THE NOTION OF MONETARY INTERNATIONALISM

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THE notions of an “international monetary system” and of “monetary nationalism” are both familiar and much discussed. By the former one usually means the gold standard; by the latter, the various types of “managed currency” combined with fluctuating exchanges.

THE PLACE OF GOLD IN THE MONETARY SYSTEM

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AS the one successful experience of widespread monetary internationalism which the world has known thus far was under the gold standard, we must evidently inquire into the working of that system. If it has been such a success, was its success due to some special virtue of the standard adopted—or was it the result of economic policies and conditions which existed at the time? In order to be given a clear answer the question will call for a careful analysis.

RECENT THEORIES CONNECTING GOLD SUPPLY AND PRICE MOVEMENTS

WE have arrived at the conclusion, in the preceding chapter, that, under the gold standard, there is no clear and direct relation between stocks of monetary gold and changes occurring in them, on the one hand, and prices, on the other. Nevertheless several well-known statistical inquiries reached the conclusion that such a relationship exists. We must therefore turn now to examining the results of these investigations and see whether they challenge the conclusions of the preceding chapter.

PRINCIPLES OF THE GOLD-PRICE RELATIONSHIP RESTATED. THE GOLD PROBLEM

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THE preceding chapter has been, in a sense, a digression.

THE BALANCE OF PAYMENTS

A.

THEORIES OF FOREIGN EXCHANGES

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OUR discussion of foreign exchanges will be conducted in two stages: the first represents the general case of currencies not linked to gold; the second stage is the special case of the gold standard. This way of treatment is the application of conclusions reached in the foregoing analysis of the monetary economics of gold.

MONETARY PARITIES

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WHILE the rate of exchange corresponds to any momentary situation in the foreign-exchange market, a monetary parity represents a longer-run relation between monetary units of different countries. A parity between two currencies is the price of one expressed in terms of the other, which is maintained effectively over longer periods of time allowing for minor fluctuations due to changes arising daily in the foreign-exchange market.

EQUILIBRIUM IN INTERNATIONAL PAYMENTS

A. Introductory Remarks

THE problem of maintaining the equilibrium of balances of international payments, and of restoring it once it has been disturbed, is one of the most-discussed questions in the field of international economics. The interest attached to it can be accounted for by the national and international difficulties which disequilibrium in international payments brings about if it is sudden and large or protracted and cumulative.

SOME CURRENCY SYSTEMS AND MONETARY INTERNATIONALISM

THE analysis of the preceding chapter has led us to the very important conclusion that the process of restoring equilibrium in international payments does not depend in its structure on the monetary system adopted. Whatever the monetary organization, certain operations have proved to be indispensable if re-equilibrium is to be obtained; they depend—and this is the reason of their absolute necessity—on the very structure of the economic transactions which result in payments from country to country.

MONETARY PROBLEMS ARISING FROM ECONOMIC NATIONALISM

A. Introductory Remarks

IN the present chapter some problems will be dealt with which arise when the “international mechanism” analysed in Chapter VIII is prevented from functioning and when, in consequence, international monetary stability is either endangered or destroyed.

The principal interferences with the working of the “international mechanism” are due to the adoption of either of the following policies: