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Power and markets in global finance: the gold standard,1890–1926

Published online by Cambridge University Press:  01 November 2008

G. Balachandran
G. Balachandran
Affiliation:
Graduate Institute of International and Development Studies, Voie-Creuse 16, PO Box 136, CH–1211 Geneva, Switzerland E-mail: [email protected]
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Abstract

This paper explores the intimate connection between imperialism and a liberal global economy in the late nineteenth century and the inter-war period by distinguishing and disentangling the imperial and political dimensions of the pre-World War I gold standard, and interwar efforts to restore it. By doing so it attempts partial!y to redress the relative neglect of power in historical accounts of the international financial arrangements, and re-balance conventional liberal assumptions about the role of markets and incentives in the consolidation and spread of global institutions such as the gold standard. By re-embedding the intertwined financial histories of the imperial and Atlantic worlds into a global context, perspectives from the empire help develop more historically-situated analyses of global economic institutions and arrangements, and help clarify the many intersecting processes involving both power, in all its forms, and markets, that have historically shaped financial relations and institutions.

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Articles
Information
Journal of Global History , Volume 3 , Issue 3 , November 2008 , pp. 313 - 335
Copyright
Copyright © London School of Economics and Political Science 2008

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References

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3 J. M. Keynes, Indian currency and finance, London: Macmillan & Co., 1913 (republished as D. E. Moggridge and E. Johnson, eds., The collected writings of John Maynard Keynes, vol. 1, London: Macmillan, 1971) offers a good illustration of this tendency.

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31 Marks and Trapido, ‘Lord Milner’, pp. 56–7; J. J. Van-Helten, ‘Mining and imperialism’, Journal of Southern African Studies, 6, 2, 1980, pp. 233–4, also suggests that imperial strategists perceived gold as an economic and military necessity.

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36 Royal commission on Indian finance and currency (henceforth Chamberlain Commission) (Cd 7070, London: Eyre and Spottiswoode, 1913), appendix III, pp. 96–7.

37 The latter are illustrated by the rise in US official gold stocks from about £140 million in 1899 to over £290 million by 1910: de Cecco, International gold standard, p. 124; Chamberlain Commission, Interim report, appendix XXX.

38 Andrew Pope: ‘The imperial matrix: Britain and the Australia–India gold trade, 1898–1919’, PhD thesis, Curtin University, Perth, 1993.

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46 G. Balachandran, ‘Introduction’, in Balachandran, ed., India and the world economy, 1850–1950, New Delhi: Oxford University Press, 2003, pp. 12–14. Historically based political-economy arguments about financial openness promoting the entry of new firms disregard (or implicitly assume as more efficient) the exclusion of participants brought about by changes in spatial geographies and institutional arrangements. For an influential example of such arguments, see Raghuram Rajan and Luigi Zingales, ‘The great reversals: the politics of financial development in the twentieth century’, Journal of Financial Economics, 69, 1, 2003, pp. 5–50. On short-term volatility in gold export points, to which council bill and telegraphic transfer interventions were tied, see Ronald I. McKinnon, ‘The rules of the game: international money in historical perspective’, Journal of Economic Literature, 31, 1, 1993, pp. 5–6.

47 Rosenberg, Financial missionaries, pp. 12–25.

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50 Metzler, Lever of empire, pp. xv, 38, 53–4.

51 As indeed it was nearly six decades later: see Aubrey, H. G., The dollar in world affairs: an essay in international financial policy, New York: Harper & Row, 1964, pp. 256–63.Google Scholar

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56 Ibid., pp. 102–4; see p. 99 for the reference to the Norfolk landing.

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64 Shipping gold to London first represented a cost addition benefiting the largely British shipping companies. These were therefore tense months for relations between the mining and shipping companies: Brown, England, pp. 39–40.

65 Montagu Norman’s diary entries reflect fears for London’s future as the principal gold market: Bank of England archives (henceforth BOE), ADM 20/8, January 1920.

66 Brown, England, p. 136.

67 Innes, Anglo American, pp. 90–3.

68 Cain and Hopkins, British imperialism, p. 132.

69 Until the South African Reserve Bank was established in 1921, two London-based banks dominated South Africa’s banking system and functioned as banks of issue. Currency and banking laws also varied between the four states.

