Proposals for International Economic Co-operation, 1919–1933

  • Robert W. Oliver


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.


Central Bank Gold Deposit International Central International Reserve Internal Currency 
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  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
  2. 2.
    For an excellent summary of the policy consequences in the early depression years of incorrect economic theory, see Pierre Mendès France and Gabriel Ardant, Economics in Action, a UNESCO Publication (New York: Columbia University Press, 1955).Google Scholar
  3. 3.
    Benjamin M. Anderson, Jr., ‘European Financial Situation and Possible Remedies,’ American Economic Review, XIII (March, 1923), pp. 66–7.Google Scholar
  4. 4.
    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
  5. 5.
    See ‘Paper No. XII. Solutions Proposed: A Summary of Schemes For Remedying Present Financial Difficulties,’ International Financial Conference (London: printed for the League of Nations by Harrison & Sons Ltd., 1920); and G. Vissering, International Economic and Financial Problems (London: Macmillan & Co., Ltd., 1920), pp. 38–48.Google Scholar
  6. 6.
    Ibid., p. 3.Google Scholar
  7. 7.
    ‘The capital of the Institute, to be paid by the affiliated States, would be composed of gold. This holding of metal would remain as a deposit at the Institute, and could not serve as a security for credit. It would be in a sense the guarantee fund …,’ M. Delacroix, ‘Twelfth Public Session, Friday, 1st October, 1920,’ League of Nations, International Financial Conference, Brussels, 1920, Proceedings of the Conference (3 vols.; Brussels: printed for the League of Nations by Th. Dewarichet, 1920), p. 12.Google Scholar
  8. 8.
    The average dollar price of the Belgian franc during October, 1920, was 6.90 cents. The average price during the whole of 1920 was 7.38 cents. During 1913 it was 19.17 cents. Board of Governors of the Federal Reserve System, Banking and Monetary Statistics (Washington: Board of Governors of the Federal Reserve System, 1943), p. 663. At 7 cents to the franc, the dollar price of each share in the International Bank would have been $70,000. Presumably, however, M. Delacroix had in mind the pre-war gold franc. If so, the dollar value of each share would have been just over $190,000.Google Scholar
  9. 9.
    ‘Paper No. XII,’ loc. cit., p. 7. The rather considerable powers of this proposed Bank may give the impression that M. Delacroix was thinking in terms of a world central bank. Such was not the case. The Bank was to have a specified life — presumably, the period of postwar reconstruction. The printed statement of the Bank’s objectives and M. Delacroix’s own discussion at the Brussels Conference indicate that this organization was designed solely to facilitate the temporary provision of international credits.Google Scholar
  10. 10.
    Ibid., p. 4.Google Scholar
  11. 11.
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  13. 13.
    ‘Twelfth Public Session, Friday, 1st October, 1920,’ loc. cit., p. 5.Google Scholar
  14. 14.
    ‘Paper No. XII,’ loc. cit., p. 5.Google Scholar
  15. 15.
    M. Delacroix did not make it clear whether or not the gold bonds of the Bank would have specific maturity dates. The suggestion that they might be discounted indicates that he might have been thinking of bonds with specific maturity dates. So does the phrase that the securities would consist ‘of rights over … any produce … which [would] allow the bonds to be redeemed at a not too distant date.’ But M. Delacroix also suggested that these bonds would have circulated (in the manner of currency?) and spoke of the Bank as a ‘Clearing House.’ Perhaps M. Delacroix expected such details to be worked out later. It does appear unmistakable that he was thinking in terms of short-term credit provided by private banks in the exporting nations, guaranteed internationally, and secured by the income-yielding assets of the borrowing nations.Google Scholar
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    Ibid., p. 4.Google Scholar
  17. 17.
    ‘Twelfth Public Session, Friday, 1st October, 1920,’ loc. cit., p. 111.Google Scholar
  18. 18.
    C. E. ter Meulen, ‘Fourteenth Public Session, Saturday, 2 October, 1920,’ Proceedings of the Conference, vol. II, p. 116.Google Scholar
  19. 19.
