The Stability of the Gold Standard

Abstract

Abstract One of the compelling conclusions that emerges from the historiography on the classical gold standard is that the period saw what economic historians call a remarkable level of stability relative to periods before and after. As noted above, however, the historians have marshaled a plethora of diverse properties as testimony to this stability. Defining what constitutes international monetary or economic stability is an exercise in subjectivity. This is to be expected, given the differing views of what constitutes a well-functioning or desirable international monetary regime.2 One inevitable shortfall of accounting for the performance of differing monetary regimes is, given the variety of definitions, an inability to definitively separate cause from effect. Is the efficiency of the adjustment mechanism to be considered an integral part of a regime’s success or a cause of its success? Should international price trends be seen as a property of an international monetary regime or fundamental determinants of the regime’s properties (e.g., in terms of their impact on exchange rates and terms of trade)? Should monetary regimes be judged on the performance of real international variables, such as growth in income and employment, or should these real variables be assessed only with respect to their impact on monetary variables such as exchange rates, liquidity, velocity, and inflation? To what extent should national economic performance (fiscal performance, inflation, unemployment) be considered part of the performance of an international monetary regime? The answers to these questions are likely to vary according to the research agendas of differing scholars. With these caveats in mind, the purpose of this chapter is to explain why the gold standard was successful in maintaining itself throughout most of the developed world in the three and a half decades preceding World War I (i.e., how the gold club was able to persist). This approach looks at stability in a literal sense: a state in which some set of practices and relations remain intact, which in this particular case constituted the ability of a collectivity of nations to maintain the gold link throughout the period. As Bloomfield (1963, p. 29) points out, “No leading country was ever forced to abandon gold.