The Monetary Conservative:

Jacques Rueff and Twentieth-century Free Market Thought by Christopher S. Chivvis (Northern Illinois University Press, 2010)by Christopher S. Chivvis (Northern Illinois University Press, 2010)

 Jacques Rueff, a key figure in European economic circles from the 1930s until the 1970s, was, first and foremost, an empiricist: he believed that economic policy should be based on impartial analysis of the evidence. And that evidence – which he derived from pioneering, detailed statistical analysis – showed that the economy functioned in large part due to the equilibrating role of prices.  

Thus, any attempt to intervene in the efficient functioning of the price mechanism, whether through the dole or through inflation, would undermine the economic – and social – order. As Christopher Chivvis, a researcher at RAND Corporation, shows in this lively and charming biography, this put Rueff squarely at odds with Keynes and other interventionists.

In the early 1920s, as a young scholar at the Institut de Politique de Paris, Rueff undertook a series of analyses of economic statistics, including a profound assessment of the causes of unemployment in Britain, which had risen from 2.5 percent in 1900 to 13 percent in 1921. Rueff found that the main cause of Britain’s unemployment was a failure of the labor market to adjust to changing external economic conditions – namely, the increasing competitiveness of textile manufacturers, shipbuilders and coal producers – which he attributed to the introduction of the dole in 1911. He published two papers on the topic, one in 1925 and another in 1931, which resulted in his principle of non-intervention in matters that would affect prices the loi Rueff.

Chivvis writes that the second paper on the cause of British unemployment, published in 1931 while Rueff was the financial attaché to the French Embassy in London and was titled, provocatively, “L’Assurance-chomage – cause du chomage permanent.” Although the article was published anonymously, Chivvis notes that “it would have been difficult not to identify the author, since the earlier article is footnoted on the first page.” Unsurprisingly, the article created quite a stir, not only because of the status of the author but also because it directly contradicted one of the most influential economists in Britain: John Maynard Keynes.

In Keynes’s view, asset prices had been driven up in the late 1920s by speculators operating according to what he later called their “animal spirits,” which led them, during the bull run, to unjustified optimism. The crash, then, was also driven by these animal spirits: an over-reaction in the opposite direction. And the solution, according to Keynes, was for the government to intervene to stimulate demand.

By contrast, Rueff held that the cause of the rise in asset prices in the U.K. was the easy money that had resulted from Britain devaluing its currency. And that devaluation had, in turn, been a response to the declining economic conditions in Britain, which Rueff traced to Britain’s labor laws and in particular the introduction of the dole. As Chivvis notes, “Rueff insisted [in his 1931 article] again that the intent of Britain’s workers would ultimately be better served if their wages were allowed to adjust, for this would improve Britain’s balance of payments, the stability of the pound, and overall confidence in the British economy.”

In fact, Keynes agreed that the dole had contributed to Britain’s economic malaise, writing in 1931: “I cannot help but think that we must partly attribute to the dole the extraordinary fact… that in spite of the fall in prices and the fall in the cost of living, and the heavy unemployment, wages have practically not fallen at all since 1924.” But Keynes nonetheless argued that it was better to have the dole and to address the problem of “sticky” wages by devaluing the pound.

A lifelong supporter of sound money backed by gold, Rueff sparred with Keynes on numerous occasions. Chivvis describes a meeting between the two in the 1920s: 


“To Keynes, Rueff was a leading French proponent of the “Treasury view” Keynes thought so recondite. To Rueff, Keynesianism was a disease, a drug politicians used to placate the masses. Keynes saw activist fiscal and monetary policy as a means of salvaging liberal democracy from the threat posed by the unemployed masses – otherwise tempted by fascism. By contrast, Rueff thought Keynesianism inevitably created inflation and that, in the democratic context, this would have precisely the opposite effect – inflation would make the masses more susceptible to the allure of tyrants masquerading as conservatives and promising to restore order.”

