The Gold Standard: One Thumb Up, One Thumb Down

Abstract

Oxford University Press has done a great service with the recent publication of two books on international monetary relations. Giulio Gallarotti's Anatomy of an International Monetary Regime provides a rich description of the domestic and international politics of the pre-World War I "classical" gold standard (1880-1914). The book offers fresh insights while providing a clear outline of the previously elusive history of this era. Even more impressive is Barry Eichengreen's Golden Fetters, which breaks new ground while addressing the overtilled terrain of the interwar period (1919-1939). Each volume is likely to become the first book consulted by scholars interested in the monetary relations of their respective eras. Golden Fetters, the culmination of many years of scholarship by Eichengreen, is highly readable. One strength of the book is that it skillfully integrates the findings of many technical arguments, sacrificing neither rigor nor clarity. It is also impressive in scope, providing a broad overview of the interwar international economy. It addresses in detail domestic political and economic factors in a number of developed and developing states while emphasizing the importance of international relations. This is an important work that should be required reading for students of both the Great Depression and international monetary relations. Eichengreen argues that the post-World War I gold standard was the mechanism by which destablizing impulses were magnified and transmitted through a fragile international financial system. This mechanism is the key to understanding the length and severity of the depression. Adherence to the gold standard prevented state leaders from taking the steps necessary to contain bank failures and prevent the spread of financial panic. Recovery was, therefore, only possible after the gold standard was abandoned. Golden Fetters argues convincingly that the interwar gold standard operated as a multilateral Chinese finger puzzle. Given the precarious structure of most of the world's economies and the perception that there was a shortage of international reserves as a result of wartime and postwar inflation, states were highly sensitive to movements of gold and foreign exchange. The nations of the world engaged in a self-defeating competition for international reserves-sometimes consciously, sometimes unwittingly. States that raised interest rates, even for purely domestic purposes, attracted gold and foreign exchange from other states. The latter states