Edwin W. Kemmerer

Last updated
Edwin Walter Kemmerer
Edwin Walter Kemmerer.jpg
Born(1875-06-29)June 29, 1875
DiedDecember 16, 1945(1945-12-16) (aged 70)
NationalityAmerican
Influences Jeremiah Jenks

Edwin Walter Kemmerer (June 29, 1875 – December 16, 1945) was an American economist, who became famous as an economic adviser to foreign governments in many countries (Philippines, Mexico, Guatemala, Colombia, Germany, Chile, South Africa, Poland, Ecuador, Bolivia, China, Peru, and Turkey), promoting plans based on strong currencies, the gold standard, central banks, central bank independence, and balanced budgets. [1] He helped design the U.S. Federal Reserve System in 1911, edited the American Economic Bulletin and the American Economic Review , and became president of the American Economic Association in 1926. [2]

Contents

He graduated with honors and a Phi Beta Kappa key from Wesleyan University, and earned his Ph.D. from Cornell University, where he taught (1906-1912). At 28, was appointed Financial Adviser to the U.S. Philippine Commission. In 1912 he became a professor at Princeton University, where he was made the first director of its new International Finance Section; by then Kemmerer had a well established reputation as an international "money doctor." [3] [4]

"Money doctors"

All of the plans created by economic advisors like Kemmerer were aimed "towards the establishment of an internationally interconnected monetary and credit system based on stable national currencies in fixed value relationship with gold and other gold currencies." [5] :201 Consequently, the plans required among other things, central bank independence, the payment of all debts and balanced state budgets.

R. Nötel, in his essay on the International Credit and Finance of Eastern Europe, complains that the advice of these "money doctors" was "sometimes discordant", adding that their plans were written not only to have the debtors comply with the rules of the international financial system, but also to obtain the approval of much needed loans. [5] :201

As a "money doctor" Kemmerer was not alone: in Poland he was followed by Charles Dewey; Romania had the Frenchmen Charles Rist and Roger Auboin; and for Hungary and Germany, the Americans Jeremiah Smith Jr and S. Parker Gilbert, respectively. [5] :201n22 [6]

The Polish Stabilization – Context

After two failed attempts at bringing "galloping" inflation under control, in April 1924 a somewhat satisfactory stabilization scheme was established that reigned in inflation and laid the foundations for a modern financial system. [5] :204 This came at the cost of deflation and increasing political instability, exacerbated by the expiry in 1925 of the Upper Silesia convention obliging Germans to buy 6 million tons of Polish coal, which made for a quarter of Polish exports. [7] :43–44

The political and increasingly economic instability came to an end with the coup d'état that brought general Pilsudski in May 1926, a popular military hero, to power. His increasingly right wing politics appealed to American diplomats and bankers, [8] :94–96 and the US at the time was attempting to "rebuild Europe's war-torn economy and thereby protect crucial agricultural and industrial markets, block the spread of Bolshevism, and ease the danger of renewed war and revolution." [8] :87

At the same time that Poland was seeking help with financial stabilization and new loans, the unresolved issue of the Polish corridor, which Versailles had given it to the chagrin of Germany, added some complexity to the issue of the nationality of any future economic advisors, for the British supported the Germans and wanted Poland brought under the control of their unpopular League of Nations Financial Committee. So the Poles, after consulting with Benjamin Strong, President of the Federal Reserve Bank of New York, invited Kemmerer "to draw up a comprehensive plan for economic reform and stabilization." [8] :99–100

Kemmerer's role in the Second Polish Stabilization

Kemmerer (4th from left) in a mission to Peru (1931) Kemmerer.jpg
Kemmerer (4th from left) in a mission to Peru (1931)

Unlike Charles Dewey, who would succeed him as economic advisor to the Polish government, Kemmerer only stayed in Poland a few months to write up his report, while Dewey stayed for more than two years. The New York Times describes Kemmerer's role as that of a doctor who visits the patient "only to diagnose and prescribe, and then come briskly away, leaving the patient to take his own doses or to depend on a foreign nurse". [6]

Kemmerer completed an extremely detailed report on the condition of the Polish economy, taking account of its agriculture, industry and communications infrastructure; his report included detailed maps of the Polish Central Bank's offices around the country, together with a complex diagram of its organizational structure. He even went so far as to hold forth on Poland's security: "As long as Poland's international problems remain as they are … a strong army must, of course, be maintained." [8] :101 [9]

