As “that friend,” I should probably chime in (and give the thread a bump on the board).
I think the issue can be approached from multiple angles. One that has not been discussed yet is the distributive nature of fiat currencies. Fiat currencies always benefit those who receive the money first, who get to use the new money to purchase goods (or favors, or whatever) on the current market at the current rates. The money then permeates throughout the system in concentric circles. As it does so, it raises prices along the way because more money is chasing the same amount of goods (since the increase in the money supply did not correlate to an increase in savings or production). Thus, the second user of the new money also benefits from the early money, but not as much as the first. All the while, most of the population has not seen any benefit from the new money, but has suffered through the price-level increases that it has induced. By the time the money has circulated throughout the entire economy, it has raised prices to a new equilibrium. Throughout the course of this series of price increases, the early users of the money were able to purchase a lot (because they had a windfall of money and prices were low) and the late (or excluded) users of the money were able to purchase less with what little they had (because the prices were rising and they received no new money). This has the distinct effect of redistributing wealth from the (already) poor to the (already) rich, exactly the opposite of the (supposed) intended outcome.
Unfortunately, this is not the only adverse effect of the “aid.” Because the money is given to the select (usually already-corrupt) few, the money is spent on things not in the best interest of the poor majority. The problem is not only the lack of spending on necessary reforms or improvements, but also that it misdirects, or mal-invests, resources, which further draws money and credit away from those pursuits most desired and needed. Even worse is the not-uncommon case when the money is spent on measures directly intended to repress the poor masses.
Further, this money is not given to developing nations as simple charity. They are often usurious loans designed to be crippling or to fail altogether. The strings attached more closely resemble shackles. When the new money fails to improve the developing economy such that the loan can be repaid, the economy is instead restructured to allow the developed member nations of the IMF to gain access to the country’s underdeveloped natural resources as a means of payment. This further impoverishes the poor country since it no longer has the opportunity to develop these resources as a means of raising itself from poverty.
Of course, it is not a large leap to see how these conditions quickly lead to further unrest, revolt, repression, and all the rest, locking the country into a vicious cycle of poverty and oppression.
This brings us back to the crux of the original proposition – that these events result from the departure from the gold standard. This is clear to see. The supply of money, when money is a commodity-backed medium of exchange, can not be increased radically by fiat. Because it is not prone to this radical inflation, it does not have the redistributive effects. On the contrary, if a developing nation used a commodity-backed money of intrinsic value and stable supply, as the productivity of a nation increased, the purchasing power of the money would increase (because the same amount of money is chasing more goods), silently lifting the poor from poverty as their meager holdings of money would steadily be able to purchases more and more over time. Such a system prevents dictators and the developed nations’ loan sharks from stealing the wealth of a nation by stealth. As the purchasing power of the poor’s money begins to rise and the poor masses begin to live above subsistence, they develop modest accumulations of capital. This capital, over time, will begin to be invested in entreprenurial enterprises to tap their undeveloped resources. This would set the country on a path to sustainable development and wealth accumulation.
Additionaly, if not for the traditionally widely-accepted fiat US dollar, the US and other predatory (or well-intentioned but tragically foolish) developed nations would not have the ability to print the massive amounts of money to be offered to these countries in the form of aid. If those countries were themselves operating with commodity money, their ability to embark on such ambitious projects would be severely limited by their citizenry because the money could only be raised through direct taxation. As it is, though, they get the money by means of the same stealth redistributive mechanisms of paper money-supply inflation (further impoverishing their own poor and enriching their own rich) and not a peep is raised because so few understand the system well enough. By the time the effects are felt at home in the US, nobody is able to trace the causes back to the source. Even worse, the mis-informed masses of the donor nations cry out for ever more aid to developing nations through these very same destructive means. The vicious cycle then revs up even faster.
These are just some scattered observations on the subject and are neither rigorous nor complete, but I think they are headed in the right direction.
After a few cursory searches, here are a few articles that I think might provide some more insight on the issue.
From LvMI:
Building a Global Mess - David R. Henderson - Mises Institute
asc9baker.pdf (application/pdf Object)
Economics, Philosophy, and Politics - Hans-Hermann Hoppe - Mises Institute
From FEE:
Book Review: Perpetuating Poverty: The World Bank, the IMF, and the Developing World Edited by Doug Bandow and Ian Vasquez
The IMFs Dubious Purpose
Some International Neglect Would Be Good for Africa
Aid, Trade, and Institutional Quality in Africa
Bretton Woods: 1944-1971
The Anti-Capitalist Children of Capitalism
Foreign Aid and International Crises
A Private-Sector Solution to Poverty
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
Two Ways to Slavery
Free Money Is Sound Money
New Excuses for Old Failures
The International Monetary Fund
The Return to a Global Economy
Also, it appears that the following books address this issue in one way or another (all of which I own and you can borrow):
The Ethics of Money Production (Jorg Guido Hulsmann)
A Foreign Policiy of Freedom (Ron Paul)
Pillars of Prosperity (Ron Paul)
Denationalization of Money: The Argument Refined (F. A. Hayek)
The Politically Incorrect Guide to Capitalism (Bob Murphy)
