The Gold-exchange Standard: An Object of Astonishment and Scandal

"[The gold-exchange standard] was the outcome of an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal." -- Rueff

In The Monetary Sin of the West (The Macmillan Company, 1972, 1971, pp. 23-24), Jacques Rueff addressed the "original sin" that stands behind the monetary disorders of his, and our, era. He begins, prophetically, in words written shortly before President Nixon ended, rather than mended, the disordered remnants of gold convertibility:

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"The problem of Western currency is more topical than ever. For ten years now, the international monetary system has been patched up by many expedients that were intended to extend its assured life. It cannot endure very long in the present state."

Rueff forcefully addresses, on pages 23 - 24, the nature of the original sin that caused the world's expulsion from the monetary relative Eden that was the classical gold standard:

[T]he gold-exchange standard brought about an immense revolution and produced the secret of a deficit without tears. It allowed the countries in possession of a currency benefiting from international prestige to give without taking, to lend without borrowing, and to acquire without paying.


The discovery of this secret profoundly modified the psychology of nations. It allowed countries lucky enough to have a boomerang currency to disregard the internal consequences that would have resulted from a balance-of-payments deficit under the gold standard.


The gold-exchange standard thus brought about conditions propitious to the major change that the donation policy has introduced into international tradition. Leaving to the donor country the joy of giving and to the beneficiary the joy of receiving, it had only one consequence: the monetary situation which President Kennedy outlined, and whose effects we now have to describe.


In attempting to describe those consequences I shall certainly not lose sight of the fact that the U.S. balance-of-payments deficits over the past decade have been outweighed by the grants and loans they accorded with unprecedented generosity to nations that experienced a foreign exchange shortage after the war.


But the method of giving is no less important than the object of the gift itself, in particular when it is likely seriously to affect stability and the very existence of the receiving and donor countries alike.
In addition, the situation I am going to analyze was neither brought about nor specifically wanted by the United States. It was the outcome of an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal.

Rueff's prologue concludes:

The art of monetary expedients has been refined to such a point over the last ten years that no one can predict what artificial devices can be generated by the fertile minds of experts. One thing is certain, however: while additional innovations may stave off the gradual deterioration of the system for a while, they cannot change the outcome. As far as prognostication is concerned, events can never be wrong. But unfortunately, events have already passed judgment.


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In Memoriam
Professor Jacques Rueff
(1896-1978)

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