Money Mischief_ Episodes in Monetary History - Milton Friedman [1]
Chapter 6 contends that conventional wisdom about the merits and demerits of bimetallism as a monetary system is seriously mistaken. My focus is narrow: it is to compare bimetallism as a system with monometallism. It is not to maintain that the United States, or any other country, should seek under current conditions to institute a bimetallic system. Indeed, to try to do so would conflict completely with my belief that (as Walter Bagehot pointed out more than a century ago) monetary systems, like Topsy, just grow. They are not and cannot be constructed de novo. However, as is exemplified by "the crime of 1873," they can be altered and affected in all sorts of ways by deliberate action—which is why an understanding of monetary phenomena is of much potential value.
These four chapters, then, all deal with many of the same events looked at from different points of view.
Chapter 7 returns to a particular historical episode, the effects of the U.S. silver purchase program of the 1930s. It seems fantastic that the decision of President Franklin Delano Roosevelt to placate a few senators from western states could have contributed in any detectable way to the triumph of communism in far-off China. Yet the sequence of events by which it did is clear and unmistakable, and the early steps were clear even to those contemporary observers who had some understanding of basic monetary theory.
The final step in the sequence to which the U.S. silver policy contributed was hyperinflation, an extreme form of a disease that has stricken many countries over the course of millennia. Chapter 8 examines the cause and cure of, inflation, using recent and historical data for a number of countries to illustrate its central thesis: that inflation is always and everywhere a monetary phenomenon.
Chapter 9 is a testament to the role of chance on the effect of monetary changes. What happened in the United States—and it was completely outside the range of influence of the policymakers in Chile and Israel—had the effect of rendering one set of policymakers in one of those countries villains, while another set of policymakers in the other country became heroes.
Chapter 10 explores the probable consequences of the monetary system that now prevails throughout the world—a system that has no historical precedent. Since the time when President Richard Nixon broke the final tenuous link between the dollar and gold in 1971, no major currency, for the first time in history, has any connection to a commodity. Every currency is now a fiat currency, resting solely on the authorization or sanction of the government.
The final chapter is an epilogue that draws a few general lessons from the episodes examined in the preceding chapters.
This book provides only small glimpses at the endlessly fascinating monetary gardens that have flourished and decayed in the course of the several millennia since the day when mankind found it useful to separate the act of sale from the act of purchase, when someone decided it was safe to sell a product or service for something—a something that he had no intention of consuming or employing in production but, rather, intended to use as a means to purchase another product or service to be consumed or employed in production. The "something" that connects the two transactions is called money, and it has taken innumerable physical forms—from stones to feathers to tobacco to shells to copper, silver, and gold to pieces of paper and entries in ledger books. Who knows what will be the future incarnations of money? Computer bytes?
Earlier versions of some chapters of this book have been published separately: chapters 3 and 4 in the Journal of Political Economy (December 1990), chapter 6 in the Journal of Economic Perspectives(Fall 1990), chapter 7 in the Journal of Political Economy(February 1992), and Chapter 10 in Bank of Japan Monetary and Economic Studies (September 1985). I am indebted to these journals for permission to reprint. Chapter 8 is a revised version of chapter 9 of Milton Friedman