Reflections on the Effects of War as Compared to the Effects of Fiat Money

Modern warfare is highly destructive. A couple of centuries ago, wars involved fighting between armies; civilians were spared. Cannons were directed at the opposing army.

Today, war means general destruction; civilians on the losing side can expect to be plundered, killed or raped. Cities are targeted for mass destruction. We rode a bus through post-war Germany in 1948, and recall that the city of Bremen was simply miles of rubble piled up on either side of a road cleared for traffic.

WW II leveled some cities of Europe in the countries which were part of the Axis, and killed millions of soldiers and civilians.

After the war, both the winners and the losers turned to re-building their countries. The devastated cities began to heal; new, modern factories were built. People went back to doing what they had been doing before the war. By 1970, a traveler could hardly tell there had been such terrible destruction and loss of life just twenty-five years earlier.

Now let us consider fiat money and its consequences.

At Bretton Woods in 1944 Henry Morgenthau and Harry Dexter White outmaneuvered John Maynard Keynes, the British Delegate to the Monetary Conference, and the Conference ended by accepting the American “diktat” for the post-war monetary structure of the world: the dollar was to be as good as gold for purposes of international payments, and the US promised to redeem for gold dollars held by other national central banks at the rate of one ounce of gold for each $35 dollars tendered for redemption.

This was a structure doomed to failure from the start, and men such as Jacques Rueff of France understood this quite clearly.

The US promptly began to abuse its “exorbitant privilege”, as France’s General de Gaulle called it, and to send dollars abroad in payment of its trade deficits. However, the promise of redemption of dollars for gold did act to restrain somewhat the expansion of credit in the US. There was a general respect for the dollar and its relative scarcity produced only mild inflations in the countries that received dollars.

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