    Ibid., p. 119: If the importer did not fulfill his obligations towards the exporter, the bonds held as collateral should be offered in the first instance to the importer’s Government by the exporter, against payment of any sums outstanding under the credit, plus accrued interest. If the Government did not redeem the credit within, say, a fortnight, the exporter should be at liberty to sell out the collateral. Bonds which as a result of a default on the part of the importer had been sold out, and in consequence had gone into circulation, should be drawn by lot for reimbursement at par, as soon as funds became available; and funds for this purpose would be provided from any surplus yield of revenue pledged for the bonds, over and above what was needed for coupon payment and sinking fund. Considerable sums should remain available for this purpose, considering that very little money only is likely to be needed for payment of coupons. A sinking fund sufficient to take up at maturity ten per cent of the bonds which at any time may be outstanding should be considered sufficient.Google Scholar
  20. 20.
    See ‘Resolutions Proposed by the Commission in International Credits and Adopted Unanimously by the Conference,’ Proceedings of the Conference, vol. I, pp. 24–9.Google Scholar
  21. 21.
    A permanent Economic and Financial Committee was not established by the League of Nations until 1923.Google Scholar
  22. 22.
    ‘Annex Ic. International Credits Scheme. Report of the Provisional Economic and Financial Committee,’ League of Nations — Official Journal, 2 (January–February, 1921), pp. 46–8.Google Scholar
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    Ibid., p. 48.Google Scholar
  24. 24.
    See ‘The Ter Meulen Organizer,’ Bankers’ Magazine, CX (April, 1921), pp. 523–6.Google Scholar
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    See, e.g., ‘The Ter Meulen Credit Scheme,’ Monthly Circular — Bank of Liverpool & Martins Limited, 2 (January 12, 1921), p. 2Google Scholar
  26. 26.
    See ‘Some Fundamental Factors: Political, Economic and Social,’ Bankers’ Magazine, CXI (March, 1921), p. 307. See also ‘Review of the Month,’ Federal Reserve Bulletin, 8 (February, 1922), p. 125.Google Scholar
  27. 27.
    During 1921, the United States Congress amended the Edge Act and the War Finance Corporation Act in order to assist the financing of American exports. See Federal Reserve Bulletin, 7 (December, 1921), pp. 1378–1380.Google Scholar
  28. 28.
    League of Nations, International Credits (London: Harrison & Sons, Ltd., 1921).Google Scholar
  29. 29.
    See, e.g., his address before the American Bankers Association in Los Angeles in October, 1921: Sir Drummond Drummond Fraser, ‘The Ter Meulen Bond Scheme,’ Bankers’ Magazine, CXIII (January, 1922), pp. 109–26.Google Scholar
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    ‘Report of the Financial Committee on the Financial Restoration of Austria,’ League of Nations — Official Journal, 2 (July–August, 1921), p. 515. See also Sir Drummond Drummond Fraser, op. cit.Google Scholar
  31. 31.
    See The Times (London), September 5, 1921, p. 8.Google Scholar
  32. 32.
    The ter Meulen bonds were to be issued only in connection with specific shipments. It was never contemplated that there should be a general bond issue which might be sold on the open market.Google Scholar
  33. 33.
    Federal Reserve Bulletin, 7 (March, 1921), p. 265. See also the Federal Reserve Bulletin, 7 (December, 1921), pp. 1378–80; Richard N. Owens, ‘The Hundred Million Dollar Foreign-Trade Financing Corporation,’ Journal of Political Economy, XXX (June, 1922), pp. 346–62; and Sidney Brooks, America and Germany, 1918–1925 (New York: The Macmillan Company, 1925), p. 136. The basic idea of the Edge Act was to provide the authorization of the Federal government for the establishment of private corporations which might obtain funds through the public sale of stocks and bonds and then lend these funds to American exporters in connection with actual shipments of goods. Some attempts were made to establish ‘Edge Act Corporations,’ but the private promoters were unable to arouse sufficient public interest. It may be noted that the concept of an organization which might provide intermediate credit for the financing of American foreign trade was revived in 1934 with the establishment of the Export-Import Bank. But, in the case of the Export-Import Bank, it was the government which provided the capital.CrossRefGoogle Scholar
  34. 34.
    See, e.g., Bankers’ Magazine, CXI (February, 1921), pp. 175–6; cf. The Economist, XCIII (October 29, 1921), pp. 752–3.Google Scholar
  35. 35.
    Bankers’ Magazine, CXII (December, 1921), p. 688.Google Scholar
  36. 36.
    Federal Reserve Bulletin, 7 (December, 1921), p. 1380.Google Scholar
  37. 37.