70 BOE, ADM 16/2, Norman’s memorandum, 15 February 1921, and enclosure; Andrew, Boyle, Montagu Norman: a biography, London: Cassell, 1967, p. 206Google Scholar; Sayers, Bank of England, vol. 1, pp. 156–60; vol. 3, appendices 9, 10, 17; and G. Balachandran, ‘From concubinage to “Hindoo marriage”? Anglo-Indian monetary relations in interwar India, 1917–35’, Modern Asian Studies, 28, 3, 1994, pp. 626–8.

71 Sayers, Bank of England, vol. 1, pp. 202–3; pp. 201–10 generally for the Bank of England’s relations with dominion central banks.

72 Cain and Hopkins, British imperialism, p. 130.

73 Brown, England, pp. 182–4.

74 Bruce, Dalgaard, South Africa’s impact on Britain’s return to gold, 1925, New York: Arno Press, 1981, pp. 46–50Google Scholar; Ally, Gold and empire, pp. 111–22.

75 Ally, Gold and empire, p. 127.

76 Robert N. Seidel, ‘American reformers abroad: the Kemmerer Missions in South America, 1923–1931’, Journal of Economic History, 32, 2, 1972, pp. 520–45; Paul W. Drake, ed., Money doctors, foreign debt, and economic reforms in Latin America from the 1890s to the present, Wilmington, DE: SR Books, 1994, pp. 86–109. For a more elaborate account see Paul, Drake, The money doctor in the Andes: the Kemmerer Missions, 1923–1933, Durham, NC: Duke University Press, 1989.Google Scholar

77 Dalgaard, South Africa’s impact, pp. 93–4, 102–4.

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79 Seidel, ‘American reformers’, pp. 525–8.

80 Costigliola, ‘Anglo-American financial rivalry’, pp. 923–5; Brown, England, pp. 239–41; Dalgaard, South Africa’s impact, pp. 156–7.

81 Dalgaard, South Africa’s impact, p. 157.

82 Currency policies were, according to the Indian Finance Member George Schuster, the ‘worst cause of discord’ between India and Britain: B. R. Tomlinson, The political economy of the Raj, 1914–1947: the economics of decolonization in India, London: Macmillan, 1979, p. 87.

83 On the 1920 stabilization, see Balachandran, ‘Britain’s liquidity crisis’.

84 Though formally independent, the commission was ‘packed’ with members aligned with City interests: Balachandran, G., John Bullion’s empire: Britain’s gold problem and India between the wars, Richmond: Curzon, 1996, pp. 140–3.Google Scholar

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87 TNA, T175/25B, Niemeyer’s note, 26 February 1926; Churchill’s comment, 28 February 1926.

88 Federal Reserve Bank of New York (henceforth FRBNY), C252/genl., Strong’s ‘Memorandum for Mr. Harrison: regarding discussions in London’, 24 December 1927; Costigliola, ‘Anglo-American financial rivalry’, pp. 922, 931–3. For other explanations for Strong’s suspicions, see Hogan, Michael J., Informal entente: the private structure of cooperation in Anglo-American economic diplomacy, 1918–1928, Columbia, MO: University of Missouri Press, 1977, p. 47.Google Scholar

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90 BOE, G3/185, Norman to Schacht, 10 April and 26 April 1926; and Norman to Vissering, 10 April 1926; OV 56/85, Schacht to Norman, 17 April 1926; Norman to Schacht, 19 April 1926; and Vissering to Norman, 4 May 1926. Nor, unlike J. P. Morgan, who also could not appear in person before the commission, was Schacht invited to submit written views.

91 FRBNY, 1000.7, Strong to Harrison, 5 May 1926; Strong to Jay, 2 May 1926. For a more detailed discussion of this episode, see G. Balachandran, ‘Gold, silver, and India in Anglo-American monetary relations, 1925–1933’, International History Review, 18, 1996, pp. 577–86.

92 Balachandran, John Bullion’s empire, pp. 155–9.

93 Tomlinson, Political economy, p. 79.

94 Pressnell, ‘1925’, p. 83; Ian M. Drummond, The floating pound and the sterling area, 1931–1939, Cambridge: Cambridge University Press, 1981, p. 101 and ch. 4.

