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2021 | OriginalPaper | Buchkapitel

4. The Gold-Exchange Standard, Its Collapse and the Interwar Lack of an International Money

verfasst von : Giovanni Battista Pittaluga, Elena Seghezza

Erschienen in: Building Trust in the International Monetary System

Verlag: Springer International Publishing

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Abstract

With the First World War the classical gold standard ended. In the immediate post-war period, most advanced countries found themselves with price levels significantly higher than the pre-war period and experiencing marked exchange rate volatility. In this context governments became convinced of the necessity to rebuild an international monetary order by re-establishing a system similar to the gold standard: the gold-exchange standard. This system only lasted from 1925 until 1931. Various explanations have been given for its short life and subsequent collapse. Most scholars attribute the collapse of the system to the formation of strong trade unions and mass political parties which prevented the costs of adjusting imbalances being passed on to workers, as had been the case with the classical gold standard. This made the gold-exchange standard politically unsustainable in the long run. The introduction of a monetary system based on a form of money that favoured smoother adjustments of macroeconomic imbalances was also hampered by the balance of power that prevailed in the international arena after the First World War.

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Vorheriges Kapitel The Classical Gold Standard

Nächstes Kapitel The Bretton Woods System

“Choices made by monetary and fiscal authorities in the years around 1930 were made according to a view of the world that maintenance of the gold standard … was the primary requisite for prosperity”. Temin (1989, pp. 7–8).

See Eichengreen (1992).

See Cunliffe Committee (1918, p. 114).

This position is expressed by Strong in a memorandum of January 1925, quoted in Moggridge (1972, pp. 59–60).

See Nurkse (1944).

Hawtrey (1923, p. 136) writes: “If all the gold standard countries adhere to it, gold will nowhere be needed as a means of remittance, and gold will only be withdrawn from the reserve for use as a raw material of industry”.

See League of Nations (1922).

Resolution 2, in fact, provided that “Banks, and especially banks of issue, should be free from political pressure, and should be conducted solely on lines of prudent finance. In countries where there is no central bank of issue, one should be established”. See League of Nations (1922, p. 678).

See Singleton (2011).

With reference to these changes Strakosch, a British banker, wrote: “The trend of political evolution the world over … is in a direction which makes it less safe to entrust governments with the management of currencies than it may have been in the pre-war days”. Letter of Henry Strakosch to Basil Blackett, October 17, 1925, T176/25B, p. 3, PRO. Quoted in Helleiner (2003: 148).

See Montagu Norman to J.P. Morgan, 19 November 1927, BE 41/307.

See Jacobsson, Notes on a conversation with Sir Otto Niemeyer, 13 December 1933, BE OV50/6.

With reference to the diffusion of central banks in English domains, Plumptre (1940, p. 193) wrote: “The desire in England for a chain of Empire central bank was a latter day expression of financial imperialism … the essential purpose was the same: the maintenance and extension of London’s influence and control”.

See, among others, James (2001, pp. 36–37).

See, among others, Fink (1984).

Johnson (1975, p. 110) writes: “Had the exchange value of the pound been fixed realistically in the 1920s—a prescription fully in accord with orthodox economic theory—there would have been no need for mass unemployment”.

See Kemp (1972).

See Rist (1932), Eichengreen and Wyplosz (1988), and Sicsic (1993).

See Clarke (1967, p. 116).

See, for example, Angeloni et al. (2011).

See Eichengreen (1992, pp. 196–197).

See New York Times (1931, p. 39).

As James (2001, p. 16) writes: “The pleasing ambiguity of the gold exchange standard … was that it provided at the same time a restraint … and also that no one could tell quite how restraining it would turn out to be”.

As Hawtrey (1927) argued, if central banks had cooperated, the value of gold would no longer have been an independent variable on which the value of each currency was based. Rather, it would have come to depend on the value of each national currency.

For Keynes (1923, ch. 3) the gold standard was a “barbarous relic”. Its re-proposal was therefore unjustified.

See, among others, Shucker (1988).

See Clarke (1967) and Ahamed (2009).

