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The Gold Standard Illusion: France, the Bank of France, and the International Gold Standard.

1914-1939, by Kenneth Moure. Oxford, Oxford University Press, 2002. xiv, 297 pp. $72.00 US (cloth).

"The gold standard" is one of those expressions that combine fact, hope and wishful thinking. Like "free market," "free trade" or "free entreprise," it refers to mechanisms and practices that give it the aura of a principle or scientific law. They all have a normative ring to them, implying a host of assumptions and apparently self-evident policy implications. Above all, they confer legitimacy to empirical experience or to a desired course of action. Moreover, "the gold standard" calls forth images of stable and self-regulating economies, known and accepted rules of behaviour, and an orderly world. It is difficult not to wax nostalgic when gold is counterpoised to inflation, currency depreciation, exchange-rate uncertainty and chronic balance-of-payments shortfalls.

Acutely aware of the power of the mythos, Kenneth Moure probes into the gold standard, revealing its underpinnings and exposing its illusory character as well as its real consequences. Informed by the debate on the origins of the Depression, his study takes as its point of departure "the new orthodoxy" exemplified by the work of Barry Eichengreen, Clark Johnson and others which points to the gold standard as having played a key role in the onset, extent, severity and duration of the world-wide slump. Protecting gold reserves and gold parity of national currencies led to tighter monetary and fiscal policies, then deflation. The gold standard transmitted uniform monetary policies and attendant economic slowdowns from the national to the international sphere. France is singled out and taken to task for its passion for hoarding gold. Much of the responsibility for the Depression is laid at its door by the prevailing orthodoxy.

Moure sets out to test this proposition on the basis of Bank of France records, specialized articles in contemporary journals and scholarly monographs and articles. His mastery of the literature on the gold standard, the Bank of France and French monetary history is impressive. The book is packed with information. More often than not ending in footnotes, sentences convey the essence of much research and thinking. Although the uninitiated may find the minutiae of monetary policy, the intricate analysis of currency stabilization and the technicalities of central banking somewhat taxing, knowledgeable readers will appreciate Moure's painstaking efforts to construct his study on the firmest possible ground. This, after all, is monetary history and the author deserves praise for having made it understandable.

The author wastes no time in making available the outcome of his research. On page two of the introduction, he expresses qualified agreement with the gold standard interpretation of the Depression. Gold standard "belief and logic" played a determining role in the deflationary impulse that brought on the Depression. But there was neither a gold standard "regime" nor were there "rules of the [gold standard] game," only rigid conceptions of economic orthodoxy. The gold standard was but one part of contemporary economic belief. Policies inspired by faith in a mythical gold standard led to depression and gave rise to the misconception that the gold standard dictated a course of action favouring contraction in the midst of a slowdown. Hence the "illusion" and the central thesis of the book. Decision-makers and public opinion in the interwar period yearned for stability and an end to war-induced disruption. Endeavouring to "return" to a model that never existed, they acted accordingly and succeeded only in deepening the crisis.

This is a subtle argument, requiring an examination of the gold standard itself to sustain it. The first chapter is, therefore, devoted to the pre-1914 era, the heyday of the "classical" gold standard. It serves as a reminder that the much-vaunted system, a product of historical circumstances, was cobbled together on an ad hoe basis. Not only was it an "accidental gold standard," but it retarded the emergence of modern central banking. The rest of the book is a carefully-crafted demonstration of the argument as it applied to France and particularly the Bank of France, the prime guardian and proponent of gold standard creed and rhetoric. In the 1920s, the latter was intent on promoting deflationary policies and reducing note circulation. Its proposal for fighting runaway inflation was the reduction of the money supply through repayment by the state of wartime advances granted by the Bank, a solution it pressed vigorously on government officials. Although Directors of the Treasury were more concerned with the need to address recurring budgets deficits and the huge floating debt, which they viewed as the cause of the fall of the franc, the Bank of France usually got its way with state authorities, including the Cartel des Gauches, mainly because its basic tenets were willy-nilly shared by all policy-makers. Ending the cours force imposed in 1914, France went back to convertibility with the (devalued) Poincare franc in 1928. By 1931, with Britain and the U.S. off gold, France stood as the bastion of the gold standard, such it was conceived to be. Its currency stood overvalued and its prices became uncompetitive due to currency depreciation abroad. Devaluation of the franc in 1936 was but a prelude to the demise of the gold standard in the midst of mounting economic woes. Shoring up domestic output, protecting employment and achieving recovery took precedence over fighting inflation, defending exchange-rate parities or preserving the gold value of the currency.

With the gold standard understood as only a part of a nexus of interrelated policies and a convenient expression for describing them, rather than as their source, research can concentrate on the roots of those policies.

Samir Saul

Universite de Montreal
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Author:Saul, Samir
Publication:Canadian Journal of History
Article Type:Book Review
Date:Aug 1, 2003
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