12. Old Ideas on Money Which Have Become New

(Revue d’Economie Politique, Sept.-Oct. 1951)

It is said that history repeats itself. One can say the same thing about economists. At the present time there is a writer whose ideas have been repeated since Keynes, without ever being cited by name. He is called John Law. I would be curious to know how many, among the Anglo-Saxon authors who have found again, all by themselves, his principal arguments, have taken the trouble to read him. In any case, this reading is singularly instructive. One will excuse the great number of quotations in the following. They are indispensable to my demonstration.

Here, first, are some reminiscences that are rather curious. One remembers the argument of Keynes about the gold mines that, according to him, one could replace by old bottles filled with bank notes: “If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

“The analogy between this expedient and the goldmines of the real world is complete. At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline. Thus gold-mines are of the greatest value and importance to civilization.” (General Theory, p. 129)

I doubt very much that Lord Keynes had any knowledge of the text of the old Frenchman Saint-Chamans, who, in his Nouvel Essai sur la Richesse des Nations, published in 1824, stated the following: “One could spend five years digging canals which one would spend the next five years filling, and wealth would have increased during these ten years. . . . Any employment of workmen (never mind if it is toward a useful or a useless work, as long as they have been paid), giving them enough to satisfy their needs, increases the amount of satisfied needs and the wealth.”

But one century before Saint-Chamans, Law also expressed himself in the same way, in his Considerations on Legal Tender in which he tried to persuade the Scottish government to adopt paper money instead of silver:

“An increase of legal tender adds to the wealth of the country. As long as the money earns interest, it is used, and any use of money means profit, even if the one who uses it does so at a loss. Example: If one puts to work fifty men, to whom one pays 25 shillings per day, and the product of their work equals only, or is not worth more than, 15 shillings, the wealth of the country is nevertheless increased by as much; but as it is reasonable to suppose their work worth 40 shillings, it is that much added to the worth of the country; the contractor earns 15 shillings. One can imagine that 15 shillings is spent in maintenance by the laborers, who before lived on alms; they have 10 shillings left over their expenses.”

Thus, in the opinion of our three authors, each of whom writes at a hundred years’ distance, the way to stimulate production is to create new purchasing power, whatever it may be, and to put labor in motion. It is an idea that is familiar to us today since the great depression of 1930 and the policy of Doctor Schacht. That same idea brought Keynes in opposition to the British Treasury, when it refused and he urged the starting of public works in order to alleviate unemployment. Our national factories had recourse to this policy in 1848, but without using paper money.

In the passages I have just quoted, the creation of paper money, even for a “useless” expense, is offered as a means of reducing unemployment. But we find in Keynes something more, something that concerns particularly the monetary problem.

In the above passage Keynes does not relate the creation of paper money to the extraction of gold, but, on the contrary, the extraction of gold to the printing of paper money. And this goes back to another idea of Law: the limiting of the role of the precious metal to its exclusive role as purchasing power. Gold, in the terms of Keynes, is but another form of paper money. It has a purely monetary character and it is of interest to the economic world only as such. But this view goes against a fundamental objection: paper money buried in bottles has no demand, while gold has a world market resulting from its demand as a monetary instrument as well as a precious metal. It is because of this universal demand that sums (corresponding to its sales price) are spent in extracting it. It is not because gold costs work, as implied in the reasoning of Keynes, that it commands a price on the market; it is be cause it is in demand on the market that the necessary work is spent in extracting it.

There remains the question: why is gold in demand? That is the real problem found in the comparison made by Keynes, who asserts (page 129) that the type of drilling of holes known as extracting gold does not add anything to the real wealth of the world. If gold were only in demand as purchasing power, it might evidently be replaced by any object whatsoever having the same power. But gold is in demand because it belongs to a whole category of objects to which also belong precious stones, objects of art, all manner of museum pieces: the category of objects sought without being either objects of consumption or objects used in production.

