Capitalism and Freedom Chapter Summary & Analysis - Chapter 4, International and Financial Trade Arrangements Summary

Chapter 4, International and Financial Trade Arrangements Summary and Analysis

International monetary issues and trade arrangements are an especially complex topic. However, the liberal cannot neglect it because it is the most serious short-run threat to liberty in the United States. Without solving the problem, the government will try to control the economy to solve it. Much economic freedom is lost following the control of foreign exchange.

Some governments make their currencies "inconvertible" which is to say it cannot be traded for any amount of another currency. In Friedman's day, conversion was still illegal, and at that time it had been illegal since 1933 to hold or to buy and sell gold. Government now controls the price of gold internationally and this benefits the government at the expense of the people.

Friedman then separates the two problems of the balance of payments and the danger of a gold run; a loss in confidence can destroy an economy by triggering...
(read more)