What Happened to Jacques Rueff and Robert Triffin?

A present monetary theory of the Great Depression has been explained as stemming from Milton Friedman, ignoring the previous Davanzati, a Florentine finding, in the 16th Century, an explanation solution to the increase of prices due to the arrival of Spanish silver from the New World. Designed to counter the Keynesian notion that the Depression resulted from instability theories, characterizing most modern capitalistic economies, Friedman’s explanation identified lately the monetary trend as a disordered monetary policy, carried out by erroneous Federal Reserve Board interventions, possible after the Aldrich-Vreeland innovations, introducing Treasury money in the year 1908. More recent works about the Great Depression reconsider the attempts to restore the international gold standard, suppressed on the brink of World War I. We learnt that current views of the Depression, as analyzed in the 1920’s by Ralph Hawtrey and Gustav Cassel, while recommending a gold standard reset, reflect that such standard risk deflations, unless the resulting increase in the international monetary demand linked to physical gold, could be satisfied. Although their early warnings of potential disaster became actual and their policy advice was consistently correct, their contributions were ignored and forgotten. The vanishing of their comments was firstly outlined not a long time ago, by Batchelder and Glasner “What Ever Happened to Hawtrey and Cassel?” (2013) This paper explores the possible reasons for the remarkable historical disregard of the Hawtrey-Cassel monetary explanation of the Great Depression, even by Nobel Prize winner Robert Mundell in his 2000 historical Nobel reconsideration of the monetary 20th century (Mundell, 2000). The paper stresses the identical historical conditions surfacing after the Bretton Woods agreements. Robert Triffin and Jacques Rueff comment likely warnings as in the first Great Depression, under the monetary policy illusion and the Central Banks excessive disregard of the basics of the quantitative theory on the long run, mostly ignored. Robert Triffin started to address the problem in March and June of 1959, Italian Banca Nazionale del Lavoro Quarterly Review. The first of these articles (Part One: Diagnosis) explains in the simplest possible terms, the extraordinary success of the nineteenth century system of international gold based convertibility, and the calamitous collapse of the late 1920’s attempts to bring it back to life. It may hold for us today an indication of the main efforts facing the similar attempt at “reconstructing the past” expressed some 64 years later, after the first of August 1914, by Triffin during the 1978 Christmas weekend. To deal with them in simple, commonsense terms would inevitably classify the author as an unrealistic whose views deserve no more than a raising of eyebrows. Jacques Rueff, with his The Monetary Sin of the West, a logical consequence of the Triffin previous notes of the 1960’s, went straight to the consequences of the Camp David resolutions of President Nixon who just temporarily asked his Treasury Secretary, John Conally to suspend the gold convertibility. There were two changes in United States (U.S.) government policy toward the monetary role of gold in the last 100 years. The first was in 1933-1934; all holdings of gold were confiscated in March 1933. Then, the U.S. Treasury adopted a parity for the U.S. dollar of $35.00 an ounce at the end of January 1934. Gold production surged, the private demand for gold fell, and the U.S. experienced large increases in foreign demand for U.S. dollar securities. In those years there was a massive flow of gold to the U.S. The second historical change in U.S. gold policy followed the meeting at Camp David on August the 15th 1971, when the U.S. Treasury closed its gold window fearing a run on its gold holdings, declining towards $10 billion. Some U.S. officials sought to diminish the monetary role of gold. The anticipation of some U.S. officials attending Camp David was that the persistent U.S. payments problem would disappear, once foreign currencies had no parities in terms of the U.S. dollar. The prices of these foreign currencies would increase and the U.S. trade surplus would become larger. Instead, many foreign Central Banks became larger buyers of dollars’ securities, which led to a higher price of the U.S. dollar and a U.S. trade structural deficit. The U.S. international investment position morphed from the world’s largest creditor country, to the world’s present day largest debtor.