A Weekly Dose of Hazlitt: Inflation Disrepute

Inflation Disrepute” is the title of Henry Hazlitt’s Newsweek column from July 21, 1958. Here Hazlitt talks about the early stirrings for European monetary union and notes that such a union existed and even encompassed non-European countries in the era of the classical gold standard.

The effort to create a common European market calls
attention to the radical reforms necessary in present-day
economic and monetary policy even to move toward
such a goal. The International Chamber of Commerce
recently issued a statement dealing with the monetary
problems of the European Economic Community.
Among the major recommendations two stand out:

1—The member governments should agree not to
ask their central banks for new credits “save in exceptional
circumstances recognized as such in accordance
with agreed criteria, by a competent body designated
by them.”

2—The present claims on governments held by the
central banks should be gradually transformed into
negotiable securities bearing interest rates to make
them attractive on the international monetary markets.

The purpose of the first recommendation is obviously
to try to stop deficit spending by governments,
financed by monetizing of new government debt. The
purpose of the second recommendation is to restore
liberty of action and transferability of assets to the central

How Far from Freedom

It is instructive to notice that the best experts of Europe
are growing skeptical of the blessings of deficit spending
and monetary inflation just when Washington has
decided that this is the way to cure any recession. The
chairman of the commission that prepared the ICC
statement was Maurice Frere, formerly head of the
Central Bank of Belgium. Among those who cooperated
with him were Emmanuel Monick, formerly
governor of the Bank of France, Herman Abs of the
Deutsche Bank, Camille Gutt, former managing director
of the International Monetary Fund, and other distinguished
European bankers.

There is no doubt whatever that if the recommendations
of the ICC were followed they would constitute
an immense step toward currency stability and greater
freedom of international trade. Yet they also emphasize
how far away the “free” world, with all its beautiful
talk about international cooperation and common
markets, still is even from the amount of freedom and
international cooperation that existed prior to the second
world war, not to speak of the amount of freedom
and international cooperation that existed prior to the
first world war.

The most immediate international monetary need
is the restoration of full currency convertibility—to any
amount, and at any rate that those who wish to exchange
currency find mutually agreeable. This convertibility
could be restored overnight. All that is needed is that
the governments of the world should permit it. But this
is precisely what the International Monetary Fund and
exchange control exist to prevent.

Forward to Gold

It is true, of course, that with practically every country
on a paper-money basis, and subject to varying degrees
of inflation, there would be wide fluctuations in the
exchange rates between currencies. But these would
be cured if the countries returned to a gold standard.

The final paragraphs of the statement by the ICC
declare wistfully that the reforms it recommends
“should result in creating among the common-market
countries a ‘monetary community’ which may perhaps
lead them one day, when political conditions make it
possible, to a single currency. This would be the last
stone crowning the edifice.” But this “single currency”
was, in effect, what virtually the whole world enjoyed,
under the international gold standard, prior to 1914.
When every currency unit was freely convertible on
demand into a specified weight of gold, there was a de
facto common currency. The ICC statement declares
that a single currency today would be “premature and
“artificial” until nations “coordinate and harmonize their
monetary policies.” It was precisely the requirement of
constant gold convertibility that forced them to coordinate
and harmonize their monetary policies prior to
1914. No elaborate international bureaucratic machinery
was necessary.

In currency matters the world of 1958 has an enormous
distance to go before it can even catch up with
the nineteenth century.

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