Any object that is durable constitutes “purchasing power.” A machine, a piece of furniture, a fruit, a house, these can always be exchanged while they last. They therefore have, temporarily, purchasing power. Gold is a product that lasts nearly indefinitely. Thus it preserves this power indefinitely. This is already a marked difference from other objects. But this does not mean that it is only sought after by reason of this purchasing power, no more than a jewel is bought merely to be exchanged. It is sought, first, because it is desired as a rare and beautiful object, and, second, on account of its purchasing power. If gold were as abundant as the pebbles on the highway, it would cease to be in demand, in spite of its beauty.

The economists, and especially the English speaking economists, should recognize once for all that economic goods are not limited to two categories—the goods used for production and the goods for consumption. They are the only ones not to recognize that there exists a third category of goods sought after by reason of their scarcity, without being either goods used for production or goods used in consumption. They are in demand, first of all, because they please, and also because of their durability and incorruptibility, which renders them particularly suitable to serve as a reserve of value. Such is the case with precious metals like silver and gold, and many other objects which are in private collections and exhibitions of the Louvre, of the British Museum and other celebrated museums, and belong to the immense category of “art objects” which one enjoys looking at but does not “consume.”

Keynes, in the above mentioned passage, overlooks it more or less voluntarily (for with him one is never sure that he is quite serious) and is in the company once more of John Law in the following passage from the great Scot:

“There is no real wealth among men, says Law, except foodstuffs and merchandise, and no real commerce between them save the bartering of these goods. Gold, silver, copper, bank notes, the marked and strung shells that are in use on certain coasts of Africa, these are merely representative wealth or signs of transfer of real wealth. Those who happen to be owners of lands where these foods or these merchandises are obtained, or those who obtain them on lands or in waters that do not belong properly to anyone; all these, when delivering these foods or this merchandise to those who desire them, have the right to obtain something in exchange. But as the latter often do not have anything that is desired by the former, they will give to the first some acknowledgment, which if it is indeterminate as to the nature of the object, is specific as to its price. For example, I think of a coin as a promissory note stating: ‘Any seller shall deliver to the bearer the food or merchandise he may require, for an amount up to three pounds, representing the amount of food or merchandise which has been delivered to me,’ and as signature has the effigy of the prince or any other public mark.”

Thus gold or silver money is merely a draft on goods, a purchasing power, and, consequently, all these signs of purchasing power should be equivalent one to the other. It is exactly this that the public has never yet admitted, and that the economists who believe themselves modern ought to recognize with the public, as it is definitely the public and not the economist that fixes the value of the products on the market, as well as that of the different “currencies.” And the public has discovered that all the “drafts” are not equally sure or universal.

Here is another idea of Law, the more seductive that it is partially true, though it is true only under well determined conditions. The value of silver comes partly from the fact that it is monetized. The day when it should no longer serve as money, its value would immediately decrease. Let us quote first Law’s own statement:

“Since its use as metal silver has acquired an added value. The new use to which it has been put having occasioned a larger demand for it, this new value has not been noticed because its increased quantity has made it fall more; but it has not dropped as much as it would have done if it had not been used as money, and if the same quantity had been introduced in Europe. . . .”

And, further:

“If England were to change its money, other countries might do the same; if Holland alone were to hold to silver currency, one can suppose that the price of that metal would decline immediately to 50 per cent by the decrease in demand for it as money, and that 200 pounds in Holland would not be worth more than 50 pounds in the new money of England, whether it be sent as species or as merchandise; and in proportion as other money might arrive in Europe, it would go still lower because of the increased quantity.” (Law, Considérations sur le numéraire, p. 516).

This idea is brought out again today by a great number of writers under the following form: What gives value to gold is not the demand for gold—it is the possibility that it offers of buying dollars through the Treasury of the United States; it is thus the demand for dollars that maintains the value of gold. If gold were to be demonetized, it would immediately lose its value—as was the case for silver when bimetallism was abandoned. I have met this idea in the conversation of numerous American economists. It is formulated in the same terms in the book-review made by Mr. Johnson on The Measure of Gold, the remarkable book by Mr. Busschau, the South African economist:

“There is no foundation for the statement that gold is the only international money. . . . International means of payment may be provided also by the means of institutions of credit such as the International Monetary Fund or the European Union of Payments. Finally, it seems that the international role of gold, at the present time, is due largely to its convertibility into dollars, and not, as Mr. Busschau would say, to the convertibility of the dollar into gold.” (Economic Journal, September 1950, p. 572).

