the reasons for the depreciation. The provision for uniform proportionate devaluation was a provision for periodic world inflation. The system was designed “to make resort to inflation easy, smooth, and above all respectable.”

The Bretton Woods Agreements also contemplated international commodity controls. There were the strongest reasons to fear that these would mean a revival and extension on a far greater scale of the type of commodity controls of the Thirties, which mainly resulted in disastrous failures.

The agreements, in short, pretended to provide for a future of “international cooperation”, but what they provided for instead was a future of increased State domination and control over economic life. The bleak prospect was that the individual’s “living standards will decline with his liberties.”

The following article, subtitled “Free Trade or State Domination?”, is reprinted from The American Scholar, Winter, 1944/5.