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The determinants of gold hoarding in Argentina, 1900-1914 Preston, David Frank

Abstract

The thesis sets out to determine the causes of the gold hoarding and dishoarding in Argentina between 1900 and 1914. It was found that gold (dis)hoarding was part of a mechanism whereby the money supply was altered to meet demand through the exchange of gold pesos for paper. Speculation was important only in late 1913 and 1914 when the possibility emerged that paper would become inconvertible, the price of gold would rise and capital gains would accrue to gold holders. Five assumptions were made: (1) that the money supply was a function of the gold stock, (2) that the demand for money was a function of the level of income, (3) that the Neoclassical explanation of the determination of income fitted Argentina during this period, (4) that price and money income levels were given on world markets, and, (5) that the level of exports determined the level of income. In Argentina during the period 1900 - 1914, gold served two functions: (1) it provided the money supply, and (2) it balanced the international accounts. The thesis argues that although Argentinians were constrained by fixed levels of prices and income and by the rules of the gold standard they were able to alter the real supply of domestic currency by (dis)hoarding gold from their private stocks. Hoarding was found to be correlated with the velocity of money. Consequently it is argued that gold was used to adjust the money supply toward the level of income regardless of what the level of income was. Gold was also found to be correlated with income, although less highly than with velocity. Consequently gold tended to be dishoarded in years after a good spring crop when paper was needed to buy land and real estate and to expand production. In this way gold acted as a precautionary asset which could be used to make advantageous purchases and which was secure in value, the two criterion suggested by Keynes. However, gold behaved in the opposite way to the precautionary balance described by Friedman who felt that the asset would be dishoarded when income was low. Other possible determinants of gold (dis)hoarding were tested and rejected. Two proxies for the interest rate, railroad receipts, and the note issue (the money supply) were correlated with gold (dis)hoarding but the coefficients were not significant. The thesis also suggested that the definition of balance of payments equilibrium should allow for a persistent gold import which would provide a domestic money supply. In equilibrium the rate of gold import equals the rate of growth of income if a constant velocity of money is desired. A second subconclusion was that the international import of gold responded to demands for reserves made by the countries doing the trading. Although these demands were satisfied in the long run, they were not satisfied in the short run, and gold (dis)hoarding took place

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