The law of unintended consequences has particularly powerful effects in the field of monetary policy. In the 1970s, after lavish government spending on the war in Vietnam and social programmes in the 1960s, the US was experiencing its first trade deficit of the 20th century, rising inflation and the loss of its once massive gold reserves to the Europeans.
The distinguished economist Arthur Burns, the chairman of the Federal Reserve, convinced the US president to impose wage and price controls and a 10% import surcharge while ending the convertibility of the dollar to gold, all on August 15 1971. This would, it was hoped, allow the Fed to pursue non-inflationary monetary expansion, a very pleasant idea.
Of course, it did not work and inflation soon accelerated; over the next 10 years the dollar lost well over half its purchasing power, the stock market dropped 50% in inflation-adjusted terms, and gold...
