For years the world has been plagued by continuing international monetary crises. The international monetary system since 1944 has endured dollar shortages and dollar gluts; chronic deficits and chronic surpluses; perpetual parity disequilibria and currency realignments; disruptive "hot money" flights of capital, and numerous controls on the exchange of money and goods.

In 1968 a "two-tier" gold market was established in the midst of a run on U.S. Treasury gold reserves. In 1971the two-tier experiment failed in the face of new foreign government demands for dollar convertibility: The U.S embargoed gold and allowed the dollar to seek its own level on the free market.

In December of 1971, a new agreement was reached — the Smithsonian Agreement — which consisted of multilateral revaluations of most major foreign currencies and a de facto devaluation of the dollar. In 1972 the dollar was officially devalued yet remained nonconvertible into gold.

Further Devaluation
Meanwhile, only fourteen months after the Smithsonian Agreement was reached, the dollar was brought under new selling pressure and was again forced to devalue (a total of almost 20 per cent in under two years), and the free market price of gold soared to nearly $100 an ounce, making the official price and the now mythical "two-tier" system look embarrassingly unrealistic.  (Today, the official price of gold is still 42 dollars an ounce yet you can add a zero to the 1972 price.)

The most immediate and visible cause of the 1971 international monetary crisis can be traced directly to an excess supply of dollars which accumulated in foreign central banks. These dollars, some $60 billion at the time, were at one time theoretically claims on U. S. gold. But over the years, U. S. gold reserves (then about $10 billion) became conspicuously inadequate to meet foreign demand for gold convertibility.

At present, the major problem confronting economic and monetary Policy Makers is: "What is to be done with the continuous accumulation over the years of surplus dollars held by the central banks of the western world?"

Policy Makers have instituted one stop-gap measure after another in order to buy the time necessary to solve this problem and to reach agreement on long-term monetary reform. Agreement on monetary reform will be the basis for the development of a new international monetary system, tentatively scheduled to be established by the International Monetary Fund (IMF) in the near future.

But before one can determine which reforms are necessary for a successful future monetary system, one must know what monetary policies caused the past system to fail.

Today’s Policy Makers have refused to identify the most fundamental cause of the 1971 international monetary crisis; they have never wanted to know which monetary theories and policies led to the excessive and disruptive amounts of dollars that now flood the world, for the answer is: their own monetary theories and domestic policies of artificial money and credit expansion. If one wishes to project the kinds of policies that will be employed internationally and the effects they will produce in the future, one need only to look at the monetary theories held by today’s Policy Makers and their effects when implemented in the past.

Monetary Theory: Past
During the nineteenth century the free world was on what was called the classical gold standard. It was a century of unprecedented production. More wealth and a greater standard of living was achieved and enjoyed by more people than in all the previous history of the world. The two conditions most responsible for the great increase in wealth during the nineteenth century were free market capitalism and the gold standard: Capitalism because it provided a social system where individuals were free to produce and own the results of their labor; the gold standard because it provided a monetary system by which individuals could more readily exchange and save the results of their labor.

While capitalism afforded individuals the opportunity to trade in the open market which led to economic prosperity, the gold standard provided a market-originated medium of exchange and means of saving which led to monetary stability.

But because neither capitalism nor the gold standard were ever fully understood or consistently practiced, there existed a paradox during the nineteenth century: a series of disruptive economic and monetary crises in the midst of a century of prosperity.

These crises can all be traced to excessive supplies of money and credit. The U.S. panics of 1814, 1819, 1837, 1857, 1873, 1893, 1907 and the international monetary crises of 1933 and 1971 all have one thing in common: excessive supplies of money and credit.  Every monetary crisis can be traced to excessive supplies of money and credit. Where does this money and credit come from?

Under a gold standard, the amount of money in circulation is the amount of gold circulating among individuals or held in trust by banks. All claims to gold (e.g. dollars) are receipts for gold and are fully convertible into a specific amount of gold. If the claims to gold are circulating, the gold cannot. The money supply is determined in the open market — by the same factors that determine the production of any and all commodities — the factors of supply, demand, and the costs of production. Thus the only way to increase wealth under such a market-originated monetary and economic system is through the production of goods or services.

No Curb on Governments
But the world never achieved a pure gold standard. While individuals operated under a classical gold standard with the conviction that production was the only way to gain wealth, they allowed their government to become the exception to this rule.

