ABSTRACT
The imbalance of payments would have been automatically corrected and with it the excess demand for foreign currency. A bullion or bullion-backed currency differs from a pure paper currency in that it is readily acceptable in payment of debts in any country as if it were bullion. Foreign currency need not be bought to finance import surpluses since foreign payments could always be made in bullion or bullion equivalent. The problem of the twentieth century is quite different. If nineteenth century governments had believed, as twentieth century governments do, that the 'hidden hand' of Adam Smith was in desperate need of guidance, they might have behaved in quite a different way. The International Monetary Fund was set up by planners to deal with this problem first and foremost. The international market mechanism actually works by facing some producers with unsold stocks and falling profits, which imply unemployment and/or reduced wages.