See also Bernanke and James (1991).

See MacMillan Committee (1931).

Due to this failure to comply with the rules, the credibility of the gold-exchange standard gradually weakened. See Simmons (1996).

See Seghezza (2018, pp. 127–133).

See Keynes (1919, p. 134).

See Kissinger (1994, p. 242).

As Carr (1947, p. 25) writes: “The most and persistent single factor in European affairs following 1919 was the French demand for security”.

The French attempt is illustrated in detail by Kirshner (1995, pp. 181–192).

See Carr (1947, p. 43).

The behaviour of the Bank of England is thus interpreted by the French Prime Minister Poincarè in a February 1928 letter to the Quai d’Orsay: “C’était un programme d’hégémonie financière, qui consistait à nous éliminer de la direction de tous les projets de réforme monétaire, à empêcher la Banque de France et les Ètablissements français d’obtenir avec des avantages moraux et matériels la possibilité d’exercer dans l’interêt français une influence sur le pays qui ne pouvent se passer du concours étrangers”. See Archives of the Bank of France, Paris, Mission financières françaises en Romanie, No. 137020006/6: letter of the Prime Minister to the Foreign Minister, 24 February 1928.

“Limpérialisme financier de M. Montagu Norman était une menace pour nos interêt le plus légitimes, notamment en Europe centrale, où l’influence anglaise risquait d’éclipser la nôtre, au préjudice grave de notre politique étrangére”. See Moreau (1954, p. 452).

See Federal Reserve Bulletin (1930, September, p. 22).

See Boyce (2009, p. 213).

See Brown (1940, p. 767).

See Brown (1940, p. 949).

According to Cassel it was “… especially remarkable that the Bank of France has consistently and unnecessarily acquired enormous amounts of gold without troubling in the least about the consequences that such a procedure is bound to have on the rest of the world”. Quoted in Irwin (2011, p. 17).

In 1931 Keynes, considering France and the USA to be primarily responsible for the world price decline, argued that: “The whole world is heartily sick of the selfishness and folly with which the international gold standard is being worked”. See Moggridge (1981, p. 600).

As Carr (1939, p. 115) writes: “The rapid decline of French influence in Central Europe after 1931 was closely linked to the fact that, after the crisis, France was no longer able to carry out politics of financial support to those countries”.

See, among others, Eichengreen (1986, 1988, 1992).

For an illustration of the different approaches to the Great Depression see Bernanke (2000).

See Bernanke (1993).

Bee Bernanke (1995).

See Hamilton (1987).

See Eichengreen and Sachs (1985) and Choudri and Kochin (1980).

Pauly (1997, p. 44) writes: “Our textbooks in international relations and international economics leave the impression that the international organizations established after World War II were entirely new departures in history”.

See Cottarelli and Giannini (2002).

See Chandler (1958, pp. 285–286).

Clarke (1967) attributes this flaw to the death of Benjamin Strong who had always mediated among the divergent positions of many European central bankers.

The work of the Genoa Conference was coordinated by the League of Nations Secretariat.

See Santaella (1993).

On stabilizations in these countries see Eichengreen (1992).

See Pauly (1997).

See Eichengreen and Irwin (1995), and Wolf and Ritschl (2011).

See Meyer (1952).

See Eichengreen (1992) and Feinstein et al. (2008).

See Eichengreen (1992).

See Gowa and Hicks (2013).

See Ellis (1941), Milward (1981) and Mitchener and Wandshneider (2014).

See Mitchener and Wandshneider (2014).

See Hirschman (1945).

See Milward (1981).

See Irwin et al. (2008, p. 7). This hypothesis is put forward by several scholars. See, in particular, Irwin et al. (2008) and Aldcroft (2001).

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Titel: The Gold-Exchange Standard, Its Collapse and the Interwar Lack of an International Money
verfasst von: Giovanni Battista Pittaluga
Elena Seghezza
Verlag: Springer International Publishing
Buch: Building Trust in the International Monetary System
Print ISBN: 978-3-030-78490-4

Electronic ISBN: 978-3-030-78491-1

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-78491-1_4