With the end of World War I, international efforts were begun to restore the workings of the international economy and the gold standard. But the restoration of the gold standard also meant the re-establishment of the old political order. Britain, however, lacked the economic power to fulfill the role she had played in the prewar system and the United States, her major economic rival after the defeat of Germany, was not prepared to fill the vacuum. This analysis will maintain that Britain's economic weakness and the inability of the United States to use its economic power to bolster the international economy were key sources of the structural weakness of the interwar gold standard. This general factor, combined with the financial complications of German reparations and war debts and badly set exchange rates, created the framework for the plunge into the Great Depression (Kindleberger, 1973, pp. 19-128).
The immediate post World War I years saw a period of worldwide inflation fueled by the backlog of consumer and business demand from the war years (Kenwood & Lougheed, 1983, pp. 190-194). Fixed exchange rates for currency, as in the prewar period, were not possible. Most currencies were allowed to float without a fixed gold parity. This experiment in floating exchange rates was accompanied by massive movements of flight capital and intense speculative pressure against weaker currencies (Kindleberger, 1973, pp. 31-54).
The monetary chaos of the early 1920s reinforced the view that Europe needed the discipline of the gold standard and fixed exchange rates. The stabilization of European currencies in relation to gold dragged on throughout most of the 1920s (Kenwood & Lougheed, 1983, pp. 190-192). The British decided to return to an exchange rate near prewar parity and U.S. cooperation and assistance was of great importance in making such a return. The United States apparently saw the stabilization of the pound as an impor...