In countries where the elasticity of bank money was lower, adjustment [to balance of payments equilibrium] might still require substantial gold movements. In the United States, for instance, where the currency supply was notoriously inelastic, large gold inflows and outflows regularly occurred not just over the cycle but across the seasons.#
The credibility of the authorities’ commitment to gold proved more elusive than Hawtrey supposed. Britain, for example, was unable to resist a speculative crisis in 1931 despite restoring sterling’s prewar parity. France, in contrast, remained securely on gold even though it stabilized the franc at a depreciated level. Restoring the prewar parity was neither necessary not sufficient for the “preservation of public good faith”. The credibility the public vested in the official commitment to gold depended rather on political priorities and the political institutions adopted to facilitate their pursuit. Of the determinants of those priorities, the very experience with inflation and stabilization in the 1920s was surely the most important. Where stabilization was successfully achieved only at the conclusion of a contentious and politically exhausting fiscal war of attrition, political leaders and electors were willing to go to extraordinary lengths to prevent a replay of the conflict. They sought to retain the gold standard, the symbol of fiscal compromise, at any cost. Ironically, it was precisely those countries that returned to gold at devalued parity following a long, politically disruptive inflation that displayed the firmest resolve to defend the gold standard when it again came under attack.#