But his recommendations apparently did not consider the particular circumstances of the Polish socioeconomic environment, which his report would have helped show. A mechanism for "automatic budgeting stability, restraint, and control", previously implanted in Colombia, Chile and Ecuador, was the same as the one that was to be implemented in Poland, a country that even with Pilsudski at the helm, was famous for its political instability. [7] :46–51 [10] :158

In the end it all came down to the prestige brought by the advisor and the ceremony of the apparent implementation of his plan by the country that invited him, as Kemmerer himself admitted: "A country that appoints American financial advisers and follows their advice in reorganizing its finances, along what American investors consider to be the most successful modern lines, increases its chances of appealing to the American investor and of obtaining from him capital on favorable terms." [10] :250

Though Kemmerer suggested that the Poles take out only a $15 million loan for stabilization of the national currency, they negotiated a private one with the American banks B.A. Tompkins and Bankers Trust for $61 million, of which $15 million were for development – leaving 45 million dollars for the stabilization of the zloty, or nearly four times what Kemmerer had recommended. [5] :205–206 [8] :101

Though the loan was meant to lead to further ones that would strengthen Poland's financial system and promote its economic development, in mid-1928 foreign lending from Wall Street dried up as the Fed raised interest rates and a domestic speculative boom got underway. Kemmerer, and the US's attempts to stabilize the Polish economy failed as the country sank further into political instability. [7] :51–54 [8] :104–105

Publications

Further reading

Related Research Articles

<span class="mw-page-title-main">Gold standard</span> Monetary system based on the value of gold

A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932 as well as from 1944 until 1971 when the United States unilaterally terminated convertibility of the US dollar to gold, effectively ending the Bretton Woods system. Many states nonetheless hold substantial gold reserves.

<span class="mw-page-title-main">Reserve currency</span> Currencies held by monetary authorities as part of their foreign exchange reserves

A reserve currency is a foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves. The reserve currency can be used in international transactions, international investments and all aspects of the global economy. It is often considered a hard currency or safe-haven currency.

<span class="mw-page-title-main">Global financial system</span> Global framework for capital flows

The global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal economic actors that together facilitate international flows of financial capital for purposes of investment and trade financing. Since emerging in the late 19th century during the first modern wave of economic globalization, its evolution is marked by the establishment of central banks, multilateral treaties, and intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of international markets. In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralyzed by money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance.

<span class="mw-page-title-main">Monetary reform</span> Movements to amend the financial systeem

Monetary reform is any movement or theory that proposes a system of supplying money and financing the economy that is different from the current system.

Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions, and it considers how money can gain acceptance purely because of its convenience as a public good. The discipline has historically prefigured, and remains integrally linked to, macroeconomics. This branch also examines the effects of monetary systems, including regulation of money and associated financial institutions and international aspects.

<span class="mw-page-title-main">Monetary policy</span> Policy of interest rates or money supply

Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency.

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates, with the dollar convertible to gold bullion for foreign governments and central banks at US$35 per troy ounce of fine gold. It also envisioned greater cooperation among countries in order to prevent future competitive devaluations, and thus established the International Monetary Fund (IMF) to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits.

<span class="mw-page-title-main">Gustavo Franco</span>

Gustavo Henrique de Barroso Franco is a Brazilian economist. Former Governor of the Brazilian Central Bank, is best known for being one of the "fathers" of the Real Plan, the 1994 monetary reform that ended hyperinflation in Brazil. He teaches economics at the Catholic University in Rio de Janeiro since 1986. He is also a businessman, consultant and has served on many boards. He founded Rio Bravo Investimentos where he works as Senior Advisor. He has written several books, academic papers and contributes regularly to newspapers and magazines.

<span class="mw-page-title-main">Genoa Conference (1922)</span>

The Genoa Economic and Financial Conference was a formal conclave of 34 nations held in Genoa, Italy, from 10 April to 19 May 1922 that was planned by British Prime Minister David Lloyd George to resolve the major economic and political issues facing Europe and to deal with the pariah states of Germany and Russia, both of which had been excluded from the Paris Peace Conference of 1919. The conference was particularly interested in developing a strategy to rebuild a defeated Germany, as well as Central and Eastern European states, and to negotiate a relationship between European capitalist economies and the new Bolshevik regime in Soviet Russia. However, Russia and Germany signed the separate Treaty of Rapallo (1922), and the result at Genoa was a fiasco with few positive results. However, the conference came up with a proposal for resuming the gold standard that was largely put in place by major countries.

<span class="mw-page-title-main">Nixon shock</span> 1971 decoupling of the US dollar from gold

The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, in response to increasing inflation, the most significant of which were wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold.

