Aspects of the Pathology of Money

Statement by Michael A. Heilperin

As one of two members of the ‘Bellagio group’ to favour the readoption, by the industrially advanced countries at least, of a semi-automatic gold standard based on a substantially increased price of gold, I find myself obviously outside the major part of the ‘consensus’ described in Chapter V of this Report. I agree, however, that the present monetary arrangements are basically inadequate, largely owing to the absence of an appropriate adjustment mechanism and to the presence of disquietingly large dollar and sterling balances.

In the main I would distribute emphasis differently on the various problems than would most members of our group.

In the first place, I consider a prompt and effective mechanism of readjustment, often described as ‘discipline’, as the foremost requirement for a workable international monetary system. This is best achieved under the régime of the gold standard. The more order there is in the system, the less need for liquid resources with which to settle international balances of payments.

In the second place, I consider that the repayment of dollar and sterling balances in gold at a new price is the best way of eliminating for good and all a dangerous overhang resulting from more than fifteen years of practice of an increasingly anarchic gold-exchange standard.

It is only in the third place that the problem of liquidity presents itself to my mind. Nobody really knows how much liquidity is ‘adequate’, and I am less afraid than are most of my colleagues of the ‘haphazardness’ of gold production. Past experience, i.e. prior to 1914, is in that respect undoubtedly very reassuring.

I am opposed to ‘flexible’ exchange rates and even to a widening of admissible fluctuations around a fixed parity. The arrangements provided for by the Charter of the IMF seem to me to combine very successfully the need for stability with that for occasional changes of parities. The new gold standard should, in my opinion, incorporate the present IMF (including its credit facilities).

As regards centralized reserves, I have not been dissuaded from my essentially negative position by the debates we had in the ‘Bellagio group’. The more I study plans submitted by my learned colleagues, both within the academic profession and outside of it, the more convinced I am that the simplicity of the semi-automatic gold standard is very greatly to be preferred to any of them. This may sound a trifle old-fashioned, but who is to say what, in 1964, is old-fashioned and what is revolutionary?

2 This Appendix was attached to the brochure entitled: ‘International Monetary Arrangements: The Problem of Choice—Report on the Deliberations of an International Study Group of 32 Economists’, published by the International Finance Section of Princeton University, 1964 (pp. 115–16).

• 1* This monograph was prepared in the years 1943–44 for one of the research institutes in the United States. Circumstances did not allow its publication at the time, although a mimeographed version of my text was circulated to a large body of leading American experts of the day. More recently the institute in question, which wishes to remain unnamed, kindly reverted the copyright to me. May I extend to it my sincere thanks, both for having made the study possible and for having allowed me to publish it now? I should perhaps explain that when this monograph was written, one of the questions which preoccupied American experts a good deal was: how to avoid the inflationary mistakes of the previous post-war period during the years that were to follow the end of World War II. No one of us had the slightest doubt that this end would be victorious.
• 2Post-war European Inflations, World War I A Study of Selected Cases*