Keynesian Economists Arrogantly Declared that We Need Not Worry about Dollar Balances Piling Up Abroad under Bretton Woods

It took a great deal of American pressure, wielding the club of Lend–Lease, to persuade the reluctant British to abandon their cherished currency bloc of the 1930s. By 1942, Hull could expect confidently that “leadership toward a new system of international relationship in trade and other economic affairs will devolve very largely upon the United States because of our great economic strength. We would assume this leadership, and the responsibility that goes with it, primarily for reasons of pure national self-interest.”

For a while, the economic and financial leaders of the United States thought that the Bretton Woods system would provide a veritable bonanza. The Fed could inflate with impunity, for it was confident that, in contrast with the classical gold standard, dollars piling up abroad would stay in foreign hands, to be used as reserves for inflationary pyramiding of currencies by foreign central banks. In that way, the United States dollar could enjoy the prestige of being backed by gold while not really being redeemable. Furthermore, U.S. inflation could be lessened by being “exported” to foreign countries. Keynesian economists in the United States arrogantly declared that we need not worry about dollar balances piling up abroad, since there was no chance of foreigners cashing them in for gold; they were stuck with the resulting inflation, and the U.S. authorities could treat the international fate of the dollar with “benign neglect.”

—Murray N. Rothbard, The Mystery of Banking, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2008), 250.