Gold Standard

12 Key excerpts on "Gold Standard"

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  From the Athenian Tetradrachm to the Euro

  Studies in European Monetary Integration

  • Gérassimos Notaras(Author)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  The Gold Standard: A Review from the Periphery

  Pablo Martín-Aceña

  Introduction

  The period from 1880 to 1914, known as the heyday of the Gold Standard, was a remarkable one in world economic history. It was an era of globalization, marked by remarkable economic growth, substantial transfers of productive resources and rapid technological change. Under its aegis, a widespread system of fixed exchange parities was maintained from the 1880s until 1914. Entirely voluntary participation in the Gold Standard was a notable aspect of this regime, and despite a number of international crises, it functioned with surprising smoothness. Moreover, it appears to have done so with little, if any, international cooperation.

  This legendary international monetary regime emerged during the late nineteenth century, when the majority of countries switched from bimetallism and paper to gold as the basis for their currencies. As an international standard, the key rule was the maintenance of gold convertibility at a previously established parity. The fixed price of gold ensured fixed exchange rates that, in turn, provided a nominal anchor to the international monetary system. Thus, an economy is said to be on the Gold Standard when its monetary unit's gold content is fixed by law. In addition, the institutions issuing fiduciary money are under legal obligation to exchange, at any time, any amount of gold specie for fiduciary currency, and vice versa, while any amount of bullion will be coined on request by the mint. Finally, the authorities must allow unrestricted international movements of specie and bullion and, more generally, free capital mobility. Using current terminology, the Gold Standard is an exchange regime characterized by a fixed exchange rate, free convertibility and perfect capital mobility.

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  A Critique of the Gold Standard

  • H. L. Puxley(Author)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  The Gold Standard and its Future, London, 1932, p. 9. With stable exchange rates, an American trader can deal in goods priced in sterling as simply as in goods priced in dollars.

  1 “The quantity of circulating credit tends to hold a definite relation to the quantity of money in circulation.”—Irving Fisher, Purchasing Power of Money, p. 50. The quantity of money in circulation, in turn, was supposed to be closely linked to the size of the country’s gold holdings.

  1 “Any fall in the value of gold in one country (indicated by a rise in prices in that country) relative to the value of gold in other gold-standard countries would generate a movement of gold out of that country into those other countries where its values are greater. Inflow to those countries would tend to lower its value there, i.e. to raise prices; and the efflux from the country which lost some of its gold would tend to raise its value in that country, i.e. to lower prices. And these two sets of forces would continue to be effective until equilibrium was restored…. In short, the operation of the Gold Standard … tended to establish a price-stability between countries.”—D. T. Jack, Economics of the Gold Standard, London, 1925, p. 25.

  1 “The Territorial Distribution of money is effected through the agency of Prices. If the stock of money in any country becomes so large that, its rate of movement being what itis, goods offered in the market for money can be exchanged as often as required, and yet a higher level of prices be maintained than in other countries, that country becomes a good country to sell to, because prices there are high, and, for the same reason, becomes a bad country to buy from. The immediate consequence is that exports of domestic products from a country having such a scale of prices are diminished, while its imports of foreign merchandise are increased. If, then, the money of that country is such as has equal acceptance in foreign countries, a movement for its exportation to settle the disturbed balance of exchange at once begins.”—F. A. Walker, Money, Trade and Industry

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  Gold Standard In Theory & History

  • Barry Eichengreen, Marc Flandreau(Authors)
  • 2005(Publication Date)
  • Routledge

    (Publisher)

  He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent. 5 The classical Gold Standard was a remarkably uncomplicated mechanism. To be ‘on gold’, a country simply fixed a legal value in national currency at which the monetary authorities (typically the mint or the central bank) would buy or sell gold. This effectively established a fixed legal rate of exchange between gold and the currency, and thus between all other gold-standard currencies and the national currency. A number of subsidiary ‘rules of the game’, not formal but widely understood, were designed to ensure that the government would be able to guarantee free convertibility of the currency into gold. 6 The economic implications of the Gold Standard were also quite simple and were understood in late medieval times. If a country ran a persistent trade deficit, gold would flow out and the money supply would contract. 7 This would drive domestic prices down relative to world prices, thus increasing exports and reducing imports—and bringing trade back into balance. The process ran in reverse for countries with persistent surpluses. To repeat the points made more generally above, a credible commitment to gold provided economic agents with a marvelously predictable exchange rate, but it also greatly restricted the ability of national governments to affect national monetary conditions