    See Frank A. Vanderlip, What Next in Europe? (New York: Harcourt, Brace and Company, 1922), pp. 242–53. In 1920, Mr. Vanderlip had been interested in a plan for an international loan. His plan for a Gold Reserve Bank was drafted for and presented to the Conference at Porta Rosa, Italy, of the Succession States of the old Hapsburg Empire. He was also asked to describe his plan at the Genoa Conference. See the New York Times, April 13, 1922, p. 2. But nothing came of his proposal either at Genoa or later.Google Scholar
  38. 38.
    Vanderlip, What Next in Europe?, pp. 245–6.Google Scholar
  39. 39.
  40. 40.
    Ibid., p. 248.Google Scholar
  41. 41.
    See ‘Mr. A. H. Gibson’s Credit Scheme,’ Bankers’ Magazine, CXI (April, 1921), p. 508.Google Scholar
  42. 42.
    See A. H. Gibson, ‘Proposal for Establishment of International Note-Issuing Bank,’ Bankers’ Magazine, CXII (October, 1921), pp. 487–96. Cf. also The Times (London), September 13, 1921, p. 14.Google Scholar
  43. 43.
    Gibson, op. cit., p. 489.Google Scholar
  44. 44.
    Ibid., p. 490.Google Scholar
  45. 45.
  46. 46.
    Ibid., p. 491.Google Scholar
  47. 47.
    Ibid., p. 493. Gibson added a comment which was remarkably modern: At all times the rate of interest charged by banks for loans determines whether it is worthwhile or not for customers to make applications for further accommodation. If the rate of interest be raised high enough, prices fall and also ultimately the outstanding amount of bank advances. A banker obviously cannot cause inflation unless customers request further increases of book-entry credits, but a banker, by giving successive turns to the interest screw, can cause speculators and traders to place stocks on the markets, and hence bring about a fall in prices.Google Scholar
  48. 48.
    Ibid., p. 490.Google Scholar
  49. 49.
    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
  50. 50.
    Ibid., pp. 491–2.Google Scholar
  51. 51.
    See R. G. Hawtrey, Currency and Credit (London: Longmans, Green and Co., 1919). See also R. G. Hawtrey, Monetary Reconstruction (London: Longmans, Green and Co., 1922). For a summary of Hawtrey’s theory including his later amendments thereto, see Gottfried Haberler, Prosperity and Depression, 3rd ed. (Geneva: League of Nations, 1941), pp. 15–28.Google Scholar
  52. 52.
    ‘An International Note Bank,’ Bankers’ Magazine, CXII (October, 1921), p. 434.Google Scholar
  53. 53.
    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
  54. 54.
    For a complete history of this plan, see Hans Heymann, Plan for Permanent Peace (New York: Harper & Brothers, 1941).Google Scholar
  55. 55.
    Ibid., pp. 278–9.Google Scholar
  56. 56.
    Ibid., p. 300.Google Scholar
  57. 57.
  58. 58.
    Ibid., p. 282.Google Scholar
  59. 59.
    Dr. Heymann did not discuss the organization and administration of his Bank.Google Scholar
  60. 60.
    Heymann, op. cit., p. 286.Google Scholar
  61. 61.
    Ibid., p. 287.Google Scholar
  62. 62.
    It may be significant that there were a number of adherents, apparently including Dr. Heymann, of the ‘banking school,’ some of them in high places, in Germany during the period of hyper-inflation. See League of Nations, The Course and Control of Inflation (Geneva, 1946), p. 16.Google Scholar
  63. 63.
    Ibid., p. 288.Google Scholar
  64. 64.
    John Maynard Keynes, A Treatise on Money (2 vols.; New York: Harcourt, Brace and Company, 1930). See also R. F. Harrod, The Life of John Maynard Keynes (New York: Harcourt, Brace and Company, 1951), p. 413: ‘The Treatise is capped by a proposal for a Super-national Central Bank. This is somewhat more ambitious than the institution which he succeeded in getting approved at Bretton Woods fourteen years later.’Google Scholar
  65. 65.
    Keynes, A Treatise on Money, p. 388.Google Scholar
  66. 66.
    Ibid., pp. 395 ff.Google Scholar
  67. 67.
    Ibid., pp. 399 ff.Google Scholar
  68. 68.
    Ibid., p. 405.Google Scholar
  69. 69.