This is an important thought, as it deals with the famous “shortage” of the dollar. Here, in my opinion, is how this shortage of dollars must be interpreted:

Right after the Second World War there developed a demand for dollars to meet the payments for merchandise which could only be furnished by the United States, apart from any consideration relative to the convertibility of the dollar into gold. Hardly anyone at that moment thought of buying dollars for any other purpose than to convert them into merchandise. The Dollar was in demand to obtain merchandise payable in dollars, whatever its relation to gold might be. The very fact that for an ounce of gold one could obtain only thirty-five dollars meant merely that the United States sold its dollar very dearly to the holders of gold. The idea that in the absence of these purchases one would have paid less than thirty-five dollars for an ounce of gold, which would have meant that the price of gold in dollars was too high, would not have occurred to anyone. Far from being overpriced, since that time gold was underpriced by the Treasury of the United States. The two markets—the gold and the dollar—were separate, and the former, far from being sustained, was restrained by the official price.

Very soon, however, another preoccupation appeared. This came not from the European importers, but, on the contrary, from the exporters, desirous of keeping in dollars the proceeds of their sales. This tendency showed a clear preference for the dollar in relation to other moneys—sterling, franc, florin. But this preference, if it was due in part to the conviction that the dollar would continue to rise for the time being (in terms of francs) was also due to the fact that the dollar was convertible into gold. For gold, from that moment, appeared to have not merely a stable value, but an increasing one. The preference for a gold currency was strengthened by the appearance, in the Far East, in the Middle East, as well as in Europe, of a tendency on the part of the public to acquire private reserves of gold, at prices far superior in dollars to the official American price.

In a third phase, finally, this current of gold purchases was given impetus by the realization, more or less general, of the loss of purchasing power of the dollar itself. As far back as 1948 and 1949, and especially since the Korean War, the conviction has arisen that the purchasing power of the dollar, in relation to gold, was excessive, that this purchasing power was bound to decline more and more, and that, consequently, the possession of gold was an insurance against the eventual fall of the purchasing power of the dollar. Far from appearing to support the rate of gold, it was the desire to obtain gold that caused the demand for the dollar.

Thus, aside from a first period when the need for American goods was the essential element of the demand for dollars, and as soon as the scarcity of merchandise no longer dominated the preoccupations of the buyers, and the desire for a stable money prevailed again, it is the convertibility of the dollar into gold that has partially determined the choice of this money by the banks of issue to which this convertibility was possible.

Here again, it is an idea of John Law, true in certain circumstances, yet false in the present, to which his modem adherents have returned. John Law has seen very well that the monetary demand for the metal serving as money increases or maintains its purchasing power. At a time when one had the choice between gold and silver, he called attention to the fact that silver would lose a part of its value if it was demonetized. But any value is relative. In Law’s time, and later, in the nineteenth century, when silver was demonetized, there was an alternative to the use of silver as money, and that alternative was the use of gold. Abandonment of the coining of silver had to be in favor of gold currency, and in the nineteenth century, after the abandonment of bi-metallism, the fall of silver did take place, as John Law had rightly predicted.

But today we are facing another alternative: the use of gold money and the use of paper money. What appears in the markets, quite independently from the rate of exchange of gold against merchandise, is the preference given to gold, as an instrument of reserve, over paper money. Certainly, if money was but an instrument for the daily liquidation of the total of indebtedness against credits, there would be no preference for gold. But there are “balances” whose value should be stable. As soon as money is used to conserve the value between sale and purchase, the preference for gold makes itself felt immediately.

