Keynes and the international monetary system: Time for a tabular standard?

Abstract

This paper discusses proposals for tabular standards in the late nineteenth and early twentieth centuries. In particular, we focus on Keynes’ proposal for an international tabular standard (ITS) as the gold standard unravelled in the 1930s. The paper explains the origins of Keynes’ ITS proposal which pegged the value of an international reserve to a broad index of primary commodities, weighted in terms of their value in world production. We argue that the ITS should be viewed as an important and enduring component of Keynes’ ideal long-run vision for anchoring the international monetary system, even post-Bretton Woods.

Keywords:

• Tabular standard
• commodity standard
• John Maynard Keynes
• Bancor
• International Monetary Reform

JEL Codes:

• B31
• E6
• E5
• F33
• and F5

Acknowledgments

We thank session participants at the ESHET Rome conference 2015, in particular our discussant Maria Cristina Marcuzzo. We are also grateful to Marie Cristine Duggan and two anonymous referees for helpful and detailed comments. All errors are the responsibility of the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ In addition, capital movements were to be reduced by widening the gold points and central bank operations in the forward exchange markets to help them peg exchange rates.

² In this paper, for convenience of reading, we reference all Keynes citations in the Collected Writings of John Maynard Keynes as CW with the volume in roman numerals.

³ Meltzer (1988, p. 239) does not consider Keynes’ CCs or Bancor to be critical to Keynes’ 1941 ICU proposal, while we see all three as important components of an ideal SCB plus ITS vision.

⁴ The earliest policy to remedy this problem was by Walras in 1886 (cited in Hawtrey 1962, p. 191). Under the limping gold standard, Walras suggested that if a fall in prices was threatened by a scarcity of gold currency, then the authorities should increase the volume of silver coins (or silver notes) to supplement gold.

⁵ This is known in modern-day terms as the ‘Triffin paradox’ (Eichengreen and Flandreau 2014).

⁶ Great Britain was on floating exchange rates from 1914 to 1925. Britain returned to the Gold Standard at overvalued pre-war rates from 1925 to 1931. With sterling overvalued relative to the rest of the world, Great Britain suffered deflation and a decade of low growth. It was forced off gold in September 1931 and Sterling devalued.

⁷ France's share of gold reserves soared from 7% to 27% between 1926 and 1932. In 1932, the United States and France together had over 60% of the world's gold between them.

⁸ This view had changed from the Tract where convergence to the purchasing power equilibrium between countries at least over the long run was assumed.

⁹ This might be seen as a forerunner to the Prebish–Singer hypothesis, and in contrast to most thinking at that time.

¹⁰ Keynes would argue that it was ‘truer to say that gold went off sterling than that sterling went off gold’ due to the antics of gold volatility (Keynes 1932a, CW XXI, p. 77).

¹¹ Australia devalued one month earlier than Britain in August 1931. Imperial Preference was also in response to the US 1930 Smoot–Hawley Tariffs Act.

¹² Keynes attributes the quota system plan to one originally devised by Hubert Henderson, an economics advisor to the UK government and one of Keynes’ former collaborators. Henderson had proposed to increase international reserves by extending advances from the BIS to governments or central banks to enable them to repay external debts and support domestic expansionary policy.

¹³ Quoted by an American observer at the London Economic Conference (Cox 1946, cited in Kindleberger 1986, p. 31).

¹⁴ It was on 6 January 1942 that Keynes wrote to Harrod that he had dug out his 1938 article in the area but had not gone further (Keynes 2013d, CW XXVII, p. 105). By 9 January, Harrod was already providing feedback to Keynes on both the ICU and the CCs (Harrod 1942). It was not until 20 January that a first draft of Keynes’ commodity policies was in circulation in the UK Treasury (Keynes 2013d, CW XXVII, p. 105).

Additional information

Funding

This research was supported by the Integrated Project called DOLFINS:  Distributed Global Financial Systems for Society. This project has received funding from the European Union's Horizon 2020 research and innovation programme [grant agreement number 640772].