Neither professor says so explicitly but their model leaves countries with a cafeteria plan of choices regarding their political economies:

1. Maintain Fixed exchange rates - what the European economies now have with each other, what the states in the U.S. have, and what the Chinese enforce for their currency vs. the rest of the world

2. Allow Central bank/sovereign Treasury control over banking reserves and the supply of credit/money - what everyone has

3. Allow Capital market transfers between domestic and foreign currencies - what the Chinese don't have officially but are actively doing privately and what some in the U.S. Congress would like to restrict (following the Chinese model to "punish" China)

Countries can safely choose any 2 out of 3, but they cannot have all 3.

The Constitutional gold standard worked because the trading countries that allowed 2. and 3. accepted a fixed rate of exchange for all their currencies into gold. (This is why the authors of the Constitution made such a big deal about the regulating the value thereof of foreign coin.)

Reviving that fixed exchange rate agreement is impossible given the certainty that at least some countries will want to have their central banks/Treasuries manipulate their currencies in the mistaken notion that this will somehow increase wealth for their countries.

That leaves the U.S. with the choice of abandoning either 2. and 3.

Those of us who have now read Professor Timberlake 's book (which puts Schwartz and Friedman utterly to shame) would like to see the U.S. choose option 2. However, if history is any guide, the religion of central banking is far more likely to triumph politically than the quaint notion that people should be free to hold their wealth in the money of their choice. The odds are very poor that anyone will be able to drive a stake through the heart of vampire economics, aka IS-LM.


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