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Let It Be Known That No Financial Crisis Was Ever Caused by Stable Money

"No economic crisis was ever caused by stable money.


Of course, many crises happened during the gold standard era, before floating currencies appeared in 1971. In the two centuries before 1971, people got into financial trouble for all kinds of reasons. Banks lent money to people that couldn’t pay it back. Businesses invested in ideas that turned out to be not so hot. Governments borrowed and spent more than they should have. Destructive domestic tax increases were imposed. Countries got into tariff wars with each other. There were even a few World Wars, Civil Wars, communist revolutions, and so forth.

None of them were caused by money that was too stable.

Quite a few monetary crises and problems emerged too, mostly due to an unstable currency, or the threat that a currency could become unstable.


Since 1971, we’ve had a colossal number of crises worldwide that have been caused by unstable money. The entire world had an inflation problem during the 1970s, as the U.S. dollar was devalued from $35/oz. of gold in 1971 to around $350/oz. afterwards. In the 1980s, all of Latin America erupted into currency catastrophe, and spent the next decade in a debilitating hyperinflation. The 1990s witnessed Japan destroy itself with a currency that rose and rose, while all of the Soviet sphere collapsed into hyperinflation. Mexico blew up again in 1995. In 1997-98, another round of currency disasters swept through Asia, and also knocked out Brazil and Russia. Argentina blew up in 2001. Since then, the world has been in another round of currency depreciation, with the dollar’s value sinking from the $350/oz. level to around $1700/oz. today. This will not end happily either.

The characteristic crisis of the post-1971 floating currency era is the crisis of unstable currencies. Eventually, people will tire of these completely avoidable events. They will stop searching for a way to solve nonmonetary problems with funny-money solutions. They will return to the principle of keeping the currency as stable and reliable as possible.

Why? Because stable money doesn’t cause crises."

There is only one reason that we severed the link with gold in 1971 -- to finance the welfare state. This is why there is such a huge resistance against the gold standard.
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