International Gold Standard System
World War I
Role of Gold
The purpose of this article is to consider the significance of both the collapse of the international gold standard system and the changes in the role of gold during World War I. Previous studies have often made little of the role of gold or assumed that the collapse had made gold unnecessary when they refer to the war-time economy during World War I. In considering the collapse, it must also be asked how we should understand the pre-war international gold standard system. One of the most important characteristics of the prewar gold standard system was its strong intention to preserve the value of money through the approval of unrestricted convertibility of bank notes into gold and free movements of gold. We can conclude that this monetary system collapsed because that approval was cancelled during World War I. On the other hand, another important characteristic of this monetary system was its dependence on credit control. As long as the control worked well, the system could avoid conversion of bank notes into gold (= outflow of gold). In this case, the main function of gold was to be ‘stored’ rather than ‘used’. But the extremely severe disorder of the world credit system during World War I necessitated a tremendous outflow of gold and made the survival of this monetary system difficult. Each country needed to collect as much gold as possible to make up the disequilibrium. The essence of the collapse of the international gold standard system during World War I was that the magnitude of the disequilibrium was too large to be compensated for with the amount of both gold and credit which the pre-war gold standard system could supply. This indicates that gold was indispensable during World War I.