Challenging Friedman and Triffin

In the 1960s, Laffer began his career in economics, as a student in the economics Ph.D. program at Stanford University and then a tenure-track professor at the University of Chicago, as debate swirled in economics about the international monetary system. The predominant view within the profession was that outlined by Yale economist Robert Triffin. This was that the gold standard system then still in operation was untenable. Triffin believed that because the dollar had become the ubiquitous currency globally, there were too many potential foreign dollar-gold redemption requests against the official gold stock of the United States. He recommended scrapping the gold standard for a new international monetary system supervised by the International Monetary Fund.

Milton Friedman, at Chicago with Laffer and Mundell, likewise argued that the gold standard had to go. In addition, he felt that major currencies should not be in fixed rates of exchange against each other, as under a gold standard. Rather, exchange rates should float, which is to say determined in market transactions at every moment. This was consistent with Friedman’s monetary-policy theory, which emphasized the management of monetary quantities as opposed to specifying a price of money.

Laffer (with Mundell) believed that the classical system of gold and fixed exchange rates was serving the needs of the world economy admirably. He made his career in the latter 1960s as a defender of the international monetary status quo. In this nascent stage of supply-side history, it is important to note that the surpassing concerns of the first advocates of this tradition were in the monetary realm.

The content on this page includes documents from Friedman, Triffin, Laffer, and Mundell in this debate from the late 1940s through the early 1970s, along with explanatory text and commentary.

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