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  Routledge Library Editions: Monetary Economics

  • Various(Author)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  XVI Contents Gold may be only temporary-Dollar De- greater in terms of Gold than in terms of Commodities-Deflation to Old Gold Parity Politically Impossible-About Two Billion Dollars of Stabilization Profits would go to the Government-Gold Bullion Standard recommended - The President's Stabilization Plan XII THE NEW AMERICAN DOLLAR Government receives Two Billion Eight Hun- dred and Six Million Dollars of " Devaluation Profit "-Takes Possession of all Monetary Gold-Law does not establish a Gold Standard-Will probably ultimately result in more than Doubling Cost of Living- Weakens Federal Reserve System by Trans- ferring many of its Powers to the Govern- ment INDEX PAGE I90 2II CHAPTER I THE Gold Standard What It Is-Its Principal Defect-The Only Standard that offers an Early Hope of being an International Standard- -The Problem of To-day is not to create a Substitute for the Gold Standard, but to make the Gold Standard a Better Standard E VERYBODY to-day is interested in the Gold Standard. Apart, however, from a small group of economists, few people could answer the question: "Exactly what is meant by the Gold Standard ?" Even the economists them- selves would differ concerning the precise defini- tion-as do the specialists in any subject con- cerning the exact definition of general terms- but they would agree substantially in funda- mentals. What is this Gold Standard of which we are now hearing so much, both of praise and blame? What is the Gold Standard? Briefly, the Gold Standard is a monetary system in which the unit of value, be it the dol- lar, the pound, the franc, or some other unit in which prices and wages are customarily I B 2 Kemmerer on Money expressed and in which debts are usually con- tracted, consists of the value of a fixed quantity of gold in a free gold market. In this definition several things that are popularly associated with the Gold Standard are conspicuous by their absence.

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  Balance of Payments

  Theory and Economic Policy

  • Robert Stern(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  This brief historical survey revealed a number of important differences between the idealized version and observed operation of the Gold Standard. In short, the Gold Standard was in actuality far more complex and functioned much less automatically than the idealized version of it implies. The special historical circumstances of economic growth in the pre-1914 period also cannot be overlooked. We had occasion thereafter to examine the abortive attempts to reinstitute the Gold Standard during the interwar period, and to consider the implications of adapting the present-day international financial system along gold-standard lines. The important question here was whether countries would willingly expose themselves to domestic instability in order to maintain exchange-rate stability. We stepped finally outside of the Gold Standard and examined in more general terms the case to be made for a system of fixed exchange rates and the special conditions that would have to be met for such a system to function effectively. Having treated the major considerations involved in freely fluctuating and fixed exchange-rate systems, we can turn in the next chapter to the present-day system of the adjustable peg. The issue here is whether the present-day system represents the better or the worse of both possible exchange-rate worlds. 1 This account of the adjustment mechanism under the Gold Standard is very much oversimplified. In particular, we have not spelled out the relationships between the demand for goods and for money and between national income and expenditure that make the system operative and lead to equilibrium when a disturbance occurs

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  The Global Gold Market and the International Monetary System from the late 19th Century to the Present

  Actors, Networks, Power

  • S. Bott(Author)
  • 2013(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  laissez faire Liberalism was beginning to hold sway, especially at the centre of the world economy in London. The Gold Standard appeared as essential for what Karl Polanyi called ‘the Great Transformation’, and Christopher Bailey ’the Great Acceleration’, of international trade and finance since it was supposed to force governments to abide by the laws of supply and demand rather than be pushed by temporary political exigencies (Polanyi 1944; Bayley 2004, p 472). The Gold Standard also allowed the City of London to become the nerve centre of not only the British Empire but the entire world economy. London’s financial supremacy assured sufficient British earnings on ‘invisibles’ to allow it to enjoy balance of payments surpluses even while its trade balances were negative. That, in turn, stimulated the globalization of the world economy, as Britain’s profits from finance, transport, and commerce allowed the islanders to be the world’s largest consumers of many of the most important internationally traded commodities (Topik and Wells 2012, pp. 593–812).

