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Published online by Cambridge University Press: 07 November 2014
In the decade following 1929 all currencies of the world, save the Albanian franc, have undergone either devaluations in terms of gold or exchange restrictions tantamount to devaluations. These changes reflect not only the depreciation of several originally overvalued currencies to equilibrium, but also a nearly complete round of successive depreciations of individual currencies to temporary undervaluation. Each such undervaluation has set in motion forces tending to restore equilibrium, through rising supply and demand schedules in the undervalued-currency country, falling supply and demand schedules in the overvalued-currency countries, counter-depreciation in the latter countries and sometimes adverse tariff action. The proportions in which the effects have been divided among these four channels have differed among countries; consequently with the end of the round of depreciations, the re-establishment of something like equilibrium of exchange rates has come about without having involved equal degrees of devaluation by all countries. Thus the new exchange rates differ from those of 1929 in many ways additional to those necessary to cancel the disequilibrium of that year. That, toward the end of this decade, something like equilibrium of the major exchange rates has been established, is indicated by agreements that sharply limit the possibility of further depreciations to under-valuation and even the possibility of depreciations to counteract over-valuations which may arise in the future from changes in international reciprocal demand, etc. It is now opportune to examine the effects of these depreciations of the past decade upon the prosperity of the countries concerned.
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3 These discussions may be most easily followed by reference to J. W. Angell, “Equilibrium in International Payments”; H. S. Ellis, “The Equilibrium Rate of Exchange”; and S. E. Harris, “Measures of Currency Overvaluation and Stabilization”; all in Explorations in Economics (New York, 1936)Google Scholar; and in sources indicated by references in these articles. A summary discussion is contained in Gilbert, Currency Depreciation and Monetary Policy.
4 See Pigou, A. C., Essays in Applied Economics (London, 1923), pp. 156–73.Google Scholar
5 Harris, , “Measures of Currency Overvaluation,” p. 35.Google Scholar
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7 Compare the discussion in Gilbert, , Currency Depreciation and Monetary Policy, pp. 21–4Google Scholar, of rigid and flexible prices.