Government produces nothing. During the nineteenth century it operated mostly on money it taxed from its citizens. As government’s role increased, so did its need for money.

The Policy Makers knew that gold stood in the way of government spending, that direct confiscation of wealth via taxation was unpopular. So Policy Makers advocated a way of indirectly taxing productive men in order to finance both government programs and the increasing government bureaucracy necessary to implement those programs.

The method was to increase the money supply. Since government officials were not about to go out and mine gold, they had to rely on an artificial increase. Although the methods of artificial monetary expansion varied, the net effect remained the same: an increase in the claims to goods in circulation and a general rise in the prices of goods and services. The layman called this phenomenon "inflation." This resulted invariably in monetary crises and economic recessions.

Capitalism and gold got the blame for these crises, but the blame was undeserved.

Why then were capitalism and the gold standard not exonerated from this unearned guilt? Why were these two great institutions tried and sentenced to death by the slow strangulation of government laws? The verdict must read: "Found guilty due to inadequate defense."

The few whispers of defense from a handful of scholars were easily drowned out by every politician who argued for more government controls and regulations over the economy; by every professor who argued for the redistribution of private wealth and for government to provide for the welfare of some group at the expense of another; by every businessman and his lobbyist who argued for government to subsidize his business or industry while protecting him from foreign competitors; by every economist who advocated that government should "stimulate" the economy; and by every media spokesman who argued that the public should vote for policies of government intervention. These, and men like them, made up an army of educators.

The Policy Makers
They were the "intellectuals" who promoted theories that could not exist without the governmental expropriation of private funds; who sponsored, advocated, or encouraged government policies that would victimize individuals (taxation), deceive and defraud individuals (inflation), and turn individuals against one another (the redistribution of private wealth). They were the people who provided government with the theoretical ammunition necessary to disarm individuals of their rights. They educated the public on the "blessings" of government intervention, and were the ones directly or indirectly responsible for all the subsequent coercive government actions and all of their economically disruptive effects.

They were (and still are) the Policy Makers. Policy Makers damned capitalism and the gold standard as being inherently unstable. They attributed capitalism’s productive booms to government’s intervention into the economy, and the government-made busts to the gold standard and the "greed of man."

Such distortions of truth could not be sold to the public easily. A united attack on common sense was necessary in order to obscure the virtues of freedom and the meaning of money.

The Process of Confusion
The Policy Maker led that attack. Armed with the slogans of a con man, he slowly obscured the obvious and concealed the sensible, cloaking monetary and economic theories in graphs, charts, and statistics, until men doubted their own ability to deal with the now esoteric problems of economy and state.

But the American public had great confidence in the integrity of their public leaders and trusted the knowledge of experts in the fields of higher learning, and so they accepted the conclusions of their Policy Makers.

The Policy Maker had made his first and most important move toward institutionalizing government intervention and his theories of artificial monetary expansion into the American way of life: he convinced the American public that individuals needed government protection from the "natural" recessions of capitalism and the monetary crises "inherent" in the gold standard.

Policy Makers had to do a lot of talking to convince individuals that the most productive system ever known to man was the cause of recessions. They had to do even more talking to convince individuals that the precious metal freely chosen and held as money was the cause of monetary depreciation and the source of bank insolvency. It took a lot of talking, but when they had finished, they were convinced. They were convinced that their minds —their own eyes — had been deceiving them. They were convinced that the way to freedom was through greater controls and more restrictions, and that paper was as good as gold.

While the attack on capitalism was subtle and implicit, condemnation of the gold standard was open and explicit.

Condemnation of Gold
The reason for the Policy Maker’s condemnation is that, even though governments never really adhered to it, the gold standard placed limits on the amount of artificial money and credit a government could create. Money and credit expansion was always brought to a quick end because banks and governments had to redeem their notes in gold. Redemption was the major obstacle in the way of the Policy Maker’s dream of unlimited artificial money creation and unlimited spending.

The Policy Maker learned how to obtain in a matter of minutes the purchasing power of 50 productive individuals working 50 weeks. He learned of the plunder and loot that a button on a printing press would provide. But it would not be until the twentieth century that he would convince the government to eliminate gold and convince people of the "virtues" of legal counterfeiting. The Policy Maker had to destroy individuals idea of property in order to entice men with dreams of unearned wealth. He had to persuade them of the "merits" of monetary redistribution and government handouts.

