Proposals for International Economic Co-operation, 1919–1933

  • Robert W. Oliver

Abstract

There was little appreciation in the twenties of the difficulties of effecting real, as distinct from monetary, transfers of wealth from one economy to another. The problem of balance of payments adjustment needed theoretical elaboration. There were differences of opinion among economists about the proper level of international prices. The theory of international capital movements, particularly disequilibrating short-term capital movements, was primitive.1 A substantial improvement in economic understanding was needed before the problems of the period could be properly analyzed.2 Better policy required better economic theory, particularly in the United States where, significantly, the only academic appraisal in print of any of the reconstruction schemes of the early twenties was that by Benjamin M. Anderson, Jr.

Schemes for stabilizing the exchange rates which do not strike at the underlying difficulties are futile and harmful. Exchange can be ‘pegged’ through borrowing in the American market, so long as American lenders will supply unlimited dollars for the purpose. This was done during the war and for five months after, the greater part of the dollars required being supplied by the United States Treasury. It was necessary during the war. After the war it did great harm.… The burden upon the United States Treasury was unendurably great, and it is impossible to suppose that either the American government or American banking interests will again assume it.

Keywords

Depression Europe Assure Expense Dispatch 

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References

  1. 1.
    For an account of some of the confusions of the day, particularly in Germany, see Howard Ellis, German Monetary Theory (Cambridge: Harvard University Press, 1934), pp. 203–98.Google Scholar
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    For references to other proposals, see Eleanor Lansing Dulles, The Bank for International Settlements At Work (New York: The Macmillan Company, 1932), pp. 12–16; Giuseppe Ugo Papi, The First Twenty Years of the Bank for International Settlements (Rome: Associazione Bancaria Italiana, 1951), pp. 155–61; and Walter W. Haines, ‘Keynes, White, and History,’ Quarterly Journal of Economics, LVIII (November, 1943), pp. 102–33.Google Scholar
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    Ibid., p. 492: When the currencies of the leading nations again reach the neighborhood of parity, and it is possible to introduce an international common unit of value, international notes would fulfill all the pre-war financial functions of gold, if coupled with internal paper issues covered by such notes and without the many defects of the gold standard.Google Scholar
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    Apparently, an International Central Bank loan might have remained outstanding forever, though, of course, the borrowing bank would have been obliged to pay the going rate of interest on the loan. Such an arrangement, it may be noted, might have had far-reaching implications for the development of underdeveloped areas. Assuming long-term interest rates tend to be higher in underdeveloped than in developed countries, the International Central Bank might have stimulated a more or less steady flow of capital from the latter to the former.Google Scholar
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    For a complete history of this plan, see Hans Heymann, Plan for Permanent Peace (New York: Harper & Brothers, 1941).Google Scholar
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    Dr. Heymann did not discuss the organization and administration of his Bank.Google Scholar
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    The total reparations bill had not been settled, and the mechanism of payment had been regarded as open to further negotiation.Google Scholar
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    Papi, op. cit., pp. 52–3: The Young plan reduced the size of the reparations; it suppressed the hypothetical ‘index of German prosperity’; it re-established the financial sovereignty of the Reich, eliminating all control organs; it renounced the right to take a mortgage on certain quotas of national income; and left to the Reich the full responsibility for making the payments required of it. But this plan again failed to solve the problem of balancing the international payments account. For an account of the various abortive attempts between 1930 and 1932 to resolve the reparations question, see John W. Wheeler-Bennett, The Wreck of Reparations (New York: William Morrow & Company, 1933). See also Arnold Toynbee, Survey of International Affairs, 1931, issued under the auspices of the Royal Institute of International Affairs (London: Oxford University Press, 1932). For a statement of the attitude of the Germans toward the Young Plan, see Hjalmar Schacht, The End of Reparations, trans. Lewis Gannett (New York: Jonathan Cape and Harrison Smith, 1931). Schacht was annoyed by the Young Plan, in part because he felt that the creditor nations should take some responsibility for the adjustment process. In this regard, his views were similar to those held by Keynes regarding debtor-creditor relationships during negotiations of the International Monetary Fund. See Wheeler-Bennett, op. cit., p. 27. For an excellent summary of the objectives of the various governments at this time, see Stephen V. O. Clarke, Central Bank Cooperation 1924–31 (New York: Federal Reserve Bank of New York, 1967), pp. 183–5.Google Scholar
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    Statutes, Article 26. At Baden-Baden, the French delegate proposed the introduction of a new international unit, the grammor, which would be based on one gram of gold, but, like the proposals in the forties for the Unitas, the Bancor, etc., this suggestion was not adopted. The Swiss franc was chosen as the Bank’s unit of account.Google Scholar
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    There was not only the risk of adverse exchange rate movements within the gold points, but the greater risk of the devaluation of a currency in which the Bank held a ‘long’ position. Fortunately for the Bank, it was ‘short’ in sterling when the U.K. abandoned gold in September, 1931. The B.I.S. assumed no exchange risk as Trustee for the European Payments Union during the 1950s. At a specified moment, it cleared claims in currencies all of which bore a fixed official relation to the dollar. It did not hold any of these claims in its own name.Google Scholar
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© Robert W. Oliver 1996

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