Keywords

1 Metallic Standards (Chapter 13)

The essays on metallic standards—Gold Standard, Silver Standard, Bimetallism—originally appeared in the second edition of The New Palgrave.1 It is instructive to see how they relate to comparable entries in the original Palgrave.2 These entries are Gold as Standard, Gold Bullion as a Commodity at the Mints, Gold Points in Foreign Exchanges, Silver as Standard, Silver Legislation in the United States, Bi-Metallism, Latin Union. Excellent bibliographies in the entries reveal the contemporary state of the art.

Commonality with the present essays is threefold. First, there are neat outlines of institutional conditions required for a gold-coin standard and for bimetallism, with a brief account for a silver standard. Mint regulations that underlie the gold standard in England, France, Germany, Italy, and the United States are presented. Note that these are the four “core countries” plus Italy. There is also a comprehensive description of the treaty regulations of the Latin Monetary Union regarding gold and silver money. Discussion of U.S. silver legislation is purely institutional.

Second, there is recognition of instability of each of the three standards. Mention is made of the evolution of a pure gold-coin standard to a mixed standard in which “gold, the international standard of value, still circulates in considerable quantities, but it chiefly serves as a reserve to support the fiduciary currency and the book-entry transactions which to a large extent replace it in ordinary use” (Palgrave 1896, p. 222). Instability (cited as “disadvantages”) can result from a sudden increase in the demand for gold, resulting in non-fulfilment of promises to pay. The word “instability” is used in connection with long-run changes in the supply of gold, with resulting changes in the “value of gold” [inverse of the price level], resulting in debtor-versus-creditor gains or losses.

Abandonment of the silver standard, that began with Britain, ultimately resulted in only a few countries left on that standard. The inherent instability of a bimetallic system is discussed well, though entirely via authority (Jevons, Royal Commission on Gold and Silver, Barbour, Rochussen). There is excellent discussion of the superseding of legal (“unrated”) bimetallism with effective monometallism. The long-run decrease in the price of silver relative to gold is emphasized. Problems of the Latin Monetary Union involved paper-money issuance within the Union and overvaluation of silver that led to Holland and Germany unloading that metal onto the Union.

Third, the entry on gold points is brief but enlightening. The only limitation is the merging of coin and bullion flows, a characteristic shared by my own Gold Standard essay! Consistent with that essay, the entry recognizes that “gold movements begin before these points are reached, as some business houses with special facilities, or undertaking large transactions, find a profit in remitting gold at much closer rates” (Palgrave, 1896, p. 227).

2 Classical Gold Standard (Chapter 14)

The literature on the classical gold standard is voluminous and not fully encompassed by the essay (in Chapter 14) and its references. One regrettable omission is the “trilemma approach” to the gold standard or any monetary system for an open economy. Such a country has three jointly unattainable objectives: fixed (or stable) exchange rate, free international capital mobility, and autonomous (or domestically oriented) monetary policy. One objective must be sacrificed for the other two to be realized.3 The classical gold standard is generally interpreted as dropping the last objective. Maurice Obstfeld, Jay C. Shambaugh, and Alan M. Taylor [OST] (2005) adopt the view that the U.K. ran the international orchestra, show that it did so successfully during the 1870–1913 period, and judge that “the data” (meaning their econometrics) support the conventional (“historical narratives”) view: “The classical gold standard was a highly globalized period of mostly fixed rates, unfettered capital mobility, and, hence, limited monetary independence” (OST 2005, p. 424). They make the insightful statement: “Because the U.K. interest rate always resided within reasonably small bands, countries could partially adjust to the U.K. rate change and use the margin afforded by the gold points and arbitrage costs to cover the rest” (OST 2005, p. 434).

3 Interwar Gold Standard (Chapter 13)

The comment of insufficiency applies even more to the interwar gold standard, discussed in the gold-standard essay (Chapter 13) with only about half the space devoted to the classical gold standard and, unlike the classical standard, void of an individual essay. With Golden Fetters, Barry Eichengreen literally and figuratively “wrote the book” on the interwar experience. Elsewhere (Officer, 1992) I show unrestrained enthusiasm regarding Eichengreen's iconic work.4 Appearing almost 20 years after Golden Fetters, Olivier Accominotti (2020) is well-worth reading as a later treatment of the interwar gold-exchange standard. And OST (2004) successfully apply the trilemma model to the interwar experience: “The trilemma was a constraint on policy for countries that fixed their exchange rate and maintained open capital markets. They lost much of their monetary autonomy compared with countries that adopted alternative regimes” (OST 2004, p. 106).

4 Silver Standard, Bimetallism (Chapter 13)

The Silver Standard and Bimetallism essays are only brief syntheses. In addition to the references therein (and related work published subsequently), two studies outside the mainstream warrant mention. Alejandra Irigoin (2020) provides a sympathetic account of silver-standard history as emanating from Spanish American production. Claude Diebolt and Antoine Parent (2008) argue, and present econometric evidence, that automatic “bimetallic stabilization” (described in the Bimetallism essay) was complemented with co-operative discount-rate policy of the Bank of England and Bank of France.

5 Bretton Woods System (Chapter 15)

It is unusual for a collection of essays to have a book review constitute an (albeit brief) chapter—but I could not resist for Chapter 15. To supplement, Michael D. Bordo (2019) and Barry Eichengreen (2013) are excellent histories.5 OST (2005) demonstrate that the trilemma approach continues to work as an analytical device during Bretton Woods: “fixed exchange rates did not provide much of a constraint on domestic interest rates, a clear by-product of widespread capital controls…As capital controls became more porous over the 1960s, the combination of exchange rate pegs and monetary independence became untenable” (OST 2005, pp. 424, 436).

The Bretton Woods system was inextricably linked with the International Monetary Fund, and the Fund is a specialized agency of the United Nations. In Officer (2007, part II), I compare financing of the two organizations. The use of exchange rates (rather than purchasing power parity) as the ability-to-pay measure understates the GDP of less-developed countries, resulting in (desired) lower UN assessments but (undesired) lower IMF quotas. Richard Sylla (2007) relates this dichotomy to prior historical episodes in which opposite positions are taken by economic actors in light of their self-interest.

Officer's discussion is remindful of the debates over slavery at the U.S. constitutional convention, in which the northern-state delegates argued that slaves ought to be counted for purposes of taxation but not representation, and the southern delegates argued for just the opposite, or of the debates between Britain and its colonies in the heyday of the empire, in which the British wanted the colonies to be economically independent but politically dependent, whereas the colonies wanted just the opposite.

6 Further Discussion

Detailed description and analysis of various monetary standards (gold, silver, bimetallic, Bretton Woods, paper) are presented for the United States and, to a lesser extent, Britain in Parts V and VI.

Notes

  1. 1.

    Steven N. Durlauf and Lawrence E. Blume (2008).

  2. 2.

    R. H. Inglis Palgrave (1894, 1896, 1899). For a fascinating history of the original Dictionary, see Murray Milgave (2018).

  3. 3.

    Therefore the trilemma is also termed “the impossible trinity” (Joshua Aizenman 2019, p. 445).

  4. 4.

    “Eichengreen assembles a gigantic amount of material and synthesizes a tremendous amount of literature” (Officer, 1992, p. 408).

  5. 5.

    My own writings on the International Monetary Fund include Officer (1978, 1990).