If there was a monetary rule of conduct among individuals during the days of the semi-gold standard it was: the person who desires to gain wealth must earn it, by producing goods or their equivalent in gold. It was in this spirit and by this golden rule of conduct that individuals could and did operate in the monetary and economic spheres of society. Consequently, they achieved the most productive and beneficial era that mankind had ever known.

But what they never identified or challenged was the opposing monetary rule of conduct advocated by their Policy Makers: the government that aims to acquire wealth must confiscate it — or counterfeit its equivalent in paper claims.

Evolution of the Theory
The gold standard limited artificial monetary expansion and in doing so, it limited artificial economic expansion. The Policy Maker considered this great virtue of the gold standard to be its major vice.

The Policy Maker saw that artificial monetary expansion had led to economic booms. He also saw that at the end of every artificial boom there occurred a financial panic and recession.

The Policy Maker ignored the cause of financial panics; he saw only their effects — bank runs and the demand for gold redemption. He ignored the cause of economic recessions; he saw only that the boom had ended. Reversing cause and effect, the Policy Maker concluded: eliminate gold redemption and the financial panics would stop; eliminate the gold standard and the boom would never end.

The Policy Maker had to make another major move toward institutionalizing government intervention and his theories of artificial monetary expansion into the American way of life: he had to divorce the idea of national production from the idea of individual productivity.

Ignoring the fact that the individual was the source of production, he convinced individuals that in the name of "social prosperity," government could and should "stimulate" the economy and "encourage" national production; while at the same time he advocated income taxation to penalize individuals for being productive. Implicit in this doctrine is the idea that production is a gift of state, the result of government guidance; and that individual productivity and accumulation of wealth is a sin, the result of human greed.

Individuals were subtly offered a false alternative: the "permission" to produce and be taxed directly through government confiscation; or the "luxury" of an artificial boom, to be taxed indirectly through inflation.

The American people rejected both alternatives (and still do today) yet saw no other acceptable course of action — the intellectual opposition was still too weak to provide them with one. Thus, by default, they accepted both alternatives "to a limited degree." An income tax should be levied "only on those who could afford it," while the government "should steer the economy on a prosperous course."

How was the economy to be "steered"? By supplying unending paper reserves to a regimented banking system and compelling bankers to keep interest rates artificially low. In 1913 it was too early to sell the public on the "virtues" of the direct confiscation of gold. But the time was "right" for the takeover of the banking system. A monetary revolution was in store for America.

Fractional Reserve Banking
In the name of "economizing" gold (which allegedly was not in sufficient supply to be used as money), Policy Makers advocated a fractional reserve system. A fractional reserve system would by law set a ratio at which gold must be held to back legal tender notes. While fractional reserve banking had always been practiced by banks and condoned by governments, the Policy Maker formalized and legitimized it through the creation of the Federal Reserve System domestically and the gold exchange standard internationally.

What the Federal Reserve System and the gold exchange standard had in common was a central banking system that used as reserves both gold and money substitutes (such as demand deposits, fractionally backed Federal Reserve notes, and government securities backed by the taxing power of the government). These reserves — gold and the money substitutes — served as a base for monetary expansion.

Gold was no longer the sole reserve asset: it was now supplemented by paper reserves. The government exercising a monopoly on the issuance of paper money could designate what should comprise the monetary reserves. Hence, redemption was now not only in gold, but also in money substitutes. In this way a pyramiding of money and credit expansion could take place without the automatic limitations imposed by the gold standard.

By the 1920’s the Federal Reserve System had grown and increased its power and controls, which enabled it to increase the money supply and reduce interest rates for longer periods of time. The Federal Reserve Board succeeded in implementing its easy money policies. The problem now was that money and credit became so easy to obtain that it spilled over into the stock market and other investment areas.  Leverage through the use of margin sent stocks soaring.

The government became alarmed over this wild speculation, raised interest rates and margin requirements sharply, and slammed on the monetary brakes — but it was too late. The day came (that inevitable day) in October 1929 when the Law of Causality presented its bill.

Investors found that their profits were merely paper profits, that their prosperity was an illusion. The stock market crashed. Individuals suddenly realized that on the other side of the coin of credit there existed debt. Industries fought to become "liquid"; everyone tried to get hard cash. But the hard cash — the gold — was insufficient to cover the outstanding claims.

