ABSTRACT
Maurice Obstfeld, the contributor to The New Palgrave Dictionary of Economics on the subject of ‘International Finance’, expressed a representative view of the nature of international monetary theory in the interwar years. He stated that the intertemporal approach to the analysis of the balance of payments was a recent invention:
International capital movements were discussed increasingly in the theoretical literature, but they were viewed for the most part as an adjunct to the classical balance of payments mechanism. The theoretical discussions merely formalised a mechanism that had long been exploited by the Bank of England to regulate gold flows . . . Such short term or interest-sensitive capital movements were generally discussed separately from ‘long term’ international capital movements which directly financed investment or government expenditures.
