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purchasing power of gold reserves had contracted by almost 25 percent.

FIGURE 2

    In 1922, Norman worked with officials at the British Treasury to develop a plan whereby some of the European central banks would, as did many countries in the British Empire, hold pounds rather than gold as their reserve asset—in much the same way that many central banks hold dollars nowadays. He argued that substituting pounds for gold would allow the world to economize on the precious metal and thus reduce the risk of worldwide shortage. Few people failed to notice that by creating a captive source of demand for sterling, the plan would add to its privileged position in the constellation of currencies and greatly ease his job of returning the pound to gold. The plan never really did take off, except in a few minor Central European countries.
    The bigger concern among bankers after the war was not so much that the world was short of gold, but that too much of the gold was concentratedin the United States. Before the war, there had been some parity among the major economic powers between the amount of gold in each banking system and the size of its economy. For example, the United States, with a GDP of $40 billion, accounted for about half the output of the four great economic powers and held about $2 billion in gold, a little less than half of the total gold of these four countries. The balance was only rough and ready—France held proportionately more and Britain less—but the system worked with remarkable smoothness.
    By 1923, the United States had accumulated close to $4.5 billion of the $6 billion in gold reserves of the four major economic powers, far in excess of what it needed to sustain its economy. About $400 million circulated in the form of coins; the remainder consisted of ingots, small bars the size of a quart of milk, each weighing about twenty-five pounds, stored in the vaults of the Federal Reserve Banks and the Treasury. The largest hoard lay under lower Manhattan, about $1.5 billion in the Treasury repository at the legendary intersection of Broad and Wall Streets, and at the New York Fed. The remainder was scattered among the eleven other Federal Reserve Banks across the country. fn1 By one estimate, excess gold reserves in the United States amounted to about a third of its holdings, roughly $1.5 billion.
    While the U.S. monetary system was swamped by this enormous surplus, Europe, particularly Britain and Germany, suffered a chronic shortage. The three big European economies, which had operated before the war on $3 billion worth of gold, were left with barely half that. Faced with constant demands to pay out gold, European central banks had resorted to a complex of measures, the most important being to withdraw gold coins from circulation. All those solid talismans of turn-of-the-century middle-class prosperity had gradually disappeared from Europe’s pockets, to be replaced by shabby pieces of paper. By the mid-1920s, the United States was the only large country where one could still find gold coins.
    The concentration of the world’s key precious metal in the United States had left the rest of the world with insufficient reserves to grease the machinery of trade. The world of the international gold standard had become like a poker table at which one player has accumulated all the chips, and the game simply cannot get back into play.
    ONE MAN WHO had no difficulty liberating himself from the strictures of the gold standard was John Maynard Keynes. After the Peace Conference, he had gone back to teaching at Cambridge. But following the resounding success of
The Economic Consequences of the Peace,
he reduced his involvement with the university and became increasingly caught up on the grander stage of world affairs. He joined the board of an insurance company and became chairman of the weekly British magazine the
Nation,
for which he wrote regular pieces, as he did for the
Manchester Guardian
, articles that were