The Great Depression
The Policy Maker succeeded in implementing his theories, yet all of the consequences that his theories were to have eliminated confronted him once again — this time to a far greater degree. This was the Great Depression; this was the monetary crisis that not only forced an entire national banking system to close its doors, but was of international dimensions. The dollar was in trouble not only at home, but also abroad. What to do?

The Policy Maker had the "answer." He viciously condemned gold and capitalism for causing the crisis and advocated even greater policies of money and credit expansion in order to "stimulate" the economy; more government controls, more government regulations, more and higher taxes were the "answer." Men were asked to patriotically give up their gold in order to save the nation’s credit. It was a time of emergency, so Americans complied. They did not know that they would never see their gold again, that taxes would continue to rise higher and higher, and that inflation would become a way of life.

The Policy Maker had to do a lot of talking to convince individuals of the "evils" of gold and capitalism. He had to do a lot of talking, but when he was finished, people were convinced. They were convinced that nothing less than the direct confiscation of wealth and a vigorous credit expansion could save the nation.

Devaluation in 1934
In 1934, Franklin D. Roosevelt with one stroke of the pen confiscated the entire gold stock of America. When government held the gold and the citizens held only paper, the government reduced the value of their paper by over 40 per cent, raising the official dollar "price" of its gold holdings. (The Policy Maker had learned that credit expansion meant debt creation, but showed governments how to default on their debts by devaluing the monetary unit in relation to gold and other currencies.)

The U. S. was now on a fiat standard domestically, and again in the name of "economizing" gold, the government printed new money against its total stock of newly acquired gold. Deficit spending became a way of life and government borrowing became so insatiable that any mention of paying off the national debt was smeared as unrealistic and regressive in light of the "virtues" of continued monetary expansion. (The Policy Maker had learned that borrowing meant debt accumulation, but showed the government how to "amortize" its debts by charging its citizens through higher interest rates and direct and hidden taxes.)

Domestically the fiat standard has failed miserably. It was designed to "economize" gold and provide a stable dollar. Since 1913, the dollar has lost approximately 95 per cent of its purchasing power. The fractional gold cover has been progressively reduced, and transferred to cover obligations abroad. That gold reserve has been reduced through demands for redemption by foreign governments which finally forced the U.S. to close the doors of its central bank. (The central bank was supposed to be a bank of last resort. The run on the Treasury’s gold amounted to the largest and most prolonged bank run in the history of any nation.)

Bretton Woods
Meanwhile, internationally, in 1944 a "new" system was established — the Bretton Woods system. During the Bretton Woods era, Policy Makers adopted policies of vigorous credit expansion as a panacea for the world’s problems. The instrument of credit used was the dollar. In its role as reserve currency, the dollar was considered "as good as gold" and served as a supplement to world gold reserves. In the name of world liquidity, dollars would be furnished as needed to replenish and build up war torn nations and world reserves. The dollar was envisioned as a stable yet ever-expanding reserve currency.

In this spirit, dollars poured forth on demand via U.S. deficits in the form of foreign aid, loans, and military expenditures. Foreign demand for dollars never ceased, nor did the expansion of money and credit, until the world found itself in the midst of an inflationary spiral which turned to recession and ended in an international monetary crisis: the dollar inconvertible, dropping in value, an undesirable credit instrument and ineffective reserve currency.

The dollar was again devalued, while gold soared in value, reaching new highs. And through all this, Policy Makers have been screaming the same old theories: "Gold is a barbarous relic! It ought to be eliminated completely! What we need is more liquidity… more money and credit!"

What more can the Policy Maker do?

The Theory Projected
There is a causal link between history and future events — the link is theory.

A theory is a policy or set of ideas proposed as the basis for human action. To the extent that a theory furthers individual's lives it is a practical basis for human action and therefore a good theory. To the extent that a theory destroys individual's lives it is impractical, self-defeating, and therefore a bad theory.

A sound monetary theory, if employed, will facilitate trade and economic growth, while an unsound monetary theory will lead to monetary crises and economic disruptions.

The Policy Maker has been charged with providing theoretical ammunition to government. To the Policy Maker’s great discredit he has learned nothing about monetary theory in the last two centuries, save how to employ more sophisticated techniques of credit expansion. He has rejected the lessons of history through self-induced blindness and has made himself deaf and dumb to rational economic analysis. He sees nothing except his precious theories of artificial monetary expansion.

