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Charles Rist (1874-1955) was a deputy governor of the Bank of France,
and said to be the one who reported Benjamin Strong's "coup de whiskey"
comment made at the conference of central bankers in 1927. Here's a
brief bio:
Born in Lausanne, Switzerland and
studied law at Paris, Charles Rist was a close collaborator of Charles
Gide, whom he eventually succeeded in the chair at Montpellier in 1906
and editor of the Revue d'economie politique. Rist was an advisor
to the post-WWI socialist governments and served as a sub-governor in
the Banque de France and as an advisor to foreign central banks.
Rist's early economics was much influenced by the Lausanne
School. In the 1930s, he was vigorously opposed to the
Keynesian Revolution and did much to resist its advance into
France. He regarded the Great Depression as a mere result of
monetary disorders and argued strongly for a restoration of gold
convertibility.
His book D�fense de l'or
(1952) was translated as The Triumph
of Gold, in 1961. It is available here:
https://mises.org/library/triumph-gold
Related to my investigations of various ideas surrounding the Great
Depression, I've been exploring some of the ideas of writers from
before 1970 or so. I was rather surprised to find that the ideas in this book -- in
particular, its introduction by Philip Cortney, the translator of the
1961 English edition, and also apparently a friend of Rist -- seems to
have served as the model for the "Mundell-Johnson hypothesis" which we
looked at earlier:
November
13, 2016: Robert Mundell's Interpretation of the Interwar Period 2: the
"Mundell-Johnson hypothesis"
November
6, 2016: Robert Mundell's Interpretation of the Interwar Period
This is from the introduction by Cortney:
The reason why the 1929 depression was
so deep and prolonged remains a mystery to most people, instructed or
not. Essentially it was due to the fact that the governments of the
United States and of Great Britain failed to recognize that the huge
paper money inflation during World War I and the concomitant rise of
prices made impossible the maintenance of the pre-war relationship
between gold and paper currencies. Germany returned to the gold
standard in 1924 and Great Britain in 1925. Both tied their currencies
to the dollar at the pre-war value in terms of gold. Until 1924, no
central bank of any large European country was buying gold, with the
result that gold was accumulated in the United States, and the illusion
arose that dollar prices (due to paper money inflation during the war)
were gold prices.
Most British economists hold the view, expressed again recently by
Professor Triffin, that the severe fall in commodity prices after 1929
and particularly after 1931, was due to a “shortage of gold.” The fault
lay, according to Professor Rist, and I share his opinion, in
governments not recognizing the fact that inflated monetary means and
prices had made the international liquidity in gold inadequate, and had
hampered the expansion of production of gold, at the level of prices
inherited from the war. A readjustment of the price of gold in terms of
the dollar and the pound should have been made in 1924-25 to bring the
purchasing power of gold nearer what it would have been if the rise in
prices had been due to an increase in the production of gold and not to
monetized government debt. Such a readjustment would have put an end to
the presumed “shortage of gold. (pp. 7-8)
Mudell's comments in 1999 were almost a verbatim rendition of these
ideas.
Rist was among those, including his former co-worker Rueff, who
suggested that the dollar be devalued to $70/oz. -- a rather odd notion
for a "gold standard advocate." The idea seems to have revolved around
the notion that "prices" had risen considerably since the devaluation
of the dollar in 1933, and thus represented a radically "inflated"
state. They imagined that if a proper sort of gold standard system were
imposed, prices would have to fall back to 1933 or 1940 levels, a
decline of about 50%, with an accompanying severe recession. They
thought that the "gold markets" of the time, which were indeed heavily
influenced by government cooperation and excluded many in the developed
countries (including the U.S.) who could not own gold, were basically
fictional. Again Cortney:
If we decided to put an end to
inflation, the disequilibrium between the general price level and the
gold valuation of the world’s key currencies, at $35 an ounce, plus a
low production of gold (due to its relatively low price), while the
production of goods of all sorts is expanding, would exert a downward
pull on prices and bring about a recession or depression and
unemployment. (p. 9)
The price of gold will have to be
increased to a minimum of $70 and ounce if we are to avoid a fall in
prices and/or a recession or depression. (p.25)
I don't agree with this at all. There was some deviation of the dollar
from its gold parity, but it was not very large -- perhaps $38/oz.
compared to $35/oz. It seems to me that if the "gold price" was a
complete fiction, then central banks should not have had any trouble
maintaining their fictional "gold parities" at all, and all of the
difficulties of Bretton Woods surrounding the "balance of payments" and
the outflow of gold from the Federal Reserve should not have existed.