The idea that the value of gold is increased by its use as a monetary instrument has been expressed by the oft-repeated statement that the abandonment of gold as money would result in lowering its rate of exchange. I have kept in mind the conversation between Lord Keynes and the American delegates at the Conference of Versailles, where the British expert even then threatened to inundate them with the demonetized British gold. Condemned to receive all the gold of the world, America would have undergone a formidable rise in prices, that would have rendered her foreign commerce next to impossible. Keynes only forgot that thus abandoned to itself, the pound sterling would have been immediately forsaken as international money, for the simple fact that it would no longer have the support of its gold base. It is still my conviction today, based on all the European experience, that the demonetization of gold by the United States would result in a formidable demand for gold in all the European markets and the abandonment of the dollar as international money.

At the present time, the European treasuries are trying to convert their reserves of dollars into reserves of gold, and nothing proves better to what point this much maligned metal has retained its prestige.

This is fearlessly expressed in a recent circular issued by the great gold brokers of England, Mssrs. Samuel Montague:

“The volume of ‘hot money’ which exists in the world at the present time is larger than it has ever been. An example of its presence is provided by the manner in which the gold reserve of England has fallen since before the devaluation of the sterling (2,241 million dollars in March 1948, to 1,340 millions in September 1949, rising again to 2,756 millions in September 1950). This is the spectacle given by the gold reserves of the country that has the best exchange control in the world. Several countries in the sterling area, among them India and Pakistan, seek to accumulate independant reserves of gold in the form of deposits (balances) in London. Another country that has recently transformed its dollars into gold, and will continue to do so when occasion presents itself, is Egypt. The South American countries are seizing all occasions to create gold reserves for themselves, rather than reserves of dollars or sterling. The world may use international institutions such as the International Monetary Fund or the European Union for Payments to organize international payments; gold remains the supreme means of paying debts.” (Circular of Mssrs. Montague and Co., November 15, 1950.)

The enemies of gold have yet another argument; it is the historical argument: the entire monetary evolution leads to the replacing of metallic money by paper money! Of course, this argument is found at length in the works of John Law.

“The first use for credit is to represent silver by paper, and this practice can be taken for one of those popular institutions whose author is unknown or, better say, which have no special author. Ever since there has existed a regulated commerce among men the one who has needed silver and has not found the silver he must pay has made a promissory paper that has taken the place of the silver and that has satisfied the creditor. It is easy to see that this practice multiplies considerably the deficient species, which would not suffice without credit; in which case one may be sure that there are many more good and valid promissory notes in use in commerce than there is silver in the cash boxes of all the merchants put together. This use of paper has gone still further among the merchants, as their promissory note has gone from place to place, and has often permitted an infinity of transactions before returning to its source: so that their note has represented as many sums of silver that should have been in the hands of those who have transmitted it one to the other.

“Let us say that the system has in this respect only made general what, commencing with the king, nature, the local movement, the necessity of things, had already introduced among private individuals. Thus, instead of looking upon the system as an intolerable novelty, I am astonished that it did not establish itself a long time ago. It is certain, at least, that no country until now has been able to maintain itself more or less well except as it has, more or less, made use of it.” (Law, Lettres sur le nouveau système des finances, Ed. Daire, p. 673.)

Thus paper money is only a continuation and a development of credit paper. This thesis has often been discussed, especially in the writings of the Solvay Institute at the outset, where it is defended with remarkable persistence. When the franchise of the National Bank of Belgium was renewed, in 1900, in the large book which he has devoted to it, de Greef became the ardent defender of this conception. There are mixed in his mind themes developed by John Law, on the one hand, and by Proudhon, on the other. One finds at the same time an effort to assimilate the cash payment to the term payment (doctrine of Proudhon), and the historical argument that assimilates paper money to instruments of credit redeemable in metallic currency (doctrine of Law). Here are a few particularly significant passages which I quote from his work: Le Crédit commercial et la Banque National de Belgique.

