Ideas, Interests, and the Transition to a Floating Exchange System

Milton Friedman's idea of flexible exchange rates was heresy for Americans until the mid-1960s. However, by the late 1970s the idea became embedded in academic thought, policymaking, and business practices. This article analyzes how floating currencies, once eschewed, became embraced as legitimate in the US through the late 1960s and early 1970s. It demonstrates how business leaders' economic interests and laissez-faire economists' framework for causes of and solutions to business hardships contributed to society's acceptance of currency flexibility. Increasing societal support of flexible currencies strengthened the power of float-advocates within the US government, facilitating the transition of the international monetary system from fixed exchange rates to floating. This study highlights how material interests and policy discourses contributed to America's new policy orientation. It also addresses the origins of the neoliberal international financial order by documenting how American elites reconstituted the state-market balance in global finance while navigating monetary crises.