Full Employment, Free Trade and Fixed Exchange Rates

Abstract

From Adam Smith to Alfred Marshall (1926 [1903], 394) most respectable economic opinion accepted the ‘simplicity and naturalness of Free Trade’ over the corruption and ‘moral harm’ associated with protection. The 1944 Bretton Woods agreement was designed to provide the post-war international stability to facilitate the approach towards both free trade and full employment. Per Jacobsson (1959, 12, 14) and his associates who administered the par value system believed that they were providing a vital ingredient that relieved businesses of the uncertainty associated with exchange rate instability, thus lowering costs and contributing to the expansion of world trade. They also believed that the IMF was the institution which guaranteed exchange stability. They did ‘not think that anyone would seriously dispute’ the ‘purposes’ of the IMF in this regard. They believed that ‘strengthening of the existing exchange structure’ was ‘in the general interest’.