“When the basis of circulation ceases to be for the most part metallic and the proportion of business which is settled by means of various forms of paper or in clearings is larger than the business transactions which are settled in precious metals, then a great evolution has taken place; we leave the age of merchandise-money to enter that of credit-money. Then the instrument of exchanges becomes gradually different from the other functions of money.” (p. 47)

Elsewhere he writes:

“Today, whether we progress like England, or decline like Greece, our system of circulation can only tend more and more toward an unmetallic one; we arrive there by the progress in economic development and in monetary technique; we arrive there equally if we become impoverished; gold is only bought with products; an impoverished nation is incapable of procuring it in sufficient quantity; a prosperous nation does without it and derives a new profit from this economy.” (p. 52)

“These considerations are, therefore, not purely theoretical; they are confirmed by experience; it is the banks that continue to don a metal armour that make themselves ridiculous; their place is in the museum of antiquities.” (p. 61)

And he concludes in a lyrical outburst:

“That, in the admirable musical drama by Wagner, gold, and with it all the iniquities it represents, return to its first condition, and that it become merchandise once more, only merchandise; that by devoting itself, in the industrial arts, to the embellishment of collective life and its milieu, it make us forget the evils of which it was the involuntary cause, then shall we recall that it was itself a means of progress, in times past, and if it should succeed in making us appreciate certain exceptional qualities, perhaps will it become again, at least temporarily, a standard of merchandise, without, however, allowing this function which is purely one of comparison, to attribute to it any supplementary value whatsoever, nor the least supremacy on the circulatory organization.” (p. 71)

Of course, the legislators and the Belgian government did not think for one second at that time of incorporating these ideas into the law, no more than would today the excellent governor that the National Bank of Belgium has the good fortune of having at its head.

Already, in the Bullion Report and in the Mémoires of Mollien, one can note a certain difficulty in defining the difference between convertible paper money (convertible in gold) and the paper money that is inconvertible (legal right given to a paper to buy merchandise for an amount equal to the market price).¹ The same assimilation exists in certain recent manuals of political economy. There are, however, between these two monetary instruments, fundamental differences, and their assimilation is justly rejected by a traditional doctrine which, passing by Tooke, goes from Ricardo to Mr. Cassel, who writes in his Theoretische Sozieloekonomie (p. 364) (and this quotation excuses me from the others).

“From the moment that a bank is freed from its obligation of redeeming notes in gold, bank notes are transformed into real money. The country then has a system of paper money: non-convertible bank notes, which are used in this system as means of legal payment, are legal tender. Such bank notes no longer represent claims on gold, but are themselves money.”

This power of the state to create paper conferring the right to buy merchandise, has given rise to the unthinkable notion of a so-called abstract money. It would be the franc, without any other definition that would constitute, under this doctrine, the money. The franc would not be merely an easy name to designate a coin having weight as well as value, but it would itself be an instrument of measure. In reality, the franc paper money is only the right granted by the state to whoever has it, to purchase merchandise already quoted in francs. When the state makes the bank note inconvertible, it practically transforms a claim on gold, into a right of preemption on merchandise, that is already quoted in francs. The word franc, under these conditions, has a meaning only insofar as all the objects have already a value expressed in francs.

What do we understand by “abstract money”? It is paradoxical to consider as an abstraction currency, that is to say an instrument that can be exchanged, bought, and sold. The word “franc” is not merely a word. It is always represented by a piece of metallic money, by a bank note, or by a credit at a bank. Each one of these instruments of payment has a rate of exchange either in relation to merchandise or in relation to foreign moneys. In itself the word franc has no meaning if it does not serve to designate a monetary instrument, itself defined by a certain amount of merchandise, of services, or other moneys.

“It is essential to understand well, as Mr. Allais has properly written, that in any kind of economy, the unity of account cannot exist without a definition that relates it to reality and that we shall call ‘the condition of reference.’ At each moment this definition consists necessarily in determining the nominal price of an ‘item of reference,’ constituted by a commodity or a group of commodities. This fixing, though arbitrary as well as conventional, is nevertheless indispensable; without it the unity of account would be but a word and would be void of meaning. The conception of a unity of account abstractly defined, independently of any relation with economic reality, would, in fact, be as absurd as establishing as unity of length an ideal length which one would consider sufficiently defined by calling it meter, without establishing it in a determined object.” (M. Allais, A la recherche d’une discipline économique, t. 1, p. 66 and 67.)

