214 The Domestic Politics of International Monetary Order: The Gold Standard
influence of the French financial community. French finance, however, developed
along lines quite distinct from the trajectory in Britain and, consequently, there
were few enthusiasts among its ranks for committing to a full gold standard....
French finance was primarily a domestic business until the final third of the
nineteenth century, when foreign-portfolio lending blossomed under the
encouragement and political guidance of the state. Other than its role in distributing
foreign bonds to small investors—who were protected from the vagaries of the
limping standard by gold clauses in the loan contracts—French finance was
decidedly parochial. The market for foreign short loans was limited, the international
significance of the Paris money market small, and the use of the franc as a reserve
currency largely confined to Russia for political reasons. In short, there was little
internationalization to give money-market participants an interest in encouraging
a stronger commitment to the gold standard. Without a key-currency position
comparable to sterling and lacking an overwhelming stake in international finance,
the banking sector realized no significant benefit in striving for gold-standard
orthodoxy. Their business consisted in discounting domestic bills for French firms
and merchants, a business that benefited from the French bank’s low and non-
fluctuating interest rate. For this reason, there were few calls from the financial
sector for altering the existing state of affairs along British lines.
In summary, political conditions within France precluded the development
of solid gold standard institutions. The prevalence of small holding gave agriculture
a decidedly “easy money” orientation. The relative underdevelopment of industry
left few manufacturing firms competitive enough to encourage or endure the
harshness of British-style adjustment mechanisms. Finance, despite its substantial
involvement in distributing foreign bonds, remained domestically bound in terms
of the money market and showed little interest in pursuing the short-term
international business dominated by English firms. Instead, all three sectors
preferred to devote their political energies to keeping the structure of domestic
interest rates stable and low, even if that put at risk confidence in the franc.
Nevertheless, France came to play a crucial role in stabilizing the gold standard.
Its lender-of-last-resort policies, however, were first and foremost attempts to
advance national as opposed to international objectives. Though Germany did
not share the obsession with interest rate stability, monetary authorities there
were nearly as reticent to allow a free market in gold and to maintain gold
convertibility under all conditions. As with Paris, Berlin’s international standing
suffered, but Germany also stood in as lender of last resort for the global economy
in times of distress.
GERMAN DOMESTIC AND INTERNATIONAL MONETARY POLICY
Although the German case differs from the French in terms of monetary institutions
and policy choices, there was one important similarity: at no time after the formal
adoption of the gold standard in 1873 did German monetary authorities fully
adhere to the principles of the gold standard. As in France, the monetary standard
was jeopardized for domestic political reasons.