Hazlitt’s essay is a polemical diagnosis of the post-Bretton Woods monetary breakdown. Written amid dollar devaluation, floating exchange rates, and emergency exchange controls, it treats the contemporary crisis not as an accidental disruption but as the predictable result of decades of official inflation and institutional evasion.
As we talk here tonight the world is in a monetary crisis.
The argument proceeds historically. Hazlitt traces the disorder back to World War I inflation and to the refusal of governments afterward to restore genuine convertibility at realistic parities. Instead of recognizing that currencies had been overissued, policymakers spoke of a “shortage” of gold and devised systems for economizing it. The gold-exchange standard allowed central banks to hold sterling or dollars as reserves, thereby multiplying paper claims on a limited gold base. Bretton Woods, in Hazlitt’s account, reproduced the same flaw on a larger scale: foreign currencies were tied to the dollar, while the dollar alone retained a formal gold link. The arrangement depended on American restraint, yet American policy increasingly used the reserve-currency privilege to export inflation.
It is important to note that what was wrong with this system was not primarily technical.
This sentence captures Hazlitt’s central institutional point. The failure of modern monetary arrangements was not merely a defective exchange-rate formula but a political failure: governments wanted the prestige of monetary stability without submitting to the discipline that stability requires. He therefore rejects proposals that would widen international credit facilities, increase official reserves, or make adjustment more “symmetrical” between deficit and surplus countries. To him, such schemes penalize prudent monetary authorities and relieve inflating governments of the consequences of their own policies.
Hazlitt is especially critical of Special Drawing Rights and of the rhetoric of “international liquidity.” He interprets these not as neutral instruments of cooperation but as new forms of paper reserve creation. By replacing gold with official credit claims, the international monetary system would cease to restrain inflation and instead institutionalize it.
At best the SDRs are an attempt to substitute international debts for gold.
The International Monetary Fund consequently becomes, in Hazlitt’s portrayal, the chief mechanism by which national inflation is pooled, disguised, and prolonged. Its credits and reserve assets encourage deficit countries to postpone correction, while international agreements present monetary expansion as orderly reform. Hazlitt’s negative program follows directly: abolish SDRs, end automatic international monetary credit, return IMF gold to member nations, and dismantle the Fund rather than expand its authority.
The IMF has served merely as a world inflation factory.
His positive remedy is a return to a genuine gold standard, though he insists this is not an irrational attachment to metal. Gold is valuable as a monetary institution because convertibility limits discretion. Paper money, by contrast, requires confidence in political authorities who have repeatedly shown an incentive to depreciate their currencies. Hazlitt therefore favors allowing gold ownership, gold contracts, and a free gold market, while halting domestic monetary expansion, balancing the federal budget through spending cuts, and ending interest-rate manipulation. A restored gold standard would have to be reached through a realistic market-discovered conversion rate, not by reviving obsolete parities.
The essay’s broader significance lies in its critique of inflationary reformism. Hazlitt argues that many international monetary “solutions” merely validate past inflation and prepare the way for more. Monetary order cannot be restored by changing reserve labels or enlarging international bureaucracy; it requires abandoning the belief that inflation is necessary for prosperity.
As long as this inflation ideology prevails, I see no possibility of returning to a sound currency anywhere.
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