<span class="mw-page-title-main">Barry Eichengreen</span> American economist

Barry Julian Eichengreen is an American economist and economic historian who holds the title of George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he has taught since 1987. Eichengreen currently serves as a research associate at the National Bureau of Economic Research and as a Research Fellow at the Centre for Economic Policy Research.

Ragnar Wilhelm Nurkse was an Estonian-American economist and policy maker mainly in the fields of international finance and economic development. He is considered the pioneer of Balanced Growth Theory.

<span class="mw-page-title-main">Money</span> Object or record accepted as payment

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment.

<span class="mw-page-title-main">Central Bank of Ecuador</span> Central bank of Ecuador

The Central Bank of Ecuador is an institution of the Executive Function, which has institutional, administrative, financial, and technical autonomy. Is in charge of executing the monetary policy established by the Monetary Policy and Regulation Board of Ecuador, highest governing body of this institution since October 2021.

<span class="mw-page-title-main">Bank of the Republic (Colombia)</span> Central bank of Colombia

The Bank of the Republic is the central bank of Colombia. It was initially established under the regeneration era in 1880. Its main modern functions, under the new Colombian constitution were detailed by Congress according to Ley 31 de 1992. One of them is the issuance of the Colombian currency, the peso. The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion.

<span class="mw-page-title-main">Gabriel Czechowicz</span> Polish lawyer, economist and politician

Gabriel Czechowicz (1876-1938) was a Polish lawyer, economist and politician. He was the Polish Treasury Minister from 1926 to 1929. Accused of misuse of government funds, Czechowicz was the only Polish politician of the interwar period that faced the State Tribunal of the Republic of Poland in the so-called Czechowicz Case. The case was dropped without ruling due to pressure from the Sanacja regime.

The snake in the tunnel was a system of European monetary cooperation in the 1970s which aimed at limiting fluctuations between different European currencies. It was the first attempt at European monetary cooperation. It attempted to create a single currency band for the European Economic Community (EEC), essentially pegging all the EEC currencies to one another.

This article details the history of banking in the United States. Banking in the United States is regulated by both the federal and state governments.

<span class="mw-page-title-main">Feliks Młynarski</span> Polish banker, philosopher and economist

Feliks Młynarski was a Polish banker, philosopher and economist.

The real bills doctrine says that as long as bankers lend to businessmen only against the security (collateral) of short-term 30-, 60-, or 90-day commercial paper representing claims to real goods in the process of production, the loans will be just sufficient to finance the production of goods. The doctrine seeks to have real output determine its own means of purchase without affecting prices. Under the real bills doctrine, there is only one policy role for the central bank: lending commercial banks the necessary reserves against real customer bills, which the banks offer as collateral. The term "real bills doctrine" was coined by Lloyd Mints in his 1945 book, A History of Banking Theory. The doctrine was previously known as "the commercial loan theory of banking".

References

  1. Eichengreen, Barry (2019). Globalizing Capital: A History of the International Monetary System (3rd ed.). Princeton University Press. pp. 44–45. ISBN   978-0-691-19390-8.
  2. Paul W. Drake, "Edwin Walter Kemmerer" in Encyclopedia of Latin American History and Culture, vol. 3, pp. 348-49. New York: Charles Scribner's Sons 1996.
  3. "Edwin Walter Kemmerer" The American Economic Review 36.1 (Mar., 1946): 219
  4. Eichengreen, Barry (2019). Globalizing Capital: A History of the International Monetary System (3rd ed.). Princeton University Press. pp. 44–45. ISBN   978-0-691-19390-8.
  5. 1 2 3 4 5 Nötel, R. "International Credit and Finance" The Economic History of Eastern Europe 1919–1975 Ed. M.C. Kaser and E.A. Radice. Oxford: Clarendon Press, 1986.
  6. 1 2 Adams, Mildred. "Sick Nations Take the American Cure" The New York Times 9 Dec. 1928: SM3.
  7. 1 2 3 Crampton, R. J. Eastern Europe in the Twentieth Century – and After 2nd Ed. London and New York: Routledge, 1997.
  8. 1 2 3 4 5 6 Costigliola, Frank. "American Foreign Policy in the "Nut Cracker": The United States and Poland in 1920s" The Pacific Historical Review 48.1 (Feb., 1979.
  9. Polish Ministry of Finance Reports submitted by the Commission of the American financial experts headed by Dr. E. W. Kemmerer. Warsaw : Printing office of the Ministry of war, 1926.
  10. 1 2 Drake, Paul W.. The Money Doctor in the Andes – The Kemmerer Missions, 1923–1933 Durham and London: Duke University Press, 1989.