Abstract
This chapter covers the analysis of the problem of the need for reserves as it was developed during the two decades between the First and Second World Wars. In section i the structural changes which influenced thinking on this issue during the interwar period are briefly described. The development of reserve need theory up to the suspension of the gold standard1 is discussed in section ii. A brief outline of the circumstances and theories leading to the view that there was a shortage of gold, to which many economists subscribed in the late twenties and early thirties, is given in section iii. In section iv the transition of a large part of the world in the thirties to floating exchange rates and its effects on the reserve situation are discussed. Section ν records the state of reserve need theory at the end of the interwar period.
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Literatur
After the suspension of the gold standard by the United Kingdom in September 1931, many countries followed its example. The United States suspended the gold standard in April 1933, but returned to it at a new gold parity in January 1934.
The first authoritive description of these changes is that by Nurkse; cf. League of Nations, International Currency Experience: Lessons of the Inter-War Period, Geneva, 1944. Bloomfield has shown that adherence to the “rules of the game” before 1914 was already far less rigid than had usually been thought;
cf. Arthur I. Bloomfield, Monetary Policy Under the International Goldstandard: 1880–1914, Federal Reserve Bank of New York, 1959.
Cf. William Adams Brown Jr., The International Gold Standard Re-interpreted: 1914–1934, New York, 1940, p. 260.
Cf. Gustav Cassel, The World’s Monetary Problems: Two Memoranda, London, 1921, pp. 82,
Cf. Gustav Cassel, The World’s Monetary Problems: Two Memoranda, London, 1921, 83,
Cf. Gustav Cassel, The World’s Monetary Problems: Two Memoranda, London, 1921, 133.
This view is repeated in: Gustav Cassel, The Theory of Social Economy, New York, 1924, Vol. II, pp. 438–453
and Gustav Cassel, The Crisis in the World’s Monetary System, Oxford, 1932, pp. 19
and Gustav Cassel, The Crisis in the World’s Monetary System, Oxford, 1932, 33.
Interim Report of the Gold Delegation of the Financial Committee of the League of Nations, Geneva, 1930, p. 14.
See also p. 2 5 below.
John Maynard Keynes, A Tract on Monetary Reform, London, 1923, p. 194.
Ibid., p. 195.
Cf., for instance, Brown, pp. 354, 355: “the elimination of gold from the domestic circulation was usually conceived of as a temporary expedient pending the return of conditions when the “full” gold standard could be restored.”
Cf. John Maynard Keynes, A Treatise on Money, Volume II, London, 1930, p. 273 et seq.
Ibid. p. 276.
Ibid. p.277.
A record of the discussions was published under the title The International Gold Problem, London, 1931.
Cf. The International Gold Problem, pp. 103, 112, 151, 170, 179, 186.
Report of the Gold Delegation of the Financial Committee of the League of Nations, Geneva, 1932, p. 53.
Report of the Committee on Finance and Industry (Macmillan report), London, 1931, p. 67. The Committee was appointed in November 1929 “to inquire into banking, finance and credit, paying regard to the factors both internal and international which govern their operation, and to make recommendations calculated to enable these agencies to promote the development of trade and commerce and the employment of labour.”
“The chief recommendation of the Genoa Conference was that the gold exchange standard should be established as widely as possible in order to avoid the scramble for gold that might ensue, if all countries wanting to restore the gold standard were to absorb gold in their central reserves.” Cf. League of Nations, International Currency Experience: Lessons of the Inter-War Period, Geneva, 1944, p. 7.
Cf. Brown, p. 725.
Ibid., p. 788.
Cf., for instance, Joseph Kitchin, “Production and Consumption of Gold: Past and Prospective”, 1930
and A. Loveday, “Gold: Supply and Demand”, annex VII and annex XIII respectively of the Interim Report of the Gold Delegation of the Financial Committee, League of Nations, Geneva, 1930.
Report of the Gold Delegation, p. 53. If foreign exchange reserves, which accounted for perhaps 20 per cent of global reserves at that time, are included the situation appears to have been somewhat less acute.
See p. 21 above.
Cf. J. Kitchin, “Gold Production”, Review of Economic Statistics, May 1929, and Kitchin’s memorandum prepared for the Gold Delegation in 1930 and referred to in note 5 on p. 24 above. Cassel’s and Kitchin’s theories and the differences between them were discussed and criticized at length by F. Mlynarski in The Functioning of the Gold Standard, League of Nations, Geneva, 1931,
especially in chapter 3. Calculations involving similar methods to those employed by Cassel and Kitchin were made, inter alia, by Lionel D. Edie, Gold Production and Prices before and after the World War, New York, 1928,
W. Woytinsky, “Das Rätzel der langen Wellen”, (The Riddle of the Long Cycles), Schmoller’s Jahrbuch, 1931,
George W. Warren and Frank A Pearson, Gold and Prices, New York, 1935.
A discussion of this literature is contained in Charles O. Hardy, Is There Enough Gold?, Brookings Institution, Washington, 1936, chapter II and part II. For a fundamental rejection of these theories,
cf. Michael A. Heilperin, International Monetary Economics, London, 1939, chapter III. 1 See pp. 20, 21 above.
“Competition on the gold market has become more acute, because every bank desires to secure an inflow of at least 3 per cent.…”, Mlynarski, p. 48.
Cf. “Note of Dissent” attached to the (final) Report of the Gold Delegation. Cf. also: G. Cassel, The Crisis in the World’s Monetary System, Oxford, 1932, p. 63 et seq. The majority of the Gold Delegation did not find evidence of a gold shortage.
League of Nations (Ragnar Nurkse), International Currency Experience: Lessons of the Inter-War Period, Geneva, 1944, p. 9.
Derived to a large extent from International Currency Experience.
Cf. p. 33 below.
Under the Tripartite Agreement of September 1936, the United States, the United Kingdom and France undertook to conduct their monetary affairs in such a manner as to “maintain the greatest possible equilibrium in the system of international exchanges”. Joined shortly afterwards by Belgium, the Netherlands and Switzerland, an arrangement followed according to which the participating countries undertook to supply gold in exchange for their own currency when acquired by any of the others. Any of the participants could, however, cancel the agreement at twenty-four hours notice. Cf. R.G. Hawtrey, The Gold Standard in Theory and Practice, fifth edition, London, 1947, p. 220.
For details cf. M.H. de Kock, Central Banking, London, 1939, p. 79 et seq.
Private western gold hoarding between January 1931 and September 1936 (date of the devaluation of the gold-bloc currencies) was estimated at between $1.5 and $2 billion (at $35 per ounce). Cf. Federal Reserve Bulletin, August 1937, and Bank for International Settlements, eighth Annual Report, Basle, 1938.
Cf. Charles R. Whittlesey, International Monetary Issues, New York, 1937, p. 216.
Cf. Bank for International Settlements, ninth Annual Report, Basle, 1939, p. 75.
M.H. de Kock, Central Banking, London, 1939. At the time de Kock was Deputy-Governor of the South African Reserve Bank and later became Governor.
De Kock, pp. 84–86.
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de Beaufort Wijnholds, J.A.H. (1977). The interwar period. In: The Need for International Reserves and Credit Facilities. Publication of the Netherlands Institute of Bankers and Stock Brokers, vol 31. Springer, Boston, MA. https://doi.org/10.1007/978-1-4684-6954-7_3
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