Currency Convertibility: The Gold Standard and Beyond

By Jorge Braga De Macedo; Barry Eichengreen et al. | Go to book overview
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COMMENT

Albert Fishlow

The two papers by Michel Bordo and Anna Schwartz (Chapter 2) and by Marcello de Cecco (Chapter 4) are important efforts to place the gold standard, particularly in the classical period between 1870 and 1914, in an appropriate historical perspective. Bordo and Schwartz go beyond such a goal, substantial enough on its own, and offer observations on the interwar and Bretton Woods periods in addition.

Moreover, these two papers stand in apparent significant contrast. De Cecco, as he has done before, regards the gold standard more as myth than practice. He sees increasing conflict, increasingly over the last two decades prior to World War I, between the rapidly evolving international financial markets and domestic objectives. In particular he emphasizes the potentially adverse consequences of short-term capital movements upon the economic fate of semi-peripheral countries. Not surprisingly, he draws extensively upon Italian and Austrian experience.

Bordo and Schwartz emphasize three central points when explaining why the gold standard did work: first, the specie standard was admittedly a contingent rule, but during the interval before World War I 'the basic convertibility rule was followed by a larger group of countries'. One of the reasons this was so was that the period was one of relatively stable growth and political stability; and the different experiences of the core and peripheral countries, even before 1914, can be attributed to different stages of economic development.

But as I hope to show in my brief remarks, both of these views-de Cecco, and Bordo and Schwartz-are correct. What is essential to appreciate is the different motivations of different countries at different times in adhering to or deviating from the standard. After all, even Portugal, one of the first adherents to the gold standard in 1854, suspended convertibility for forty years from 1891, before rejoining for only 82 days in 1931. That story is told extensively in Part III of this volume.

National interest hardly disappeared in the gold standard interval; indeed, rising nationalism before 1914 is widely cited as one of the factors contributing to the war. Its effects helped to determine the operation of the system, both then and in later periods as well.

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