Murray N. Rothbard, “The World Currency Crisis” (1986)

This file is a single-author short economic essay, chapter 71 of Making Economic Sense. Its scope is the modern international monetary order: gold, Bretton Woods, the Smithsonian Agreement, post-1973 floating currencies, and the mid-1980s movement to refix exchange rates. Rothbard’s thesis is that apparent monetary “reforms” merely rotate among defective fiat arrangements unless money is restored to a genuine commodity standard.

The world is in permanent monetary crisis, but once in a while, the crisis flares up acutely, and we noisily shift gears from one flawed monetary system to another.

The essay’s governing conceptual move is to reject the usual opposition between fixed and floating exchange rates. For Rothbard, the decisive question is not fixity as such, but whether currencies are redeemable claims to a market commodity or state-issued paper. He therefore begins by reducing international monetary systems to three types: genuine gold, Keynesian world paper money, and national fiat monies with fluctuating rates.

To stop this shell game, we must first understand it.

Gold is presented not as a policy for “stabilizing” exchange rates, but as the condition under which exchange rates are naturally ratios of weight. A dollar and a pound are fixed to one another only because each is defined by gold content; this makes the exchange rate a consequence of commodity definition rather than administrative decree.

The sound money is the genuine gold standard; “genuine” in the sense that each currency is defined as a certain unit of weight of gold, and is redeemable at that weight.

Against this, Rothbard treats Keynesian international paper money as the most dangerous coherent fiat alternative. His account of Keynes’s proposed bancor and White’s unita stresses pyramiding: a world reserve bank would issue paper reserves, national central banks would build further credit upon them, and inflation would become internationally coordinated rather than checked by balance-of-payments losses.

The whole world would then be able to inflate together, and therefore not suffer the inconvenience of inflationary countries losing either gold or income to sound-money countries.

The historical middle of the essay narrates Bretton Woods as a compromised version of this plan. Since the dollar became the reserve base for other currencies while itself only tenuously linked to gold, Rothbard calls the system a “mockery” of gold. Its temporary success rested, in his telling, on American privilege: the United States could issue dollars abroad while other central banks absorbed them as reserves.

In short, for years the U.S. was able to “export inflation” to foreign countries without suffering the ravages itself.

That privilege ended when foreign authorities demanded gold and Nixon closed the gold window in 1971. Rothbard then interprets the Smithsonian Agreement as an incoherent attempt to impose fixed exchange rates among irredeemable fiat monies. Without gold or a world money, currencies are commodities whose prices cannot be fixed without creating shortages, arbitrage, and eventual collapse.

But if currencies are purely fiat, with no international money, they become goods in themselves, and fixed exchange rates are then bound to violate the market rates set by supply and demand.

The final third turns to floating fiat currencies and the rise of monetarist influence after 1973. Rothbard grants that floating rates avoid some crises produced by arbitrary parities, but he denies that they solve the deeper problem. Once governments monopolize fiat money, asking them not to intervene in exchange markets is, for him, politically naïve. Floating rates also remove one remaining discipline on domestic inflation, since depreciation can itself be desired as export subsidy and import restriction.

But inevitably, governments will find many reasons to interfere: to force exchange rates up or down, or stabilize them, and there is nothing to stop them from exercising their natural instincts to control and intervene.

The essay’s immediate relevance lies in its response to 1985 proposals by figures such as Jack Kemp and Bill Bradley to refix exchange rates. Rothbard sees this as another turn of the same cycle: gold is abandoned, fiat systems fail, elites propose a new managed arrangement, and the same contradictions return under a new name. His conclusion is therefore deliberately uncompromising: neither managed fixity nor clean floating can be sound when the monetary unit itself is fiat.

When will we realize that only a genuine gold standard can bring us the virtues of both systems and a great deal more: free markets, absence of inflation, and exchange rates that are fixed not arbitrarily by government but as units of weights of a precious market commodity, gold?