“Money Crisis” — Summary

Hans F. Sennholz’s 1969 “Money Crisis” treats the pressure on the pound and franc not as a temporary disturbance but as evidence that the postwar gold-exchange system is nearing failure. The article opens with Britain’s widening trade deficit, France’s reserve losses, emergency Group of Ten meetings, and investors fleeing into gold or “harder currencies.” From this scene Sennholz moves to his central thesis: monetary crisis is the international form of domestic inflationism, and governments that try to manage wages, deficits, and exchange rates through credit creation eventually undermine confidence in paper money itself.

“But all the while, frightened investors and speculators were swapping their francs and pounds for gold or harder currencies. And the waning confidence in money was causing wide disruptions in international finance and commerce.”

The argument is structured as a causal chain. France’s crisis, he writes, followed the strikes and riots of spring 1968, after which de Gaulle granted large wage increases. Sennholz’s first conceptual move is to deny that political authority can permanently legislate higher real wages. If wage rates are forced above market levels, unemployment follows; if authorities want to avoid unemployment, they must inflate so that rising prices make the higher money wages payable.

“But it is obvious that wages cannot be raised by law or decree. A government can only cause mass unemployment whenever it endeavors to lift labor costs above market rates; for, countless enterprises would suffer losses and, therefore, would have to discharge the workers whose employment is inflicting the losses.”

This leads to his second move: inflation is presented not merely as rising prices but as a hidden redistribution and social corrosive. Creditors, pensioners, and fixed-income recipients lose; debtors gain; investment becomes unstable; boom-bust cycles and radical politics appear. The domestic disorder then becomes an international payments problem. As prices rise, imports become more attractive, exports less competitive, and capital seeks refuge abroad. The resulting balance-of-payments deficit drains gold reserves.

“After all, gold is the only international money and, like all other economic goods, tends to flow towards areas where it commands greater purchasing power.”

That sentence is the hinge of the article. For Sennholz, gold is not a symbolic reserve but the disciplinary mechanism that reveals monetary mismanagement. Britain, the United States, and now France are grouped together as inflationary debtors whose liabilities exceed their gold capacity. He portrays central bankers as trying to preserve a structure they themselves are destroying through the very policies they use to postpone crisis.

“Today, the international payment system is like a house of cards with irreparable cracks in its foundation. Its managers, a few finance ministers and central bankers, meet frequently in emergency sessions to patch up the cracks, while at other times they, themselves, are undermining the house with inflation.”

The article predicts that France, Britain, and ultimately the United States will be unable to continue gold payments. Sennholz does not claim to know the timing, but insists on the inevitability. The alternatives he considers are dollar devaluation or suspension of gold payments. Devaluation would reduce gold debts but punish creditor nations and leave underlying trade maladjustments intact; suspension would expose paper currencies to market judgment, with weaker debtor currencies falling sharply.

“Both alternatives would precipitate the universal distrust of all paper monies and hasten their further decline. In short, world-wide gold payment failures will usher in rampant inflation.”

His final forecast is geopolitical as well as monetary. If gold payments fail, many countries will likely adopt a dollar standard, while hard-currency creditor nations such as Switzerland and West Germany may refuse to join and instead form a gold-oriented bloc. Thus the collapse of the existing payments system would not merely change exchange rates; it would divide the monetary order of the “Free World.”

“The end of the present payment system thus will usher in not only rampant inflation but also monetary division of the Free World.”

The relevance of “Money Crisis” lies in its anticipation, before the 1971 closing of the U.S. gold window, that Bretton Woods rested on an unstable contradiction: national governments wanted inflationary discretion while international convertibility required monetary restraint. Sennholz’s essay is critical and hard-money in orientation, but its core insight is sharply formulated: inflation postponed at home reappears abroad as reserve loss, currency distrust, and eventually institutional rupture.