These ideas had a number of sources. They were heavily influenced by
various quantitative notions, assuming that the large increase in the
monetary base (of most countries) duing World War I or World War II
implied a comparable decline in currency value. This is not necessarily
the case at all. The idea that governments could return to a gold
standard at a prewar parity, with a monetary base perhaps double or
triple the size that it was before the war, bothered them intensely,
but doesn't bother me at all. For one thing, I think that monetary
demand tend to increase during a war and soon after, because, in a
perceived high-risk environment, people might like to hold currency
instead of bank deposits, and banks might like to hold large reserves
as a percentage of total assets. Then, after the war, as people grow
more confident of the stability of the economy and banking system, they
tend to reduce their demand for banknotes while banks reduce their
demand for reserves. The monetary base might be rather flat even while
nominal GDP and banks' balance sheets expand. This is what seemed to
happen both in the 1920s and the 1950s.
I've pointed out that the monetary base in the U.S. increased from
roughly $12 million in 1775 to $1,954 million in 1900, an increase of
163 times, all while the value of the dollar remained at its $20.67/oz.
parity (the parity was a little different before 1834). An expanding
economy generally tends to have an increasing need for money, which a
gold standard system automatically accommodates.
Second, various "price levels" do not necessarily indicate anything
regarding the value of gold, or currencies. Sometimes higher prices are
just ... higher prices, in a currency of stable value. During the 1950s
and 1960s, there seems to be a new form of confusion, because around
this time price indices which were based on commodity prices were
replaced by "consumer price indices" that included a broad range of
products. Also, as a country becomes wealthier, the things that
"consumers" spend their money on naturally migrate from commodity-like
things toward services and manufactured products, which have far less
price volatility. Even today, the CPI of a developing country like
Indonesia tends to be much more commodity-heavy, simply because the
average family spends more of its income on basic foodstuffs and fuel
than does a family in Germany or Japan. This makes the CPI more
volatile, and more reflective of commodity prices.
Within these more reent CPI constructs, there is a general tendency to
rise during times of economic expansion, independent of monetary
values. This basically reflects rising incomes, due to higher
productivity. When a CPI includes a lot of services, and the people who
provide those services are paid more, then the price of the service
tends to rise. Doctors and restaurants costs more in the U.S. than in
Chile, and more in Manhattan than in Buffalo. Construction costs and
land values, which translate into rents, also reflect incomes. At the
same time, the price of manufactured goods tends to decline; but, in
part as a consequence of this decline, people spend less of their
income on manufactured goods, which means that this factor has a
shrinking influence on the overall CPI.
To illustrate what I mean, let's look at the official CPI in both Japan
and the U.S., 1955-1970. Japan returned to a gold standard in 1949, and
maintained it until 1971. So, both the yen and the dollar were linked
to gold.
We can see a substantial divergence, particularly after 1960 when the
Japanese CPI soars. Now, if you assume that gold's value is identical
to its "purchasing power" i.e. the CPI, then are we to say that the
"value of gold" was different in Japan than it was in the U.S.?
Obviously not. Prices were different, that's all. Japan's higher growth
rate led to higher wages and a greater rise in prices.
From this, we can see that commodity prices vs. gold were definitely on
the high side after WWII, but comparable to where they were after WWI.
Actually, I would like to eventually look into this more closely. I
think Jastram used the BLS Wholesale Price Index here, which is not
necessarily reflective of raw commodity prices and might misrepresent
things. But, it gives a basic idea.
Here is a raw commodities index, the CRB Index. We can see that it was
basically dead flat during the 1950s and 1960s, with some turmoil
before 1953 caused by both variation in the dollar's value vs. gold
(red line), and also the turmoil of the time including the communist
revolution in China in 1949 and the Korean War in 1950-1953.
Now, from the commodities index, we see no apparent change in gold's
value at all during 1950-1970. But, the Japanese CPI nearly doubled. It
should be clear that the "value" of gold and its "purchasing power" as
compared to some CPI index, or even a commodity index, are not at all
the same. Sometimes prices go up and down -- as compared to a standard
of stable value, such as gold. Many of the problems in Rist and later,
Mundell and Johnson, derive from this basic error.
I think that will be enough for today.
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