The Theoretician of the Gold Exchange Standard and the “Money Doctor”
Kemmerer devoted his last book to the GS. The question of the stability of the value of money was at the heart of the debate at the turn of the twentieth century in the United States.
American economists were wondering how they could prevent such significant fluctuations in the value of the dollar. According to Kemmerer the GS was the system that could best minimize the instability of the value of money. The aim of the GS was to reinforce the confidence in money and in the exchange system in order to stimulate trade between countries and attract foreign investments. For the “money doctor”, confidence in money is guaranteed by fixing the price of gold and ensuring the convertibility of bank money at this price whether in coins (Gold Coin Standard), in bullion (Gold Bullion Standard), or in a currency convertible to gold (Gold Exchange Standard).Kemmerer believes that its instability is inherent in money itself: like any other commodity, it depends on the law of supply and demand. Rather than searching for a system capable of fixing the value of money, Kemmerer admits several criticisms of the GS such that the value of gold was unstable (that is, the purchasing power of the dollar went down) after the First World War. While being aware of its impact on debt, he does not provide any solution to the problem. Instead, he only argues that the other types of standards are even less stable than the GS.
The issue that Kemmerer does not address in his 1944 work, although he was aware of it, is that the international GS is not a symmetrical system. Indeed, the countries under the GS and those under the Gold Exchange Standard are not exposed in the same way to the exchange risk since the former are creditors while the latter are debtors. In addition, the major drawback of the gold standard was the high cost of maintaining the necessary gold reserves.
Rich countries could establish a gold coin standard and poor countries could only wish for a gold exchange standard. As European countries, and then the United States, came to suspend the GS, the money doctor began to lose his patients.Kemmerer was a Republican albeit a progressive one, an advocate of the Monroe Doctrine, a supporter of dollar diplomacy, and eventually an anti-New Deal economist. He approved of Theodore Roosevelt’s policies but rejected Franklin D. Roosevelt’s. During the first three decades of the twentieth century his ideas as a theoretician and economic adviser were in line with mainstream thinking, and he was much sought after by those in power. He helped to establish the Central Banks of Bolivia, Chile, Colombia, Equator and Peru and advised more than 20 countries on monetary policy. As the Great Depression took hold, his monetary reforms became unpopular and he soon sank into oblivion. He died in 1945, leaving a mark on economic history as practitioner as well as a theoretician, as a politician as well as an economist.
Rebeca Gomez Betancourt
See also:
Balance of payments and exchange rates (III); Irving Fisher (I); Money and banking (III).