A quite recent example was furnished us by the creation of a new money in China. This money bears the name of yen; it is paper money, but it was immediately defined by a certain quantity of merchandise to which was given the name of fen. The idea is very reasonable in theory. But how will one assure the constant convertibility of a yen (money) against a fen (merchandise)? There lies the real problem. It is not as easy of solution as that of the convertibility into gold. And I am really curious to know what the future will tell us on this score. Until now, it seems that it is the fen which serves as the unit, and they evaluate periodically, in yens, the merchandise represented by the fen, which subjects the yen to the variations in value.

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Of all the arguments against the gold standard, the one that has had the most weight with the Anglo-Saxon economists, is the variation in its purchasing power, as demonstrated by the depression of 1930. Law, also, had denounced the variation in value of silver, but it is the drop in value of this metal which preoccupied him. On the contrary, it is the rise in the value of gold that has troubled the Anglo-Saxon economists since 1930. But whether one speaks of rise or of drop, it is always the instability of the metal standard which serves to justify the plans to substitute a paper standard for the gold or silver standard.

English public opinion remains convinced, in great majority, that the depression of 1930, which brought about the devaluation of the pound, was due not to an error in English monetary policy, but to a sudden rise in the purchasing power of gold, which was reflected evidently in a catastrophic fall of prices. The pound sterling had weathered its most dangerous periods after the Napoleonic Wars; at that time the return to the gold parity of the pound had been effected after certain difficulties, but had nevertheless been effected, and the pound had maintained itself for a whole century without anyone having ever expressed the slightest doubt about its convertibility. All of a sudden, this secular tradition was broken, and the pound ceased to be convertible money to become simple paper money. The starting point of the crisis was in the United States, where a severe deflation of prices had started in 1930.

And what does the drop of prices mean? Simply, said the British economists, an increase in the purchasing power of gold, due to its insufficiency and scarcity. One remembers how the League of Nations appointed a Gold Committee, and how its conclusions, with the aid of a great number of statistics, affirmed the insufficiency of gold in the present and in the future. (See the article by Kitchin in the American Encyclopedia of Social Sciences, all of whose predictions have been contradicted by the facts.)

This theory rests on an inacceptable interpretation of the events of that period. The responsibility for the great depression of 1930 cannot be attributed to gold, but to the English and American monetary policies (especially of the first) in trying to maintain the former gold parity to a paper money whose quantity had doubled or tripled during the war. What had been possible following the Napoleonic Wars in a country still largely agricultural and disposing of enormous outlets for its manufactured products, became an untenable wager in an industrialized country, with a democratic constitution, and where the restriction of the outlets could not fail to create intolerable unemployment. This is what Keynes foresaw perfectly well in his pamphlet entitled “The Economic Consequences of Mr. Churchill.” More comprehensible, but none the less regrettable, was the refusal of the United States to modify the gold content of the dollar, when the events had accumulated there a gold coverage that appeared sufficient to assure the indefinite convertibility of their currency. Nonetheless the level of prices had risen in such proportions and so abruptly in their country, that a rapid fall had to follow inevitably the equally rapid increase in the production of merchandise.

Be that as it may, these events have left in the minds of the Anglo-Saxon public, and even in the minds of many economists, the impression: (1) that the gold standard had led to economic catastrophe; (2) that the preponderance of the American economy constituted, by its fluctuations, a permanent cause of danger for the economies which depended on it, and in particular for the British economy. Hence the projects elaborated during the Second World War, which are all inspired by this dual dread.

It is the origin of the famous project of Keynes for an International Bank, a project which may be summed up thus: (1) In an organization of international inflation; (2) in a number of obligations imposed on the American economy, in case of favorable balances of payment, in order to protect the British economy. The naive way in which a few continental economists have endorsed the “Keynes plan” is rather surprising. All this evolution could have been avoided by the devaluation of the British money immediately after the First World War. They had forgotten at that moment a statement by Ricardo himself to the effect that if the depreciation of the pound had gone beyond 30 per cent, he would never have proposed the return to the ancient parity (V. Keynes, Monetary Reform), just as in France they had forgotten that the very classic Jean-Baptiste Say had formally counseled against the return of the pound to the parity, for that evident reason that the charge imposed on the debtor by the revaluation was no less unfair than the loss inflicted at the outset on the creditor by the depreciation.

