Milton Friedman on Money, banking, and the gold standard
The announced purpose of the official gambling is to keep private speculators from driving the price of the dollar below the level justified by fundamental economic factors—to offset, as the Fed and Treasury would put it, “destabilizing” speculation. How can we judge whether the gamble succeeds? In general, there is a simple test: whether it makes or loses money.
Context. From a 1978 column written after the Federal Reserve and the Treasury announced in early January 1978 that they would intervene in the foreign-exchange markets to support the falling dollar.
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Milton Friedman, “Back to the Gaming Table” (A column of early 1978, 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”. The reprint names no publication and gives no issue date; the column refers to writing “in this space” in 1973, which marks it as one of his regular columns, 1978), Congressional Record, February 7, 1978, p. 2590. https://miltonfriedman.org/quotes/simple-test-whether-official-gamble-makes-or-loses-money-1978
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He also said
The Federal Reserve Board and the Treasury Department recently—though, to their credit, reluctantly—announced that they intend to gamble on a large scale with your money and mine. Of course, that is not how the official announcement phrased it. It spoke of “intervention” to support the dollar and prevent “disorderly” markets. But a spade is a spade even if it is called an unearthing implement. And gambling is gambling even if it is called “intervention.”
Context. From a 1978 column written after the Federal Reserve and the Treasury announced in early January 1978 that they would intervene in the foreign-exchange markets to support the falling dollar.
Back to the Gaming TableColumn, 1978, A column of early 1978, 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”. The reprint names no publication and gives no issue date; the column refers to writing “in this space” in 1973, which marks it as one of his regular columns, Congressional Record, February 7, 1978, p. 2590Checked against the sourceRead the originalPrivate 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 originalOfficial 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 original
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