Today’s Policy Maker sees himself as participating in an evolution of the international monetary system comparable in "importance" to the role his intellectual ancestor played in evolving the gold standard into the gold exchange standard, and the gold exchange standard into the Bretton Woods system. And if by evolution the Policy Maker means a series of changes in a given direction, this is a correct description of his role. But it is the wrong direction. And it has been the wrong direction for over a century.

Given the monetary theories held by today’s Policy Makers who are concerned with international monetary reform, one can expect a change only in the method and degree of monetary expansion —not a change in direction.

Each time the Policy Maker has seen his monetary theories implemented he has blinded himself to their effects. Each time a monetary or economic crisis has occurred he has refused to identify the cause. The cause can usually be identified easily by looking for government intervention into the economy, providing newly printed money and credit that causes inflation, mal investment, over consumption, the misallocation of resources — distortions and mistakes that, when liquidated, are called recessions. If economic history has tended to repeat itself, it is because the Policy Maker has been guiding human action and government policies along a circular theoretical course that has been tried and has failed — again and again and again.

"If at first you don’t succeed…"
The spectacle of billions of inconvertible dollars frozen in the vaults of central banks has brought on cries of condemnation over the dollar’s credibility as a reserve currency. The Policy Maker’s theory of a stable yet artificially ever-expanding reserve currency has failed.

The "solution" to the problem (if the Policy Maker remains consistent) will be to evolve the international monetary system from a system in which an ever-expanding reserve currency provided the world with credit and liquidity, to a system in which an ever-expanding reserve "asset" will fill that role. Like the dollar, this reserve "asset" will amount to circulating debt, i.e. something owed rather than something owned. It will be a non-market instrument, deriving its acceptability from government cooperation and decree, "immune from the laws of the free market and outside the reach of greedy speculators."

Where will this "asset" come from? Under the Bretton Woods system, dollar reserves were furnished by the U.S. central bank. Both the bank and the "asset" failed to provide sufficient stability. The next step is to create a world bank (a larger bank of last resort) controlled by an international organization (the IMF) with the power to create a new "asset," independent of any single government’s monetary policy.

As a supplement to gold and like the dollar before it, this "asset" should be a credit instrument. Unlike the dollar, it would have the backing of an entire world of central banks. The "asset" should be ever-expanding and should provide both liquidity and stability. In short, "as good as gold."

The SDR: "as good as gold" again!
Special Drawing Rights (SDR’s), or "paper gold" as it is sometimes referred to by those who can keep a straight face, was introduced to the international monetary system in 1967. It was a time when the dollar was under suspicion and gold was increasingly demanded.

In order to "economize" gold, the IMF issued a new reserve "asset" (SDR’s) to supplement gold and take pressure off the dollar. The SDR is a bookkeeping entry, defined in gold yet non-convertible into gold. It serves the same function as gold since it is a reserve, but unlike gold, it can be created by a stroke of the pen.

Policy Makers have chosen the SDR as the reserve "asset" most likely to succeed in replacing gold and the dollar. But just as the dollar was supposed to be as good as gold and was not, the SDR, even if made tangible and convertible into gold and/or other currencies, will suffer the same demise.

The Policy Maker has chosen to ignore the fact that there is no fundamental difference between an artificially ever-expanding reserve currency and an artificially ever-expanding reserve "asset" — both are inflationary and therefore self-destructive.

But the real threat is not that the SDR may fail as the dollar did in bringing monetary stability. The threat is in the damage SDR’s can do if developed within a formal system. Just as the dollar replaced gold as the primary asset, SDR’s have a very real potential for further diminishing both the role of gold and the dollar, and in doing so changing the entire nature and inflationary potential of the IMF.

Debt "Amortization" Or Default: The False Alternative
Basically, monetary reform boils down to the following two alternatives: some countries advocate defaulting on foreign debts via devaluation; and some countries advocate creating moreforeign debts via artificial reserve expansion, SDR's. (The kind of debt creation that is consistent with the Policy Makers’ theories amounts to a method of constantly refinancing government debt below the market rate of interest. Given the past record of government, the principal may never be repaid in full or in real money terms so debt creation actually amounts to slow and less visible, but inevitable debt default.)

