A retrospective on the classical gold standard, 1821–1931: A review essay

Abstract

An NBER conference organized by Michael Bordo and Anna Schwartz and held in March of 1982 re-examined the historical evidence on the performance of the classical gold standard. The conference proceedings, which consist of 14 papers and discussion, plus an introduction, have been published in a 651-page volume titled A Retrospective on the Classical Gold Standard, 1821-1931 (University of Chicago Press, 1984). The volume provides evidence on several issues that ought to be examined when evaluating the merits of returning to a gold standard. What was the actual money supply process in England, Canada, Germany, Italy, and Sweden during the Gold Standard Period? Did a commitment to a convertible currency at a fixed parity constrain monetary policy and, thereby, promote low and stable rates of money growth and inflation? Did the commitment promote external stability? (The volume also examines whether markets were unified internationally at the turn of the century and Gibson’s Paradox.) The principle modes of analysis found in the volume are time series regression and historical exposition. Gold standards adopted during the Gold Standard Period did not require 100 percent gold backing of domestic money. Instead, historical gold standards allowed the monetary authority to vary the relationship between the domestic money stock and gold reserves. Understanding the money supply process under a gold standard with less than 100 percent gold backing requires specifying how the monetary.authority varies the gold reserves to money stock ratio. One popular hypothesis, examined in over half the papers in the Bordo and Schwartz volume, is that the monetary authority follows the ‘rules of the game’.