Books in Brief: The Balance of Payments: Free Versus Fixed Exchange Rates

The Balance of Payments: Free Versus Fixed Exchange Rates, by Milton Friedman and Robert C. Roosa (American Enterprise Institute, $4.50). This is the fascinating transcript of a debate between Milton Friedman, the apostle of fluctuating exchange rates, and Robert Roosa, speaking for the Establishment. The Establishment has the short end of the stick, because the whole purpose of the monetary system invented in Bretton Woods in 1944 and foisted on us ever since has always been 1) freedom and flexibility of international trade and 2) international monetary stability. If Friedman is correct, then the Bretton Woods system is doomed. Current events tend to support Friedman: we see more and more controls over capital movement, tourism, foreign trade, all to “protect” the very system that is supposed to stimulate international economic freedom. And, as the daily headlines warn us louder and louder, the international monetary system is tottering. As devaluation, the Bretton Woods system looks more and more like a thing of the past. If we manage to avoid out-and-out economic isolationism, and reject the classical gold standard, the only thing left is Friedman’s fluctuating rates. Mr. Roosa is just going to have to get used to ‘em.