95 BOE, G1/411, George Schuster to F. C. Goodenough, 30 November 1929; Schuster to Niemeyer, 19 January 1930; Markovits, C., Indian business and nationalist politics, 1931–1939: the indigenous capitalist class and the rise of the Congress Party, Cambridge: Cambridge University Press, 1985, pp. 46–7, 93CrossRefGoogle Scholar; Tomlinson, Political economy, pp. 47, 87.

96 See here Eichengreen, Golden fetters, p. xiii.

97 Niall, Ferguson, Empire: how Britain made the modern world, London: Allen Lane, 2003, offers a particularly strident contemporary re-statement of an oft-made colonial claim.Google Scholar

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99 Sayers, Bank of England, vol. 1, pp. 110–11 suggests that the committee’s report was limited by the experience of its members, which was mostly confined to a few years immediately preceding the war.

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102 Such as through the Plaza accord: see Eichengreen, Golden fetters, chs. 1 and 2 for a concise account of his main views.

103 For example, D. N. McCloskey and J. R. Zecher, ‘The success of purchasing power parity: historical evidence and its implications for macroeconomics’, in M. D. Bordo and A. J. Schwartz, eds., A Retrospective on the Classical Gold Standard, 1821–1931, Chicago, IL: University of Chicago Press, 1984, pp. 121–50.

104 For example, Rajan and Zingales, ‘Great reversal’; Ferguson, Empire offers a good illustration of the former point.

105 For a recent re-statement of this distinction, see Ranald Michie, ‘The City of London and the British government: the changing relationship’, in Ranald Michie and Philip Williamson, eds., The British government and the City of London in the twentieth century, Cambridge: Cambridge University Press, 2004, p. 33.

106 Roberta, Allbert Dayer, Finance and empire: Sir Charles Addis, 1861–1945, London: Macmillan, 1988, p. xviii.Google Scholar

107 Silverman, Dan P., Reconstructing Europe after the Great War, Cambridge, MA: Harvard University Press, 1982, notes (pp. 58–9, 79, ch. 7) that the gold exchange standard was a minor sideshow overshadowed even at Genoa by discussions on restoring economic relations with the Soviet UnionCrossRefGoogle Scholar. On the gold exchange standard as a ‘British fad’, see Royal Institute of International Affairs, The international gold problem, Oxford: Royal Institute of International Affairs, 1931, p. 91.

108 Sayers, Bank of England, vol. 1, pp. 347–50; Boyce, British capitalism, pp. 288–91; BOE, G14/313, Committee of Treasury, 30 November and 7 December 1927, 13 June 1928, 3 September, 10 September, 22 October, and 4 November 1930; Norman’s note, 1 March 1930; Treasury note, 2 March 1930; Moreau to Norman, 28 December 1928 and 8 January 1929; Norman to Lubbock, 2 February 1929; Norman to Harrison, 29 August and 6 September 1930; Norman to Young, 6 September 1930; Young to Norman, 4 September 1930; Harrison to Norman, 4 September 1930; ‘League inquiry into the stabilization of gold’, by Siepmann, 26 November 1928. On the delegation’s report, see Eichengreen, Golden fetters, pp. 198–201.

109 Drummond, Floating pound, pp. 128–33; Macmillan Committee, Report, paras. 140–50, 185, 240; also Boyce, British capitalism, pp. 290–1.

110 TNA, T170/46, ‘Gold standard and rationalization: notes’, undated; T160/430, f. 12317/1; Hawtrey to Hopkins, 10 December 1930; Boyce, British capitalism, pp. 290–1.

111 Thus, Montagu Norman described the interwar gold standard as a ‘competitive scramble for gold’: Evidence to the Committee on Trade and Industry (Macmillan Committee, 1931), Qq. 6724–5.

112 Judith, Kooker, ‘French financial diplomacy: the interwar years’, in Benjamin, Rowlands, ed., Balance of power or hegemony: the interwar monetary system, New York: New York University Press, 1976, pp. 97–8.Google Scholar