Milton Friedman on Money, banking, and the gold standard
Private speculation forced governments to face up to reality, to recognize that the exchange rates they were seeking to peg were artificial. It forced Japan and Germany in particular to recognize that their currencies were undervalued.
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/private-speculation-forced-governments-face-reality-1973
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He also said
Official speculation was very different. Its aim was to preserve artificial exchange rates, to postpone the recognition of reality. Had it succeeded, it would have permitted economic distortions to cumulate to still more harmful proportions.
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. “Very different” contrasts official speculation with the private speculation described just before.
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 originalDuring 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.
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 originalThe 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 original
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