Thursday, March 22, 2012


Carol M. Connell, Associate Professor, Finance and Business Management
City University of New York – Brooklyn College

"This paper offers new research into the influence of Fritz Machlup and the Bellagio Group on world monetary reform. Taking an historico-biographical approach, this paper draws on the archives and published works of Fritz Machlup, Robert Triffin and their contemporaries"

"...Machlup (1982) admits, “In the discussions of dollar shortage, payments balance, trade balance, exchange rates and so forth, the terms equilibrium and disequilibrium were being banded about as if these were simple household words. Most economists innocently believed that disequilibrium was ‘a bad thing’, and equilibrium ‘a good thing’; many thought that there could be ‘chronic’ disequilibrium; and virtually all were convinced that one could ‘see’ or ‘observe’ an equilibrium if one looked at some data” (p. 19). “By imputing a value judgment, a political philosophy or programme or a rejection of a programme or policy into the concept of equilibrium designed for economic analysis, the analyst commits the fallacy of implicit evaluation or disguised politics”..."

"...As international trade increased, the fixed, gold-dollar exchange rate system could not keep up with the demand to exchange dollars for gold. Under such a system, where the US was investing in Europe and paying for NATO protection, while encouraging Europe to buy from itself, the US would argue that payments deficits were unavoidable. And Europe would counter: Just how stable can an international system be if the world’s largest economy and source of the world’s reserve medium of exchange runs persistent balance of payments deficits? The US and Europe shared a common fear: Because central bankers could cash in dollars for gold at any time, one day the ratio of dollar liabilities to American-held gold might increase to a level that might cause a loss of foreign confidence in the dollar and a run on the US Treasury gold window. American and European policy makers shared a common history: the global recession turned depression had unleashed monetary chaos and devaluations, which unleashed beggar-thy-neighbor policies and economic nationalism, which produced dictatorships, which unleashed world war (Gavin, 2004, p. 14). In fact, the preceding period 1914 to 1946 had seen widespread use of exchange controls among countries..."

"Note that discussion of gold-based systems and centralized reserves was not part of the first conference (largely because of the absence of Europeans more closely associated with goldbased systems and centralized reserves)."


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