The combination of these circumstances explains very largely the attitude of the Anglo-Saxon economists toward gold. It helps also to understand the work accomplished by them to rid the British economy of its dependence with regard to the international economy, as well as toward an international standard of prices. What has been called the automatism of the gold standard is in reality the internationalism of that standard. So long as the London market was dominant in relation to the monetary markets of the other countries, this internationalism did not trouble the British economy. But from the moment, on the contrary, when the monetary preponderance passed into the hands of the United States, the British market sought to become free and to obtain an Anglo-American cooperation through which the fluctuations of prices and trade could be mitigated. This is the meaning of the proposals of Keynes at Bretton Woods.

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Must one insist still further on the similarity between the ideas of John Law and those that one hears upheld now every day against the use of gold as international money? A last analogy may deserve our attention. Among the greatest reproaches that one hears against gold must be mentioned the facility with which it lends itself to hoarding, which results in hindering the circulation of merchandise and giving rise to depressions. This same thought is stated insistently by John Law:

“All the species of the realm belong to the state, represented in France by the king, and they belong to him precisely as do the highways, not so as to enclose them in his domains, but in order that no one shall enclose them in theirs, and as it is permitted to the king, and to the king alone, to alter the highway for public convenience, of which he is the sole judge, it is permitted to him also to change the species of gold and of silver into other signs of transfer more advantageous to the public, that he shall receive himself, as he received the others; and this is the case of the present government.”

Most of today’s banks of issue have met the problem of hoarding by rendering the convertibility into gold more difficult, and making bank notes legal tender. There should be no objection to that if the same countries would assume the responsibility of maintaining the stability of their currencies and assuring their convertibility in gold outside of the country. In such case hoarding would not be minded by the Banks of issue. Hoarding of gold takes place when the stability of the bank note or paper money seems threatened. All efforts of the governments should aim at obtaining that the instrument of hoarding and the monetary instrument be identical. At the present time, it is the separation of these two instruments that causes all the difficulties. The day when the currency, whichever it may be, is used again as a store of value, recourse will not be had to the gold ingot to fill this function, and it is toward making the two instruments coincide that the policy of today must tend.

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The economist McLeod noticed back in the middle of last century that there existed in British opinion a tendency to revert constantly to the ideas of John Law. This tendency is today more marked than ever, and one cannot help but feel surprised on seeing the admiration for paper money increase in proportion as the ravages of paper money issued during the war seem greater. Besides, the same persons who defend paper money are the very persons who are afraid of an increase in the production of gold as leading toward inflation. Those persons accept an inflation of paper money, while fearing an inflation of gold! All this shows an extraordinary confusion of mind, as well as a return to ancestral ideas that make of gold the source of all evils.

At a time when gold was leaving Great Britain to concentrate itself in France and America, Keynes recommended the nationalizing of the currencies, and asked himself, in his Monetary Theory, if an international money was really necessary. I think that after the ten years which we have just passed, there is no need to dwell on the convenience of an international money. I even think that Keynes, if he were alive, would be the first one to do so.

But it is not of that great problem that I wished to speak here. I wanted simply to point out that the economists who think themselves as the most modern are, in reality, only rediscovering very old ideas. It is a pity that the works of John Law are no longer read; they are extremely suggestive and full of talent. But John Law wrote in French. The Anglo-Saxon economists, therefore, neglect to reread him, as they have so long neglected to reread his great adversary Cantillon, who also wrote in French.

The preceding pages have had only one aim, that of reminding the economists of today of a name that many among them have forgotten, and also of an experiment deserving reflection by all those who, at the present time, reject with so much passion the very idea of a return to the gold standard. In reality this standard would be the most dependable guarantee of the independence and liberty of international transactions. I cannot help but think that it is precisely this independence and this liberty that make so many people uncomfortable.

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¹ See my “History of Monetary and Credit Theory” where one will find quotations regarding this particular point.