Gold Clauses in the Capital Markets of the Early Twentieth Century

Abstract

Gold clauses were one of the most legally troublesome issues in international contracting during the 1920s-1930s. The litigation over gold clauses was a sign that the old monetary order based on the international gold standard was breaking down, despite all the efforts of national governments and central banks to restore it. The aim of this paper is not to recount the doctrinal rules developed by F A Mann and other contemporary commentators on the interpretation and implementation of gold clauses in monetary obligations. Rather, it scratches beneath the doctrinal analysis to the commercial and political purposes served by gold clauses. It seeks to connect them with the prevailing understandings of money and monetary valuation in the early decades of the 20th century. It considers the gold-clause contracts as historical instances of the early international bond markets in operation, and the litigation over them as one reaction to the financial instability of the era. The gold clause cases are a neglected chapter in the larger story of international debt payments and settlements of the inter-war years. They mark an important transition between the old monetary order of the international gold standard and the new order of the Bretton Woods system established after the Second World War.

Keywords: Gold standard; Financial History; Legal History; First World War

JEL Classification: K12, N22, N23, N24, N44