  The Gold Standard also played a political/ideological role: the money supply and exchange rates were supposed to be governed mechanically by international balances of payment, that is by the market rather than by the caprice of politicians. This was the first step in what today is sometimes called ‘the imperialism of economics’ – the notion that the economic trumps the political because it is more scientific, unbiased, predictable and efficient. Adoptions of the Gold Standard in both Brazil and Mexico were early day manifestations of ‘structural readjustment’ before the term itself was coined. In both countries men considering themselves economic scientists (they adopted the label cientifico in Mexico), pushed for the Gold Standard (María y Campos 1979, 157–87; Casasús 1905; Murtinho 1899).

  A common notion holds that the Gold Standard was almost natural, long-standing and widely recognized, as if all state leaders had studied the same economics text book and diligently applied its principles. In fact, the Gold Standard only came to dominate in Europe after 1870, and particularly in the early 20th century. Gold, silver, and bimetal systems, both convertible and inconvertible, finally converged with the unprecedented boom in the world economy in the last quarter of the 19th century.

  But this convergence did not merely reflect the internal logic of capitalist accumulation. It arose from a number of different directions, at different periods, because of diverse internal and external reasons. Some of the greater agreement about value came from broad changes that Kevin O’Rourke and Jeffrey Williamson point to as the beginning of modern globalization; they argue that a transportation revolution, large-scale immigration and lowered transaction costs brought about price and factor convergence in the years between 1870 and 1930 (O’Rourke and Williamson 1999; also see Schwartz 1994). By helping lower transaction costs because of greater trust in the value of money and at the same time spreading and speeding commercial relations across national borders, the Gold Standard can be seen as both a cause and

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  International Macroeconomics

  • Peter J. Montiel(Author)
  • 2015(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  We begin the chapter with some historical background that will help us understand how the Gold Standard evolved. We then turn to exploring central bank behavior under the Gold Standard. In the next chapter we will turn to ‘‘hard peg’’ macroeconomics. 5.1 Evolution of the International Gold Standard In this section, we will review how the Gold Standard arose. Tracing the evolution of the Gold Standard provides a useful insight into what made this exchange rate regime a ‘‘hard’’ peg – specifically, why the official price of gold (which, as we will see, determined the official exchange rate under the Gold Standard) was not regarded by central banks as a policy variable to be adjusted at their discretion. Precious Metals as Money In ancient times, countries and city-states generally operated on what economists refer to as a specie commodity standard, consisting of the use of precious metals as money. In the West, the use of precious metals as money can be dated back to the 24th century bce in Mesopotamia. The innovation of money in the form of a generally acceptable medium of exchange yielded important social benefits over simple barter, because it avoided wastage of resources in the form of the transaction costs incurred in seeking out a ‘‘double coincidence of wants’’ in trade. But why use precious metals in particular – instead of something else – as money? 116 Fixed Exchange Rates In fact, many different types of commodities have functioned as money across human history. These include cloth, grain, silk, cows, cowrie shells, wampum (beads on string), tobacco, cigarettes, and more exotic items such as massive stones and even human skulls! But precious metals have been used most commonly. Precious metals are attractive as money because they have intrinsic value, that is, their value makes it likely that others will accept them in exchange, which makes people more likely to accept them as means of payment.

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  Money, Capital, and Fluctuations

  Early Essays

  • F. A. Hayek, R. K. McCloughry(Authors)
  • 2018(Publication Date)
  • University of Chicago Press

    (Publisher)

  That the otherwise conservative managements of the central banks deviated in a relatively light-hearted manner from the traditional rules of monetary policy can be attributed to the influence of new ideas on monetary policy, propagated by the academic fraternity, which obtained wide circulation during the post-war years. In order to understand what actually happened, therefore, a brief consideration of the origin and significance of these new ideas is necessary.

  The rise of the concept of stabilization

  What must be remembered first of all is that, as a result of the general paper money inflation in Europe and the associated drift of gold to America after the end of the war, gold was devalued to such an extent that precisely at the time when the return to the Gold Standard was the most pressing need in most European countries, in America the fact that even gold did not constitute a completely satisfactory basis for a currency in all circumstances was felt more strongly than ever before. Little attention was paid to the fact that even this fall in the value of gold had only occurred because of the abandonment of the Gold Standard in Europe, and would never have reached the stage that it did had not the few countries which had maintained gold payments used the cessation of competition for gold so as also to inflate, though at a lower rate than those which had departed from gold.

