Michael D. Bordo and Anna J. Schwartz
The classical gold standard era from 1880 to 1914, when most countries of the world defined their currencies in terms of a fixed weight (which is equivalent to a fixed price) of gold and hence adhered to a fixed exchange rate standard, has been regarded by many observers as a most admirable monetary regime. They find that its benefits include long-run price level stability and predictability, stable and low long-run interest rates, stable exchange rates (McKinnon, 1988), and hence that it facilitated a massive flow of capital from the advanced countries of Europe to the world's developing countries.
Others have taken a less favorable view of the gold standard's performance. Some criticize the record of relatively high real output and short-term price variability (Bordo, 1981; Cooper, 1982; Meltzer and Robinson, 1989), and some have faulted it for subordinating domestic stability to the maintenance of external convertibility (Keynes, 1930).
A persistent critique of the gold standard is that it provided a favorable experience for the core countries (France, Germany, the United Kingdom and the United States), but a less favorable experience for the peripheral countries of the developing world (de Cecco, 1974). For the core countries the balance of payments adjustment mechanism was stable, so few crises occurred; the peripheral countries, by contrast, were subject to shocks imported under fixed exchange rates from abroad and frequently suffered exchange rate crises and a destabilized growth pattern.
An alternative approach to these issues of gold standard history posits that adherence to the fixed price of specie, which characterized all convertible metallic regimes including the gold standard, served as a credible commitment mechanism to monetary and fiscal policies that otherwise would be time inconsistent (Bordo and Kydland, 1996; Giovannini, 1993). On this basis, adherence to the specie standard rule enabled many countries to avoid the