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Published by EH.NET (January 2003) 
 
Kenneth Moure, _The Gold Standard Illusion: France, the Bank of France, and 
the International Gold Standard, 1914-1939_. New York: Oxford University 
Press, 2002. xiv + 297 pp. $72 (hardcover), ISBN: 0-19-92490-4. 
 
Reviewed for EH.NET by Pierre Sicsic, Caisse des dépôts et consignations. 
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After a first book on French monetary policy from 1928 to 1936 entitled 
_Managing the Franc Poincaré_, published in 1991, Ken Mouré (Department of 
History, University of California, Santa Barbara) expands here his analysis 
by looking at the whole period from 1914 to 1939. He is the first historian 
to make such an extensive use of the archives of the Bank of France. He 
provides the reader with a well-balanced, complete and up-to-date review of 
the literature. There is, however, a lack of commentary on core economic 
variables which would help to set the stage and provide a thread to follow 
the drama. The underlying variables up to the stabilization are the public 
debt and the advances of the Bank of France. Some discussion of the size of 
these variables relative to output is needed. I believe the most important 
variable to look at is the real rate of interest which increases in case of 
deflation, hence the Great Depression. A successful stabilization, as well 
as a successful devaluation, permits a decrease in the long-term real rate 
of interest. I know these variables are not easily obtained but they 
constitute the necessary information for economic analysis of monetary 
policy. 
 
Two very important points are made in the first half of the book. First, 
the theory of stabilization and deflation was well understood at the 
beginning of the 1920s. Second, delay in stabilization at the end of the 
twenties was a powerful weapon in parliamentary politics. 
 
The third chapter explains that the causality running from monetization of 
the public debt to the exchange rate and the interplay between repayment of 
the advances from the Bank of France by the Treasury, German reparations, 
deflation, and finally return to the pre-war parity were already then well 
articulated. There was an unsurprising opposition between the Central Bank 
and the Treasury because of the scheduled repayments. "Décamps [the chief 
economist of the Bank] offered a moderate, informed, and logically 
consistent justification for deflation" (p. 60). 
 
By 1924, after German default on reparations and tax increases, the 
economic situation was ripe for stabilization. But the Bank of France and 
its board of directors (the Régents, private bankers and large 
industrialists) were politically opposed to the new left wing government 
which followed the elections. The Bank made sure this government entangled 
itself in a sham coming from falsified balances sheets that had not been 
requested by this government. Later on, the reversal of political alliances 
within the elected parliament leading to a government headed by Poincaré, 
who had lost the 1924 elections, would not have been possible without the 
threat to the franc. This is the story told in chapter 4, and Mouré warns 
correctly that any explanation to the last crisis of the franc in 1926 
relying on strictly economic grounds (fiscal policy, inadequate rates on 
short-term government bills) is going to "understate the importance of the 
political crisis" (p. 103). To explain the delay between the de facto 
stabilization in December 1926 and the de jure stabilization in June 1928 
Moure argues that "Poincaré realized the great political utility of de 
facto stabilization. It kept alive the threat of capital flight that bound 
the Radicals to his Union Nationale coalition ... at the same time it 
offered the determined revalorisateurs of the Right the prospect of further 
appreciation" (p. 114). 
 
Mouré is very convincing because he is able to discard the economic 
explanations of the 1924-1926 turmoil he had previously reviewed before 
turning to political history sources. Following the same political seam he 
debunks the possibility of any relevant central bank cooperation by 
explaining that the overall international political environment depended 
upon issues of reparation and war debt repayment. 
 
The weaker part of the book is the next to last chapter which mixes the 
post-1936 period with comments from Bank of France officials about open 
market operations made in 1928. 
 
On the first issue the following point should have been made on the 1936 
devaluation: while there is now agreement among economic historians that 
devaluation had been everywhere else than in France the remedy to the Great 
Depression, it did not go well in France. 
 
On the second issue Mouré quotes confidential memos written by Rist arguing 
against open market operations supported by Quesnay, also in the Bank, 
because only some part of the market (the counterparties) would be served 
in these operations. Rist was then deputy-governor; Mouré told us before 
that Rist and Quesnay were the leading thinking force pushing for 
stabilization in 1926, and Rist had been before quite right about the 
exchange rate policy: "Rist soon realized [after the war] that restoring 
the franc's pre-war parity would extract too high a cost" (p. 51) 
 
It would take as great a Francophobe as Keynes to believe that Rist could 
not have grasped the substance of the money market. (Keynes said in 1930: 
"Both in official and academic circles in France it is hardly an 
exaggeration to say that economic science is non-existent," quoted p. 39 in 
_Managing the Franc Poincaré_.) What matters is that interest rates on the 
best paper would be the same for transactions involving or not the Central 
Bank. Perhaps Rist was using this traditional argument within the Bank 
because he was opposed to open market operations for some other reason, and 
he used that argument knowing it was wrong. This is the problem with the 
history of ideas and use of archives from large institutions: you never 
know whether the argument is sincere. 
 
Fortunately the book ends with a conclusion which does not mention the 
weaker parts. One conclusion is that "the stabilization process paid 
insufficient attention to currency valuation" (p. 262). This view on the 
level of stabilization will settle our debate over deliberate 
undervaluation in 1928 (reviewed p. 129). It is worth recalling that from 
the end of 1923 to the middle of 1925 the exchange rate in dollars relative 
to the pre-war parity was about a third. It crashed to 0.13 in July 1926, 
then jumped back and was stabilized to 0.21. After the dollar devaluation 
in 1933 this exchange rate was 0.36. The bottom line of the book is that 
"French authorities resisted rethinking their battle-hardened faith in 
gold, which seemed to have yielded extraordinary benefits in the years 1926 
to 1932" (p. 264). Yes, the Gold Standard was an illusion, and it looked so 
potent because it was the outcome of the miracle of 1926. 
 
 
Pierre Sicsic is author of "Threat of a Capital Levy, Expected Devaluation 
and Interest Rates in France during the Interwar Period" with 
Pierre-Cyrille Hautcoeur, _European Review of Economic History_, 1999. 
 
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