  The second important factor which determined the development of ideas on monetary policy was that the above-mentioned facts were partly contributory to the extraordinary influence exercised by two particular representatives of the mechanistic Quantity Theory of Money and of the concept of a systematic stabilization of the price level, Professors Irving Fisher and Gustav Cassel. The fluctuations in the value of money mentioned above necessarily aroused wide interest in Professor Fisher’s proposal for stabilizing the value of gold, which he had been advocating for a long time; and the lively propaganda which was being circulated, particularly by the Stable Money Association which he had founded, had succeeded in making the concept of price stabilization as the objective of monetary policy into a virtually unassailable dogma. Professor Cassel, who deserved the greatest credit for the stabilization of European currencies, contributed a further, extraordinarily effective argument in favour of the policy of stabilization, the influence of which upon actual developments it is impossible to overestimate.

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  Central Banks at a Crossroads

  What Can We Learn from History?

  • Michael D. Bordo, Øyvind Eitrheim, Marc Flandreau, Jan F. Qvigstad(Authors)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  There were several opportunities for central bankers to enlarge their active management of the system. In good times, they increased the level of metallic and foreign exchange reserves well above the legal minimum in order to pursue an accommodative stance in times of crisis. They also used their holdings of bonds and bills to sterilize capital inflows (Øksendal 2012, Ögren 2012, Ugolini 2012). Another way to dampen the shocks to the financial and monetary system was to deploy so-called “gold devices” such as delaying capital movements or to demand a fee to introduce further frictions into capital flows. Some central banks, especially the Austro-Hungarian bank, became quite skillful in using foreign exchange intervention to avoid interest rate spikes emanating from the Bank of England (Flandreau and Komlos 2006, Jobst 2009). The Bank of Belgium, the pioneer of foreign exchange management in the 1850s, also used this policy (Ugolini 2012) and it was an inspiration for 328 Catherine Schenk and Tobias Straumann the Bank of Japan. Finally, many peripheral countries never introduced specie convertibility (Morys 2013). 2 The classic Gold Standard enjoyed such a high degree of credibility partly because it was shielded from domestic politics and partly because the core countries pursued similar economic policy goals. Among the core countries the level of public debt was manageable, the public spending ratio to GDP was below 20 percent and wages and prices were relatively flexible. Furthermore, the costs of adjustment were passed on to those parts of society that had the least political rights (Eichengreen 1996). In the nineteenth century suffrage was quite limited in most Western countries and governments in Europe were mainly concerned with internal and external security and property rights. A consensus that the state was responsible for the economic welfare of populations had begun to develop, but was not well established until the end of the century.

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  Currency Convertibility

  The Gold Standard and Beyond

  • Barry Eichengreen, Jaime Reis, Jorge Braga de Macedo(Authors)
  • 2005(Publication Date)
  • Routledge

    (Publisher)

  Monetary Problems of the International Economy, Chicago: University of Chicago Press, pp.61–89.

  Young, John Parke (1925), Central American Currency and Finance, Princeton: Princeton University Press.

  Passage contains an image

  COMMENT

  Angela Redish

  In this time of uncertainty over monetary regimes, it is natural to see what can be learned from historical experience. Correspondingly, over the last few decades the classical Gold Standard has been used as a case-study by those attempting to measure the impact of alternative monetary regimes for price stability, output cycles and economic growth.1 The papers presented in Chapters 3 and 5 look for rather different lessons—what are the causes of changes in monetary regimes and how are transitions between monetary regimes effected? While it is possible that the choice of regime may have implications for (for example) price and output stability, it does not necessarily follow that it was the search for such behavior that led to the regime change. Indeed, the two papers discussed here emphasize the role of historical contingency and political symbolism in the ascendancy of the Gold Standard.

  Let me begin with Alan Milwards’ discussion of the origins of the Gold Standard. The central thrust of his paper is that Germany's adoption of the Gold Standard in the 1870s had a domino effect and led to the international spread of the Gold Standard. Germany's decision, in turn, he attributes to the desire by a politically powerful liberal bourgeoisie, not for deflation as is sometimes supposed, but for economic development and growth.2 This group believed that the Gold Standard would ‘guarantee…a liberal middle class constitutional order’.

