Currency Convertibility: The Gold Standard and Beyond

By Jorge Braga De Macedo; Barry Eichengreen et al. | Go to book overview

3

THE ORIGINS OF THE GOLD STANDARD

Alan S. Milward

It is a puzzling fact that from the mid-1870s an increasing number of countries valued their national currencies by one method or another against gold; puzzling, because convincing rational explanations are lacking. In the 1920s an allegedly rational explanation temporarily prevailed: that fixing a gold value for the currency maintained stable exchange rates and through the primacy which it gave to the currency 's external value ensured the stability of internal prices.

It is true that one characteristic of the gold standard period was that a prime aim of national government policy in the more developed economies was to preserve the value of the currency, because that was what their narrow electorates demanded, at least before 1900. But there was much more political dispute about this in those less developed economies which also went on the gold standard and, furthermore, the tendency of historical research has been to show that even in the developed economies, central banks did not consistently make a priority of preserving stable exchange rates (Ford, 1989). Compared to today's institutions, they were also relatively indifferent to problems of managing the international economy or of its impact on the domestic economy; there was very little central bank cooperation. The preferred rational explanation of the 1920s can now be seen mainly as romantic nostalgia for an epoch of relatively stable exchange rates and much more stable domestic prices than the wildly inflationary aftermath of World War I.

Three general categories of explanation for this move to a gold standard now seem to exist. Separating them, however, is an arbitrary process. They overlap, and the most authoritative work on the subject, that of Mertens (1944), achieves its authority by combining elements of each of them. Indeed, the less complex the explanations are, the more they seem to reflect the theoretical or historical prejudices of their authors. Nevertheless, a predisposition in favor of one primary motivation as the explanation for going on the gold standard can usually be discerned even in the more complicated accounts, so that the categorization which follows is not merely arbitrary.

The oldest explanation, particularly favored by monetary theorists, relates the origins of the gold standard to changes in the relative supply of the two

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Currency Convertibility: The Gold Standard and Beyond
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures vii
  • Tables ix
  • Preface xiii
  • Part I - Overview 1
  • 1 - Introduction 3
  • 2 - The Operation of the Specie Standard 11
  • Part II - Myths and Realities of the Gold Standard 85
  • 3 - The Origins of the Gold Standard 87
  • 4 - Short-Term Capital Movements Under the Gold Standard 102
  • 5 - The Geography of the Gold Standard 113
  • Comment 144
  • Comment 151
  • Part III - Portuguese Currency Experience 157
  • 6 - First to Join the Gold Standard, 1854 159
  • 7 - Last to Join the Gold Standard, 1931 182
  • 8 - Monetary Stability, Fiscal Discipline and Economic Performance 204
  • Comment 228
  • Comment 233
  • Part IV - Implications for Europe in the 1990s 239
  • 9 - Converging Towards a European Currency Standard 241
  • Index 266
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