Milton Friedman on Money, banking, and the gold standard
During the recent international monetary crisis, governments in all lands blamed currency speculators for their troubles. At the same time, the governments themselves engaged in currency speculation—though of course they called it by a different and more dignified name. They engaged in “intervention.”
Context. From an April 1973 column written after the international monetary crisis of early 1973, in which the dollar was devalued on February 12, 1973 and the major currencies soon moved to floating exchange rates.
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Milton Friedman, “Speculation and Speculation” (A column of April 23, 1973, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float” (pp. 2590 to 2591). The reprint names no publication and gives no date; the date is his own, from “Back to the Gaming Table” (1978), which says “I wrote in this space (April 23, 1973)” and quotes this column’s passage on the swap agreements word for word, 1973), Congressional Record, February 7, 1978, pp. 2590 to 2591. https://miltonfriedman.org/quotes/governments-blamed-speculators-called-it-intervention-1973
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He also said
The swap agreements serve no useful function and Congress should terminate the Fed’s authority to enter into them. Their only role is to enable the U.S. Government to “intervene” in order to affect exchange rates. We and the world would be better off if exchange rates were determined in a free market. And whatever other countries do, the U.S., as the source of the key international money, has no business engaging in currency manipulation to affect exchange rates.
Context. From an April 1973 column written after the international monetary crisis of early 1973, in which the dollar was devalued on February 12, 1973 and the major currencies soon moved to floating exchange rates. The swap agreements are the Federal Reserve’s arrangements with other central banks to lend each other their currencies on demand, which the column has just described.
Speculation and SpeculationColumn, 1973, A column of April 23, 1973, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float” (pp. 2590 to 2591). The reprint names no publication and gives no date; the date is his own, from “Back to the Gaming Table” (1978), which says “I wrote in this space (April 23, 1973)” and quotes this column’s passage on the swap agreements word for word, Congressional Record, February 7, 1978, pp. 2590 to 2591Checked against the sourceRead the originalSecond, the IMF has been a destabilizing factor in East Asia, not so much because of the conditions it imposed on clients, whether good or bad, as by sheltering private financial institutions from the consequences of unwise investments. It is not too much to say that, had there been no IMF, there would have been no East Asia crisis, though countries might have had internal crises—as with Japan, whose troubles cannot be blamed on the IMF.
Context. From an article on the East Asian financial crisis, which he traces to three elements: stagnation in Japan, the pegging of exchange rates to the U.S. dollar by national central banks, and the existence and policies of the International Monetary Fund. This is the second of the two points with which he concludes; the first is that a developing country should prefer either a truly fixed rate with no national central bank or a floating rate plus a national central bank to a pegged exchange rate.
How Asia FellColumn, 1999, The Times (London), October 12, 1998, as “Clear Lessons to Be Learnt from the East Asian Episode”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2Checked against the sourceRead the sourcePrivate speculators are far from omniscient. This time, they happened to be right and so made handsome profits. Next time, they may be wrong and suffer grievous losses. But in either case, they speculate at their own risk with their own money. Official speculators, too, are far from omniscient. This time, they were wrong; next time, they may be right. But there is an important reason why they are more likely to be wrong than right. They speculate not with their own money but with the taxpayers’ money. As a result, there is little pressure on them to control their natural impulse to resist change.
Context. From an April 1973 column written after the international monetary crisis of early 1973, in which the dollar was devalued on February 12, 1973 and the major currencies soon moved to floating exchange rates. “This time” is that early-1973 crisis.
Speculation and SpeculationColumn, 1973, A column of April 23, 1973, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float” (pp. 2590 to 2591). The reprint names no publication and gives no date; the date is his own, from “Back to the Gaming Table” (1978), which says “I wrote in this space (April 23, 1973)” and quotes this column’s passage on the swap agreements word for word, Congressional Record, February 7, 1978, pp. 2590 to 2591Checked against the sourceRead the original
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