  The overall story here is internally consistent and yet I think there are gaps in the argument that need to be addressed to make the case compelling. I would like to see the link between German adoption of the Gold Standard and subsequent choices by other European powers expanded upon. Was the fall in the price of silver resulting from Germany's silver sales the primary channel of influence, or was it the desire for fixed exchange rate with major trading partners? This latter effect, which Milward emphasizes for example in the case of Scandinavia, needs elaboration. For example, in Chapter 6 , on Portugal's adoption of the Gold Standard, Jaime Reis argues that the Portuguese in 1854 were rather nervous about adopting the same monetary standard as their major trading partner, for fear that the Portuguese economy would be less insulated from Britain. Similarly, there is now a debate over whether Canada should fix its exchange rate with the United States, a debate which to date has been won by the ‘no’ side.3

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  Economics and the Historian

  • Thomas G. Rawski, Susan B. Carter, Jon S. Cohen, Stephen Cullenberg, Richard Sutch(Authors)
  • 1996(Publication Date)
  • University of California Press

    (Publisher)

  Money, Banking, and Inflation An Introduction for Historians HUGH ROCKOFF Most of us like a good story. This is one reason we became historians of one sort or another. What follows is a story about the development of the monetary system in an imaginary economy, tracing the evolution from a pure Gold Standard to a modern system complete with central bank. The story is intended simply to illustrate some of the important ideas in monetary theory and how working historians might apply them. It does not correspond exactly to the history of any one economy but combines historical features from many. The purpose of the story is to introduce the language of monetary economics to historians. Once they master that language, fruitful dialogue with monetary economists can begin. 1 A PURE Gold Standard I begin not at the very beginning, when a commodity such as cattle or salt served as money; 2 nor even at some fairly advanced stage when mer-chants measured prices by weights of gold. 3 Instead I pick up the thread 1.1 want to thank Michael Bordo, Stanley Engerman, Susan Mann, and Eugene White for a number of very useful comments on an earlier draft. Of course, they are not respon-sible for any remaining errors. z. Quiggin 1949 is a fascinating worldwide survey of these early forms of money. 3. The historian working on such early material should not assume that economists are uninterested in these topics. The basic functions of money are stdl a matter of controversy 177 178 Hugh Rockoff in medieval times. There already exists a dominant form of money: gold coins minted by the king. 4 This system, of course, adds greatly to the wealth of the kingdom for reasons that economists have talked about for generations. Money separates the act of purchase from the act of sale. An artisan who makes furniture and needs shoes does not have to search the kingdom for someone who makes shoes and needs a chair.

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  The International Monetary System

  Highlights From Fifty Years Of Princeton's Essays In International Finance

  • Peter B Kenen(Author)
  • 2019(Publication Date)
  • Taylor & Francis

    (Publisher)

  The dollar was ·fully and freely convertible so that central-bank reserve ratios represented their true preferences as between gold and dollars. Private demand reflected genuine industrial use, traditional saving in gold, and lack of confidence here and there in currencies other than the dollar. In that sense, demand for gold was normal and the calls made upon American gold reserves were simply indicative of the shortage of new supply at the fixed price. Yet, both the United States and the system were in disequilibrium because the deterioration of the reserve position of the United States was not sustainable. That confidence in the dollar was not shaken in these years was due, of course, to the fact that the reserve position was superstrong to start with. The United States held over $24 billion of gold at the beginning of 1950 and this allowed ten years of deterioration of its reserve position before the price of gold became suspect. The reserve strength of the dollar in 19 50 is a unique case in monetary history and unique also is the example of a country being able to run a deficit of the relative size of $ 1. 1 billion for ten years. The unprecedented expansion of economic activity and world trade in the postwar period is often cited as proof of the successful operation of the system. This is, at best, a half-truth. In fact, the system was in disequilibrium and the deficit and gold losses of the United States were integral elements in the functioning of the system. Until almost the end of the 19 50s there was little suspicion that the trends in the system were unsustainable. It was considered desirable that the large American gold reserves should be redistributed to support a return to convertibility and liberal trading practices. With the benefit of hindsight, however, it is evident that this conception was mistaken.

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