The third alternative is simply to not create debts that governments are unable or unwilling to repay. The third alternative is for governments to stop arbitrarily creating debt instruments such as the dollar in its role as reserve currency, and the SDR. These instruments and the currencies printed against them invariably depreciate and cause monetary crises. The third alternative would mean returning to the gold standard which limits credit and monetary creation, which, in today’s "enlightened" era and within our "evolving" economic structure, is considered "passe" and "old-fashioned."

Thus, in the present political context, monetary reform will consist of devaluation and the default on debts, or artificial reserve expansion and the "amortization" of debts or, more probably, a combination of both.

What is the difference between default and "amortization?"

Consider the example of a man whose expenditures have for some time been exceeding his income. He has in effect been running a deficit. He finds himself with more short-term claims against him than he has liquid assets. If he refuses to liquidate assets and finds a way to default on his short-term claims, the loss falls directly on his creditors. (When governments default on their creditors, they call it devaluation.)

But what if the man refinances his short-term obligations by printing IOU’s far in excess of his assets, and offers interest on this new "medium of exchange"? What if this new "medium of exchange" is then used as an "asset" by creditors who, in turn, print IOU’s against it and distribute these as direct claims to goods? Here the loss falls on all those who are in the domain of the counterfeiters, and who must suffer the effects of artificially rising prices.

From this example, the following conclusion can be drawn relative to governments: any form of debt default falls squarely on the shoulders of the creditors, i.e., on the citizens of creditor governments. Any form of debt "amortization", however, falls indiscriminately on the shoulders of all those individuals within the monetary sphere of those governments participating in an international monetary system of debt creation.  No ring of international counterfeiters has ever been, or could ever be, more of a threat to individuals and their wealth than is the IMF in its move toward international monetary "reform."

The Frightening Prospect of an International Debt
In the past, devaluation and default on excessive debt has been the method most used to eliminate debt. But, given an international system of artificial reserve expansion, the issuance of credit and the "amortization" of debts may be expected to give rise to the specter of an international debt.

The possibility of an international debt is not a pleasant one to contemplate.  like a national debt that continues to grow without restraint through continuous refinancing, an international debt would soon become uncontrollable and self-perpetuating.

the victims of such debt creation must ultimately be individuals: taxpayers to the degree the debt is financed directly or repaid; consumers to the degree that the debt is financed indirectly through the inflationary method of money creation; or creditors if and when (or to the degree that) the debt is ultimately repudiated.

Given the choice of "amortization" and default as methods of dealing with the problem of debt, and given the inflationary policies that governments are determined to follow, it makes little difference what kind of monetary "reform" is implemented.  Our monetary authorities are only haggling over who should be the victims of their debt creation -- foreigners or nationals.

Rational and morally concerned individuals will not cheer their government for shifting the burden of their debt onto foreign citizens through the process of debt default and devaluation. on the other hand, given greater and greater debt creation, the citizens of all countries will suffer the inevitable result of more taxation and more inflation.

Thus an individual will pay taxes, and on top of that the hidden tax of inflation, for domestic programs, and on top of that an inflationary tax for world expenditures, and on top of that the inflationary tax for interest on all inflationary debts both domestic and international.

Toward an International Fiat Reserve System
It is not an easy thing to eliminate gold from a monetary system and replace it with the continuously depreciating promises of paper money and paper "assets."  All such money substitutes at one time derived their value from and were dependent on the real values of commodities.  It takes a lot of time and a lot of talking to convince men to accept artificial values based on political paper promises.  In America, Policy Makers have had a century in which to propagate their monetary theories and institutionalize them within the policies of state.  The result has been a slow erosion and obscuring of gold's role in the monetary systems of man.

The monetary system that lies at the end of the Policy Maker's theories is an international fiat reserve system.  The foot in the door that opens the way to this system is the SDR.  Given the theories of world Policy Makers, the most probable proposal would be for the IMF to issue SDR's backed by a fractional amount of gold, dollars, or a basket of currencies or commodities. The effect of such a policy would be to concede to the IMF the power to create reserves out of thin air and set in motion the unrestricted workings of a international fractional reserve system.

A sequence of events typical of what one might expect from Policy Makers would be for them to advocate the establishment of a central bank (the IMF) that has the power to create reserve assets, define the asset in gold to give it credibility, (fractionally backing the asset with a percentage of gold to give it further credibility) and, in the name of economizing gold increase SDR allotments based on, and tied to, a basket of currencies and/or commodities, thereby reducing and eventually eliminating the gold backing, thus facilitating the constant increase in fiat reserves.

