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Hayek on the gold standard

Hayek on the gold standard

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Published by Brooks Bayne
hayek's 1935 economist piece recommending an international gold standard
hayek's 1935 economist piece recommending an international gold standard

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Published by: Brooks Bayne on May 11, 2011
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05/11/2011

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May11~193~
--------------------------~------------------------------
THEECONOMIST
1077
:rvfOl'~EY
ANDBANKING
A
i{EGlJLATED
GOLD
STANDARD
,J?i;;;;;-:'J,~::'
at
the
=r=.oj
~heintern~ti(},!almone~a1J'.sysi~m
vi
the[utureisincreasingin'Volume
J1l
allcounsnes.
The[oliowing
IS
acontributiontothisdISCUSSIOnbyProjessorF.A.vonHaycb,
of
;],::;LondonSchoolat
Economics:
1s
ProjessorHayekpointsout,thegoldstandard
is
subjectto
iwo
defects-thefirstapplymgtoallinternationalstandards,namelytheu1Jwillingnessojindividual c01!ntries
tC!J
adjusttheirnationaleconomiesto
a1!
internationalstandard;thesecondinherentingold, '1!amely,
iht:
pe.riodicmaladjustmentsbetweenthedemandforandthesu.ppZ·yotgold.Professor Hayek's
St{~gestior;
wp!t!dbeaningeniousdevicetorassistingtoOVerCfl'H~~hesecond
diffict!!t:-·.'Bui
!fIe
cannot!:ig~ee
!£Jl!h
Projessor
li:zye.~
hai
theproblemofnational
ad.jfdti'!titll
is
thesame
ishether
there
isa
goldsund-ard.with
rigid
paritiesor
not.
Adjustmenttheremust
be;
but
.ihe
rigidity
01mode
nationaleosnomiesaresuchthattheyneithercannorwillbebroughtintolinewitheach
aihr:«
solelv
by
;#tUt.atitdj~~~tTn[;n£:;.inou,opiniun,anyproposal[oraninternationalmonetarysystemwhich
i
s=r=
tlzi::
tact
is
ofdOflbttu,~l,},p:r::.a:c.:::tl:'c:at~
..':'2::u:i:':.tt~':.:.......__-::-_:--:---:-~-:---;:-:-:--
IT
isstillimpossibletopredictwhenconditionswillmake.Thesecondcounrisagainstthechoice
of-gold
asthe.i~t~r- asolutionofintemationalcurrencyproblemsappearnationalstandard.anditisquitestrong.Thepossibility practicable,Thisdaesnotmeanthatitistooearlytoaskofanabsolutescarcityof-gold,whichonlyafewyearsago whatsortofsystemwereallywant,andwecanbegintowassowidelycanvassed,doesnotseema~-greatnow.a~ surveythepracticalpossibilitiesofapermanentreorganisa-wasthencornmomyassumed.Butthere
IS
undou~tcdl)-
!iUD,
eveniftheadiualdecisionshouldonlyhavetobedangerofgravedisturbancesarisingoutofcha~gesinthe madeatafairlydistantdatc.,demandforgold.. Thecaseagainstililregoldstandard,inthefonninwhichThereis,however.nopracticalalternativetothegeld thatcaseisnowmustpopular,isbasedontwoseparatestandard.Nootherstandardhastheslightestchanceof counts.Oneisdirectednotagainstgoldinparticular,generalagreementorevenofsupportfromallthegreat .butagainstanykindofinternationalstandard.Itishopedcountries.Even
if
aninternationalagreementonsome toprotect.theeconnmicsystemofanycountryagainstallmorescientificstandardcouldbearrivedat,therewould disturbancesoriginal!mgabroad,bycuttingloosetherigidbelittlehopethatitwouldlast.Itismostunlikelythat connectionbetweenthenationalcurrencyandthoseofindifficulttimesindividualcountrieswouldmakeserious othercountrieswh>rhafixedparityprvides.Itwouldeffortstopreserveaninternationalstandardunlessthese makelittledifference-whetherthiswasdonebyremainingeffortsalsopermittedthemaintenanceofanationalmone- onanindependentFlperstandard,orbyostensiblyadopt-taryreserve,whichwouldbeofuseeven
if
theinter-
ir.g
