Foreign Exchange and Gold Policies

T HE foreign trade of United States during last two decades, and particularly since 1931, has been carried on in midst of unprecedented alterations in international monetary situation and even in concepts concerning it. These changes cannot be recited, much less explored, here,1 but a few of high lights may be briefly recalled. According to classical theory, gold was the balancing agent in maintaining international economic equilibrium, and this theory provided fundamental justification of international gold standard. Later writers suggested that equilibrium would be maintained in absence of gold flows, through impact of commodity flows upon price structures, or even through shifts in international demand. Other students of money have gone further, and have looked upon rigid gold standard as at best providing international stability at expense of national economic autonomy. They have therefore condemned it as one which permits international transmission of economic shock, and have argued for flexible exchanges, managed by means of stabilization operations.2 Meanwhile, observers have spoken of progressive demonetization of gold in recent monetary history, and while this process is

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