Ultimately this system would eliminate any objective limitations on monetary expansion, thereby surrendering monetary policy into the collective hands of a world body the monetary heads of which would subjectively decide which nations will be given the "special right" to consume goods and at whose expense.

Simply Repetitious
This is not a prediction of coming events. It is simply an example of the methods Policy Makers would most likely advocate to achieve their objectives.  Notice that their is nothing particularly innovative about creating a fiat instrument, arbitrarily decreeing its value by deceit and force, then proceeding through fractional reserve banking and monetary expansion to systematically undermine the acceptability it had enjoyed by reason of its gold backing.  It has all been done before.

These men are not innovators.  They are simply repetitious!  They would be laughable if they weren't so dangerous.  But today's Policy Makers are dangerous.  They have the power of government force in back of all the theories they propagate.  And at the end of their theories awaits chaos.  Given today's context, an international fiat reserve system must ultimately add to massive inflation as governments are inclined to spend more and more.  This must lead to the eventual collapse of the international monetary system and with it the economies of the world.

The Real Meaning Of Monetary Reform
Monetary crises are not born from nature, they are made -- man-made.

As long as governments continue to adopt policies of inflationary finance, the monetary systems of finance will be in perpetual disintegration.  This disintegration will lead to crises of greater scope and intensity, recurring at shorter intervals, while the meetings on monetary reform become a way of life as Policy Makers offer only variations of their destructive and futile theories.

As long as governments continue their policies of artificial monetary expansion there can be no such thing as monetary reform.  To reform means to abandon those policies that have proven to be unjust and incorrect. Fundamental monetary reform means that governments would have to abandon their policies of inflationary finance.

The essence of contemporary monetary policy is the employment of inflationary finance, which means injustice to individuals that must bear the brunt of the "amortization" and default of government debt,and the continuous depreciation in the value of their currencies.  Further, it means that individuals will be forced to suffer the unnecessary and harmful effects of continuous recessions and inflation.

Until fundamental reform is achieved, the individual will remain the source of government financing.  One can easily see that the source is being more and more exploited as governments resort to greater and more extensive policies of monetary expansion.

If fundamental reform does not occur, it is only a matter of time until private property is squandered in an inflationary system of waste.  In the last analysis, real monetary reform must consist of returning to a gold standard.  But there are preconditions that must be met before a gold standard can be established as a lasting monetary system.

Individuals must understand what money is.  They must rediscover why gold is the most effective medium of exchange and means of saving.  And individuals must discover what money is not. They must understand that by accepting a monetary unit by decree, they are not only condoning theft, but are sanctioning the instrument of their own monetary and economic destruction.  When individuals have understood this they will want to return to the gold standard.

But the gold standard cannot survive in a an economy mixed with socialist controls and vaguely defined freedoms.  Individuals must rediscover the virtues of the gold standard;  and they will not rediscover the virtues of the gold standard until they rediscover the virtues of capitalism.  They will not rediscover the virtue of capitalism until they identify the nature of man's rights and the injustices of the initiation of force and the violation of property rights.

If the gold standard is to return to this country, it will return on the wings of capitalism and not before.

If one wishes to fight for economic and monetary stability, one must also fight for capitalism.  If one wishes to fight for capitalism, one must fight for man's rights.  If one wishes to engage in this fight, the battle lines are clear:  one must engage in an intellectual battle to end the theories held by his intellectual adversaries -- the advocates of policies based on force, deceit, and fraud.


This article was written in April 1973.  Aside from a few added and subtracted lines and words, it stands as it did over four decades ago.  Unfortunately not much has changed accept the players, such as China.  The same old ideas and theories that failed in the past still exist and are given credibility by the press and academic institutions today.

But, something important did change between the writting of this article and today.  Milton Friedman fought and won a one man war on excessive money creation.  He also helped usher in a system of freely floating exchange rates.  Gold was legalized.  And  Ronald Reagan teamed up with some great advisors to return the US to prosperity and stability which served the world well for over twenty-five years.

Today, all of the mistakes of the past are being re-employed in a attempt to "save the world".  We can only hope that the state of knowledge has grown such that the world will avoid the pitfalls of the past.  -- at least -- eventually.  The intellectual battle continues.

Paul Nathan