    See Harrod, op. cit., pp. 567–8. See also Randall Hinshaw, ‘Keynesian Commercial Policy,’ Seymour E. Harris (ed.), The New Economics (New York: Alfred A. Knopf, 1948), pp. 315–22.Google Scholar
  70. 70.
    For a more complete discussion of the origins and the development of the Bank for International Settlements, see Eleanor Lansing Dulles, The Bank for International Settlements at Work (New York: The Macmillan Company, 1932). See also Bank for International Settlements — Documents (Chicago: The First National Bank of Chicago and First Union Trust and Savings Bank, 1930); Bank for International Settlements, Annual Reports; Giuseppe Ugo Papi, The First Twenty Years of the Bank for International Settlements (Rome: Associazione Bancaria Italiana, 1951); J. W. Beyen, Money in a Maelstrom (New York: The Macmillan Company, 1949), pp. 127–40; and Roger Auboin, ‘The Bank for International Settlements, 1930–1955,’ Essays in International Finance, No. 22 (May, 1955) (International Finance Section, Department of Economics and Sociology, Princeton University, 1955). See also the extensive bibliography in Papi, op. cit., pp. 155–270.Google Scholar
  71. 71.
    The total reparations bill had not been settled, and the mechanism of payment had been regarded as open to further negotiation.Google Scholar
  72. 72.
    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
  73. 73.
    The Young Plan, Committee of Experts, Report, paragraph 74.Google Scholar
  74. 74.
  75. 75.
    Statutes, Article 25.Google Scholar
  76. 76.
    Concerning the importance of this function in the multiple expansion of Eurodollars, see Fritz Machlup, ‘World Inflation: Factual Background,’ Randall Hinshaw (ed.), Inflation as a Global Problem (Baltimore: The Johns Hopkins University Press, 1972), pp. 26–38.Google Scholar
  77. 77.
    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
  78. 78.
    The Young Plan, Committee of Experts, Report, paragraph 43. This paragraph may have been included as a concession to Dr. Schacht who had proposed an ambitious plan for an international lending institution similar to the Heymann Plan.Google Scholar
  79. 79.
    During 1931, the B.I.S. made several investments in Germany which, though nominally short-term, could not be entirely liquidated for over a year. An emergency loan made to the National Bank of Hungary at about the same time was not repaid in full until 1946. See Auboin, op. cit., pp. 10–11. But these loans were not intended as long-term loans.Google Scholar
  80. 80.
    Dulles, op. cit., p. 14.Google Scholar
  81. 81.
    For this reason, Keynes argued that the spread between the gold points should be increased rather than decreased. See John Maynard Keynes, A Tract on Monetary Reform (New York: Harcourt, Brace and Company, 1924), pp. 167 ff. For a summary of Keynes’ views, see Arthur I. Bloomfield, ‘Foreign Exchange Rate Theory and Policy,’ Seymour E. Harris (ed.), The New Economics (New York: Alfred A. Knopf, 1948), pp. 293–314. The debate over wider or narrower fluctuations of currencies about a fixed value continues to this day. See, e.g., James C. Ingram, ‘The Case for European Monetary Integration,’ Essays in International Finance, No. 98 (April, 1973) (International Finance Section, Department of Economics, Princeton University).Google Scholar
  82. 82.
    See Dulles, op. cit., pp. 278–89.Google Scholar
  83. 83.
    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
  84. 84.
    For a detailed statement of the emergency credits of 1931, see Dulles, op. cit., pp. 405–10. See also Clarke, op. cit., pp. 182–218.Google Scholar
  85. 85.
    Even though the member central banks were not all willing to maintain gold deposits, it is possible that the Bank might have avoided risk by hedging operations. But the futures market was not developed in all currencies; was operated by private, rather than central banks; and was, in any event, viewed with some suspicion in 1931. See Dulles, op. cit., pp. 147–9. Another alternative which was discussed in 1931 was the use of the ‘gold clause’ in accordance with which each member central bank would agree to maintain the gold value of the Bank’s holdings of its particular currency regardless of exchange rate movements. Such an arrangement has been agreed to by member governments on the one hand, and both the International Monetary Fund and the International Bank for Reconstruction and Development on the other.Google Scholar
  86. 86.
    Clarke, op. cit., p. 144.Google Scholar
  87. 87.
    Ibid., p. 179.Google Scholar
  88. 88.
    Quoted in ibid., p. 179.Google Scholar

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© Robert W. Oliver 1996

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