| The imbalance adjustment mechanism of the international gold standard before World War Ⅰ is totally different from that of the general understanding in the Chinese academic community.In this paper,the history of economics and the history of economic thoughts are based to analyze the adjustment mechanism of the international balance of payments under the classic gold standard,to deepen the domestic research in China on the mechanism of the International Gold Standard.Hume’s price-specie-flow mechanism is generally considered as the basic rule of the gold standard and is taken as the basic adjustment mechanism for the international balance of payments under the international gold standard.The price-specie-flow mechanism has a quite limited effect in the era of the gold standard.Marx pointed out that Hume’s price-specie-flow mechanism takes the quantity of money as the theoretical basis,but the quantity theory of money is inapplicable under the gold standard and other commodity-money systems.Under commodity-money systems,the precious metal money itself has value.The price of the commodity is determined by the ratio of the value of the commodity to the value of the precious metal,but irrelevant to the quantity of the precious metal and convertible paper money.The flow of the precious metal between countries does not significantly affect the price.Wicksell,Taussig,and other scholars argued that Hume’s mechanism has little effect in the era of gold standard.The price convergence is achieved through a rapid process,but not a gradual process involving the price-specie-flow system.It is essentially a process of trading commodities across countries at international values in the open economy era,as described by Marx.The price convergence mechanism described by Marx existed under the gold standards.However,it was difficult for countries to adjust their balance of payments imbalances by using the price adjustment mechanism under such a fixed exchange rate system,because the effect of the price adjustment mechanism was very limited.To restore their international balance of payments,income adjustment mechanisms were often adopted by countries,especially the deficit countries,where such adjustments were mandatory.The deficit countries had no choice but to adopt tight monetary policies to reduce domestic absorption,increase exports,reduce imports,and reduce the deficit at the cost of reducing domestic investment,employment and income,because internal equilibrium was put after external equilibrium.This mechanism could be implemented effectively in the 19th century.However,because the working class became powerful after World War I,this mechanism was difficult to implement,which eventually caused the collapse of the gold standard.Taussig,Keynes and other economists pointed out that in the gold standard era,many countries adjusted the international imbalance of payments mainly by capital flows,and many countries in the New World suffered long-term and huge current account deficits and covered the deficits mainly by attracting foreign capital inflows.Countries took measures of adjusting the discount rate to affect international capital flow to make up for the current account deficit.Keynes and scholars proposed the so-called“rules of the game”to summarize the rules of monetary policies under the gold standard system.Because the countries’commitment to the gold standard before World War I was highly credible,the speculative flow of international capital was stable at that time,which facilitated deficit countries to restore stability and preserve the gold standard.It is generally believed that countries would lose monetary policy sovereignty under a fixed exchange rate of the gold standard.However,we can also find that many countries,especially central countries,could gain limited monetary policy sovereignty by influencing gold input and output points.In the traditional sense,different countries were believed to enjoy equality under the classical gold standard and avoid the asymmetry of the post-war Bretton Woods system.But in reality,the central and peripheral countries were unequal in the classical gold standard era,as the central countries were slightly constrained by the rules of game in the gold standard and the peripheral countries are largely restricted by the rules of the game.The peripheral countries had to pay the cost of adjusting the international balance of payments,so the peripheral countries had no choice but to adopt higher gold reserve ratios and discount rates and implement painful austerity policies to cover deficits.The central countries could ask for help from foreign central banks,so that they could deal with the gold outflow problem without adopting domestic economic austerity or changing the domestic and foreign assets of their central banks in the same direction.According to the findings of this research,the establishment of modern central banks in various countries was a double-edged sword for the running of the international gold standard system.By establishing central banks,various countries could use less gold reserve to support a larger amount of money supply and lower the frequency of financial crises,which could contribute to the smooth running of the gold standard system.Nevertheless,the functions of the central banks were separated from that of the old commercial banks,so that the central banks could focus more on domestic economic stability to guard against the damage of various automatic adjustment mechanisms under the gold standard to the domestic economic stability,which broke the rules of the game in the gold standard system and hindered the running of the international gold standard system.The Bank of England,the dominant player in the international gold standard system before World War I,had obvious characteristics of private commercial banks.To pursue profits,the Bank of England did not have too much gold reserve and frequently adjusted the discount rate to maintain the running of the gold standard,which conformed to the rules of the game in the gold standard and facilitated the smooth running of the international gold standard system before World War I.However,the French Central Bank,the Federal Reserve System,and other central banks,as the successors of the Bank of England,were more concerned about the domestic economic balance,so they often violated the game rules of the gold standard system.In surplus,they refused to expand the domestic money supply and lower the discount rate,but reserved gold and thus aggravated the international gold shortage,so the deficit countries had to pay a higher cost of adjustment.With the rise of France and America’s positions in the gold standard system,the problem of inequality between the central countries and peripheral countries and between the surplus countries and the deficit countries was worsened.Consequently,the gold standard system eventually collapsed in the 1930s Great Depression. |