agoldstandard;;rutwithaprovisoforvariableparities.nationalagreementsbrokedown.Ifaninternational orwidegoldpointswithinwhichconsiderablefluctuationsstandardiswanted,thegoldstandard,inspite
01
itswillbepossible,orbyanysimilardevice.Inalltheseundeniabledefects,istheonlypracticalchoice.Thereal casesno·commoninternationalstandard'wouldreallyproblemis,therefore,howthegoldstandardcanbemade exist..subjecttosomekindofinternational
C;';I;h";::;;
whichwouid Thispartoftheanti-goldargumentmust,Ithink,beremedyitsmoreseriousdefects.Theimmediatepractical unreservedlyrejectedasequallywrongontheoreticalasproblems'willariseoutofchangesinthe
dt:iu<!.!.!ll
Iorgold, onpracticalgrounds,Itisadelusiontobelievethata...hichwillbetheconsequenceofthe
l"t::,;L(ua";vu
ufa.
golu
countrycanreallyavoidthenecessityofadaptingitselfstandard. tochanginginternationalconditionsby.simplychangingItisimpossibletoprophesyatwhatvaluegoldwould theexternalvalue
Eil:
itscurrency.Theadjustmentsmaysettledownaftertherestorationofaninternationalzold takeplacebyasonewhatdifferentroute,andinsomestandardifthebuildingupofnewgoldreserves~ere casestheburden
01
thereadjustmentmaybeshiftedtosimplylefttocompetition.Theproblemofcorrectingthe anothercountry.Thereis,however,strongreasontoinitialmaldistributionofgoldandofadaptinglaterthe expectthatsuchasystemwillsetupveryconsiderablesupplyoftheinternationalmediumtochangesindemand newdisturbances
hE"
intensifyingtheerraticmovementswillhavetobesolvedifthegoldstandardistobecome<in ofshort-termfunds.And,evenmoreserious,thelatitudeanchortowhichindividualnationscansafelyentrustthe whichsuchasystem.allowstothedecisionofthenationalfateoftheirmonetarysystems.Thereare,however, currencyauthoritieswouldundoubtedlybeabusedinsomeseriousobstacleswhichmakeitdifficulttoobtain
wat
kindinstancestosnatchatemporaryadvantagefromthe"otherofinternationalcontrolofgoldsupplieswhichisneeded. countriesbydeprecatingthenationalcurrencytoanun-Nonationislikelytogiveupitscontrolofwhatevergold justifiedextent.
ABd
whocouldsayintheconcretecaseitpossesses.Thateverynationwillalwaysregardits whether~hanactIiIfpolicywas"justified"ornot?goldstockasanultimatereserveagainstanemergency, Sincewe'can~GIrreallyevadeinthiswaytheeffects
or
beitawarorthebreakdownoftheinternationalagree- therealchanges
ID.
~eunderlyingconditions,ortheeffectsment,isafactwhichmustbeaccepted.The.ideaofa ofthe,errorsandmistakesinthemonetarypolicyofotherdeliberateredistributionofgoldreserves,orofthe countries,theonlyhopeliesinthecreationofaninter-centralisationofapartorallofthegoldwithaninter- nationalsystemiiihichwillminimisethe
causes
ofsuchnationalauthoritywhichwouldissue
ss
geldnotes"externaldisturbances.Themainrequirementofanewagainstit,andallsimilarproposalsmustin'generalbe ~ys~e:nisthatit.shou.ldensurethatthepoliciesoftheregardedasutterlyimpracticable.'... individualcountrieswillmove.instep.'Theproblemis'Fortunatelythereseemstobeamethodavailablewhich tofindsomekind!ofinternationalstandardwhichwillispracticableandwouldmakepossibleeffectiveinter- .effectivelydoth:iF:anda~thesametimegivescopefornationalcontroloftotalreserveswithoutanyradicaldepar- suchadegreeo.f:mtemahonalcontrolaswillallaylegiti-turefromfamiliarpractices,Itistheregulationof'the mateapprehensions.Isthegoldstandardinanyof-itsextenttowhichgoldexchange(immediatelyrealisable formsapossiblesolution?claimsonothergoldstandardcurrencies)shallbeusedasa substituteforgoldinthereservesofcentralbanks.
I

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