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Page 68
is simply the tyranny of the status quo. A second reason is the confusion between a real gold standard and a pseudo gold standard. Under a real gold standard, the prices of different national currencies in terms of one another would be very nearly rigid since the different currencies would simply be different names for different amounts of gold. It is easy to make the mistake of supposing that we can get the substance of the real gold standard by the mere adoption of the form of a nominal obeisance to goldthe adoption of a pseudo gold standard under which the prices of different national currencies in terms of one another are rigid only because they are pegged prices in rigged markets. A third reason is the inevitable tendency for everyone to be in favor of a free market for everyone else, while regarding himself as deserving of special treatment. This particularly affects bankers in respect of exchange rates. They like to have a guaranteed price. Moreover, they are not familiar with the market devices that would arise to cope with fluctuations in exchange rates. The firms that would specialize in speculation and arbitrage in a free market for exchange do not exist. This is one way the tyranny of the status quo is enforced. In Canada, for example, some bankers, after a decade of a free rate which gave them a different status quo, were in the forefront of those favoring its continuation and objecting to either a pegged rate or government manipulation of the rate.
More important than any of these reasons, I believe, is a mistaken interpretation of experience with floating rates, arising out of a statistical fallacy that can be seen easily in a standard example. Arizona is clearly the worst place in the U.S. for a person with tuberculosis to go because the death rate from tuberculosis is higher in Arizona than in any other state. The fallacy is in this case obvious. It is less obvious in connection with exchange rates. When countries have gotten into severe financial difficulties through internal monetary mismanagement or for any other reason, they have had ultimately to resort to flexible exchange rates. No amount of exchange control or direct restrictions on trade enabled them to peg an exchange rate that was far out of line with economic realities. In consequence, it is unquestionably true that floating ex-

 
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