Unfortunately, many of the vested interests in the City of London benefited from cheap money and were happy to see the pound devalue as long as it enabled them to keep lending, not only domestically but to the world. It was, in short, a financial and political power play. Chivvis notes that Rueff, like most French economists of his generation, was imbued with the knowledge of the tragedy that had ensued following the establishment by John Law of the fiat Franc in 1716, which was rapidly debased, leading to hyperinflation and widespread economic damage. For Rueff, a stable money supply was a primary premise of the state. And he saw gold as the natural source of stable money.

But Rueff realized that a strict gold standard could only work effectively as a means of bringing about stability if it was in widespread use, so he made strenuous efforts to reintroduce it, not only in France but around the world. However, his efforts were frustrated at almost every turn. For example, Chivvis notes that the Bank for International Settlements, which had been created to facilitate cooperation between monetary authorities, was soon being used as a means by which, in Rueff’s own language, debtor nations, “profit from the prosperity of neighboring states.”

As Chivvis puts it, “It will do nothing, he complained, for France to come to the aid of countries that are in trouble simply because they have pursued bad policies and thereby permitted the decline of their economy. This would encourage more irresponsibility, further threaten the world financial system, and worsen the Depression. Austerity was the better solution.”

Rueff’s support for a real gold standard led him to become an outstanding critic of the international monetary system established at Bretton Woods (under the chairmanship of Lord Keynes), which created a pseudo-gold standard with the U.S. dollar as the international reserve currency. That system was, as Rueff predicted, open to gaming by the U.S., just as the previous system had been gamed by Britain, in both cases ultimately harming everyone. On Rueff’s advice, France shifted towards an actual gold standard in the late 1960s, buying gold and selling dollars.

The U.S. exited the system in 1971 but remained the reserve currency for most of the world. The stagflation that ensued in the 1970s was a direct result. Rueff’s response was to reassert the importance of establishing a system of international exchange based on “metallic, monetary convertibility.” Only such a system, he observed, is capable of generating “equilibrium [of international exchange] for long periods of time.”

While the inflation of the 1970s was eventually tamed by Paul Volcker’s more rational monetary policy, problems re-emerged during the 2000s, following a series of monetary interventions, known as the Greenspan Put, designed to address declines in asset prices (i.e. in 1987, 1997, 1998, 2000 and from 2003 to 2006). By manipulating interest rates, the Federal Reserve promoted the interests of Wall Street in much the way the Bank of England had promoted the interests of The City 90 years before.

The great financial crisis that began in 2007 was the inevitable result. And just as the Bank of England continued with its nefarious interventions during the 1920s and 30s, so the Federal Reserve has continued to underprice money – even deploying a relatively new weapon of asset inflation known as quantitative easing.

Chivvis notes towards the end of the book that “the difference between U.S. primacy in the late twentieth century and British primacy a hundred years earlier was that the British were a net lender, whereas the United States, largely as a result of the system of which Rueff was critical, was a net borrower. Whether this is a tenable situation or one that is ultimately good for the global economy, not to mention the United States itself, is a question worth asking. Needless to say, Rueff’s alternative would have helped prevent it.”


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Julian Morris

Julian graduated from the University of Edinburgh with a Masters in economics. Graduate studies at University College London, Cambridge University and the University of Westminster resulted in two further masters’ degrees and a Graduate Diploma in Law (equivalent to the academic component of a JD). 

Julian is the author of dozens of scholarly articles on issues ranging from the morality of free trade to the regulation of the Internet, although his academic research has focused primarily on the relationship between institutions, economic development and environmental protection. He has also edited several books and co-edits, with Indur Goklany, the Electronic Journal of Sustainable Development (  

Julian is also a visiting professor in the Department of International Studies at the University of Buckingham (UK). Before joining Reason, he was executive director of International Policy Network (, a London-based think tank which he co-founded. Before that, he ran the environment and technology programme at the Institute of Economic Affairs, also in London. 

Julian Morris

Vice President, Research
Reason Foundation

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