Sound money and the myth of militarism

One of the most common mistaken arguments against a return to sound money is that the dollar’s international dominance supposedly depends upon American military supremacy.

According to this view, the United States cannot seriously consider restoring monetary discipline – whether through embracing the classical gold standard or gold convertibility, anything that would put a limit on monetary expansion – because the dollar’s role as the global reserve currency ultimately rests upon Washington’s ability to project overwhelming force abroad. Aircraft carriers, overseas bases, and the Pentagon’s vast security architecture, we are told, are what truly “back” the dollar.

The implication is clear enough: if the United States were to retreat from perpetual military supremacy or return to a genuinely sound monetary standard, the dollar would lose its privileged position in global trade and finance. 

Yet historically, this argument holds little water as examples to the contrary abound.

Indeed, many of the world’s most trusted international currencies were not backed primarily by military coercion. Rather, they were currencies trusted because they emerged from societies with reputations for monetary stability, institutional reliability, commercial integrity, and fiscal restraint.

This history strongly suggests that if advocates of dollar dominance truly wish to preserve international confidence in the currency over the long term, they should have far less to fear from a return to sound money than from the fiscal and monetary consequences of endless empire.

Take the Venetian ducat. First minted in 1284, the ducat became one of the most widely accepted trade currencies in the Mediterranean world for centuries. Merchants from North Africa to the Levant trusted it because Venice maintained the coin’s weight and purity with remarkable consistency.

The ducat’s reputation rested not upon overwhelming military domination, but upon credibility. Venice was certainly an important regional maritime power, but it was never remotely comparable to the great territorial empires surrounding it. What made the ducat valuable was that merchants believed Venetian authorities would refrain from debasing it.

The same was true of the Dutch guilder during the 17th century.

The Dutch Republic possessed formidable commercial and naval strength, but it was hardly a universal military hegemon. Surrounded by larger continental rivals, the Dutch nevertheless became the financial center of Europe because of the institutional reliability of Dutch commerce and the credibility of the Bank of Amsterdam.

Merchants and investors trusted Dutch financial institutions because they operated within a comparatively stable legal and monetary environment. 

Trust, not coercion, was the essential ingredient.

To be sure, geopolitical influence can reinforce a currency’s position at the margins. Great powers often enjoy advantages in trade networks, diplomatic reach, and financial infrastructure. But this is very different from claiming that reserve currency status is fundamentally produced by military coercion. The distinction matters.

After all, if military power alone created trusted money, history would look very different. The Mongol Empire, Qing Empire, Napoleonic France, and the Soviet Union all wielded immense military power. None produced enduring international reserve currencies comparable to the Venetian ducat, Dutch guilder, British pound, or American dollar. 

Empires are expensive. Military supremacy requires enormous expenditures, sprawling bureaucracies, foreign commitments, and ultimately vast quantities of debt.

Over time, states facing the fiscal pressures of imperial maintenance inevitably resort to debasement, inflation, and financial repression.

The Bretton Woods system did not collapse because the United States lacked military supremacy. It collapsed because Washington’s fiscal and monetary commitments became increasingly incompatible with gold convertibility.

Lyndon Johnson’s “guns and butter” policies – simultaneously financing expansive welfare programs and the Vietnam War – accelerated the inflationary pressures that ultimately forced Richard Nixon to sever the dollar’s remaining link to gold in 1971. 

Ironically, then, military supremacy may pose as much danger to monetary stability as protection for it. 

This is where many contemporary defenders of the dollar inadvertently reveal more than they intend.

When analysts argue that the dollar depends fundamentally upon American military dominance, they are implicitly conceding that the currency no longer rests primarily upon monetary soundness or fiscal restraint.

Instead, they suggest the system depends upon geopolitical leverage, network effects, and the absence of viable alternatives.

But none of this proves that military supremacy is what fundamentally creates monetary trust.

In fact, one could argue the opposite: the long-term danger to the dollar lies precisely in the fiscal and monetary consequences of maintaining a global military empire. Endless wars, ballooning deficits, rising interest payments, and continual monetary expansion threaten confidence far more directly than a hypothetical reduction in overseas military commitments.

From the sound money perspective, this dynamic is hardly accidental. Permanent militarization and fiat monetary expansion are deeply intertwined.

The modern warfare state depends upon elastic money because hard monetary constraints limit the state’s ability to finance continuous intervention abroad. Sound money disciplines the empire precisely because it constrains the state’s ability to finance perpetual military expansion through inflation and debt monetization. 

That constraint is not a weakness of sound money. Historically speaking, it has often been one of its greatest strengths.

This is precisely why advocates of sound money are so often told that monetary restraint is unrealistic in a world “requiring” American global supremacy. The argument is less an economic observation than a tacit admission that the current international order depends upon perpetual deficits, continual debt expansion, and monetary flexibility incompatible with genuine fiscal discipline. 

And no number of aircraft carriers can indefinitely substitute for sound money’s reliability and stability.