The Story of Gold Money, Past, Present and Future, by Edwin Walter Kemmerer

IMG Auteur
Published : April 19th, 2017
822 words - Reading time : 2 - 3 minutes
( 1 vote, 5/5 ) , 1 commentary
Print article
  Article Comments Comment this article Rating All Articles  
[titre article pour referencement]
0
Send
1
comment
Our Newsletter...
Category : Today's Article

There aren’t a lot of good books about the gold standard — the monetary system of the world until 1971 — after WWI. There aren’t a lot before WWI either, but it starts to get pretty bad after 1920. Ralph Hawtrey’s books have some merits, but they also have too many errors to serve as a definitive source.

Gold and the Gold Standard: The Story of Gold Money, Past, Present and Future (1944) is something of an exception to this pattern. Edwin Walter Kemmerer was a professor at Princeton.

Wikipedia on Edwin Kemmerer

He was born in 1875, and in 1903 was appointed Financial Advisor to the U.S. Philippine Commission. In this role, he set up the Philippines’ “gold exchange standard,” which was essentially a currency board with the U.S. dollar although it also had direct gold convertibility. This was done in 1905. In 1917-1924, he was a financial advisor (helping set up new central banks and gold standard systems in the floating currency aftermath of WWI) in Mexico, Guatemala and Colombia. In 1924-25, he helped set up a gold standard system for South Africa. In 1925, he was part of the Dawes Committee, which helped re-establish the gold reichsmark in Germany (replacing the rentenmark of 1923). In 1925-31, he helped re-establish gold standard systems in Chile, Poland, Ecuador, Bolivia, China, Colombia, and Peru.

We have here not the usual professor type who simply parrots something he heard once in a class — rather, a real expert who created effective and functional systems in the real world. He had another book, called Money (1937), which is available here:

Money (1937), by Edwin Walter Kemmerer

It is a brief book. I liked this passage (p. 218):

 The third function that convertibility performs is fundamentally the most important one. It is the function of maintaining the gold parity of the monetary unit by continually adjusting the currency supply to the changing currency demand. In this connection, a nation’s gold reserve functions as a buffer fund or, as it is sometimes called in Spanish, a lunda reguladora. The process may be briefly described as follows.

When, under a normally functioning international gold standard, the supply of currency in any country becomes excessive relative to the demand, as compared with other countries, money becomes cheap at home relative to abroad, prices of commodities and of securities tend upward, the exchange rates move toward the gold-export point, and, when that point is reached, gold is sufficiently more valuable abroad than at home to make its exportation profitable. The exportation of gold is an evidence that, under existing conditions of business, there is a relative redundancy of currency circulation at home. Since local paper money and fiduciary coins have almost no international market, the redundant currency is drained off largely in the form of gold exports. These exports are continued until the exchange rate falls below the gold-export. point and the currency·supply is ‘reduced to a quantity that places the price level of a country more nearly in equilibrium with the price levels of other countries; or, in other words, until the reduction of the country’s money supply has made the monetary unit so valuable at home that further exportation of gold becomes unprofitable.

Under conditions of such currency redundancy and resulting gold exportation, the central banks must always be in a position to give out gold freely for exportation, as long as it is required, to relieve the country of its relatively redundant currency and to force exchange rates below the gold-export point, thereby bringing the country’s price level and discount rates back more nearly into equilibrium with those of the rest of the world.

Obviously, a country’s normal gold reserve should be sufficient to provide for the absorption, through redemption in gold of any currency in circulation that may be rendered excessive by the usual fluctuations in business. In addition, it should be large enough to afford a reasonable margin of safety for extraordinary emergencies.

Here, he dismisses the idea that there was some kind of “balance of payments imbalance” causing gold outflows (p. 214):

On this subject there has been much confusion growing out of the popular notion that gold moves in international trade only “to pay balances.” As a matter of fact, gold moves for the same fundamental reason that any other commodity moves-to seek the best market. It goes abroad whenever it is worth abroad more than it is worth at home, by a sufficient margin to yield an attractive profit after paying all the expenses of its exportation. Its importation from abroad is merely the other side of the same shield.

Mostly, books about the gold standard are a wasteland of error and fallacy. This is something of an exception, and stands on its own. Certainly, if you want to know anything about the so-called “gold exchange standards” of the 1920s, you might want to listen to the man who created them.

Data and Statistics for these countries : Bolivia | Chile | China | Colombia | Ecuador | Georgia | Germany | Guatemala | Mexico | Peru | Philippines | Poland | South Africa | All
Gold and Silver Prices for these countries : Bolivia | Chile | China | Colombia | Ecuador | Georgia | Germany | Guatemala | Mexico | Peru | Philippines | Poland | South Africa | All
<< Previous article
Rate : Average note :5 (1 vote)
>> Next article
Nathan Lewis was formerly the chief international economist of a firm that provided investment research for institutions. He now works for an asset management company based in New York. Lewis has written for the Financial Times, Asian Wall Street Journal, Japan Times, Pravda, and other publications. He has appeared on financial television in the United States, Japan, and the Middle East.
Comments closed
  All Favorites Best Rated  
Thank you for this very thought provoking piece Nathan. I have not read any literature from Edwin Walter Kemmerer before but I am inclined to pick one up now. His assertions on gold fundamentals are on point.
Latest comment posted for this article
Thank you for this very thought provoking piece Nathan. I have not read any literature from Edwin Walter Kemmerer before but I am inclined to pick one up now. His assertions on gold fundamentals are on point. Read more
Jerry82 - 4/18/2017 at 7:14 PM GMT
Top articles
Latest Comments
Who Moved My Xanax?
17 JanThemis-1
I actually agree with a lot of what Trump says while deploring the tone and his lack of judgment in making such remarks publically while in office.
Socialist Dystopia: Starving Venezuelans Loot As Runaway Inflation ...
17 JanThemis
There is a 19th century English word that is particularly appropriate in this instance - "kakistocracy", i.e. government by the worst or least qual...
Who Moved My Xanax?
15 JanMr. Gnawbone
It is an exploitation of the ignorant and uninformed population, but that is what happens when they pay attention to meaningless information and ...
Racism-O-Rama
15 JanMr. Gnawbone1
It sounds racist, so it has to be. Overton Bubble at work, the faculty were programed to respond as if to a Pavlovian Bell. There is no way to ch...
Racism-O-Rama
16 Jandennyc1
Ah, yes, black welfare recipients receiving our hard earned and easily spent tax dollars and providing us nothing save their lives for our investme...
Racism-O-Rama
15 JanDoom2
It's not just the English that is considered RACIST, it's also mathematics, and a wide range of other things: http://professorconfess.blogspot...
2018: The Wrong Lesson on Gold Investing
14 JanThe Recusant
As you say, it's only what the central banks do that matters. Gold and its little brother silver are the only true measures of fiat currencies and ...
One-year score card for Trump
13 JanS W.
Everything else aside, Donald Trump has a very small mouth, combined with the weirdest lip action and pouting of any person I have ever seen.
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Take advantage of rising gold stocks
  • Subscribe to our weekly mining market briefing.
  • Receive our research reports on junior mining companies
    with the strongest potential
  • Free service, your email is safe
  • Limited offer, register now !
Go to website.