Charles L. Merwin
TWENTY YEARS have passed since representatives of 45 countries met at Bretton Woods, New Hampshire, a summer resort in the northeastern part of the United States, to prepare the final texts of the Articles of Agreement of the International Monetary Fund and of the International Bank for Reconstruction and Development. Although the establishment of the Fund and Bank was a great stride forward in the development of the international payments system, it was a stride along a fairly well-marked path that ran, in the other direction, a long distance into the history of international monetary affairs.
In the nineteenth century the mechanism of international adjustment revolved around the gold standard, the development of which had begun in the preceding century. The pound sterling was linked to gold continuously from 1821 to the beginning of World War I. The “golden years” of the gold standard, however, lay in the period from 1870 to 1914, when Germany and other countries adopted it. Exchange arrangements were orderly under the gold standard. The rate of exchange between two currencies did not fluctuate outside the gold points—the rates at which it paid to import or export gold bullion. The money supply in a gold standard country was linked to the supply of gold, and gold coins were usually part of the circulating medium. Since an increase in a country’s gold holdings exerted an expansionary influence on the money supply, and a decrease in a country’s gold holdings a contractive influence, gold movements tended to harmonize price and cost relationships among the various countries. This constituted a force tending to maintain equilibrium in the balance of payments of gold standard countries.
Mr. Merwin, who is a graduate of Ohio Wesleyan University and the University of Pennsylvania, joined the Fund in 1946. He served in the European Department from 1949 until May of this year, when he became Deputy Director of the African Department.
There was a strong undercurrent of economic growth during the period before World War I. The industrial revolution that had first reached maturity in the United Kingdom was now reaching maturity in other countries. London, with a very highly developed money and capital market, was the world financial center, and the pound sterling was widely used as an international means of payment. There was probably more flexibility in prices and costs than exists today, but there were also sizable fluctuations in output and employment which were to some extent obscured by the secular growth trend, and also by a lack of statistics.