This is a single-author monetary-economics essay, written in the aftermath of Bretton Woods and the failed Smithsonian Agreement. Rothbard’s scope is not technical exchange-rate management but the conceptual foundation of money itself: he argues that fluctuating fiat exchange rates are not a free-market solution to international monetary crisis, because fiat national currencies are government-created pseudo-commodities rather than genuine market monies.
We apparently live in a world of perpetual international monetary crisis.
Rothbard begins by reconstructing the Friedmanite case sympathetically: fixed rates create shortages, surpluses, black markets, and balance-of-payments crises; therefore currencies should float freely like other prices. His counterargument turns on the claim that this analogy is false. A market makes sense between different goods, but not between different units of the same good. The dollar, pound, and franc, on the classical gold standard, were not independent commodities but names for definite weights of gold.
The Friedmanite program cannot be fully countered in its details; it must be considered at the level of its deepest assumptions.
The essay’s central conceptual move is Rothbard’s analogy between currencies and units of measurement. To let exchange rates float among gold-defined currencies would be like allowing pounds and ounces, or nickels and dimes, to fluctuate against one another. Such “freedom” would destroy the very function of a unit.
Standards of weight and measurement are established by common definition, and it is precisely their fixity that makes them indispensable to human life.
From this premise Rothbard redefines the gold standard not as arbitrary price fixing but as a monetary order in which exchange rates follow from fixed definitions. The “market” defended by Friedmanites is, in his view, compromised at the outset because its monetary objects are issued by states. A fiat dollar or mark is not analogous to wheat or copper; its supply is politically controlled.
What sort of "free" market is this?
Rothbard then expands the argument from definition to social function. The international gold standard gave the world, in effect, a common money, enabling calculation, trade, and investment across borders. Floating national monies, by contrast, fracture money’s unit-of-account function and move the world back toward barter. His reductio imagines not only separate national currencies but state, city, firm, and individual currencies; the more currencies proliferate, the less money performs as a general medium.
The basic gold standard criticism of the Friedmanite position is that the Chicagoites are advocating a free market between entities that are in essence, and should be once more, different units of the same entity, i.e., different weights of the commodity gold.
The political-economy section argues that fiat money gives governments both temptation and capacity to inflate. Unlike gold, which must be mined at cost, paper money can be produced almost without limit. Floating rates also remove the balance-of-payments discipline that gold convertibility imposes, while devaluation becomes a disguised protectionist device benefiting exporters and inefficient domestic firms.
It is virtually a law of politics that government will use the power that it is given.
Rothbard’s structure is therefore cumulative: first expose the false price-theory analogy, then recover the historical origin of currencies as gold weights, then show that floating fiat money undermines calculation, promotes inflation, and invites exchange controls. The final pages use the early 1970s gold market against both Keynesians and Friedmanites: gold did not collapse once loosened from official support, but rose sharply, revealing continued monetary demand for it.
The essay’s relevance lies in its Austrian challenge to monetarist liberalism. Rothbard does not defend Bretton Woods or fixed fiat parities; he rejects both fixed and floating fiat regimes as variants of monetary nationalism. His proposed alternative is a return to a classical gold standard at a realistic market price, coupled eventually with banking and central-bank reform.
Without gold, without an international money, the world is destined to stumble into one accelerated monetary crisis after another, and to veer back and forth between the ills and evils of fluctuating exchange rates and of fixed exchange rates without gold.
For Rothbard, then, gold is not nostalgia but the institutional condition for money to be money: a nonpolitical commodity standard, common across borders, capable of disciplining governments and preserving economic calculation.
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