Abstract
Free trade and the gold standard are inseparably associated with the nineteenth-century and its classical economists. However, except for Great Britain (from 1816) and Portugal (from 1854) the gold standard was not generally adopted until 1879; hence adherence to the international gold standard lasted only thirty-five years, i.e. until 1914. To later generations it epitomised all that was good and bad in classical laissez-faire and its regime of free trade. To those who see the good in it, it stands for monetary order, low interest rates, price stability and high rates of economic growth. To those who see it ‘warts and all’ the gold standard was a ‘fair-weather’ system that worked well only so long as the world economy was booming. Memories of the inter-war years are still vivid and for those deeply scarred by the depression it stands for deflation, unemployment and hardship.
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Notes and References
The process whereby ‘good money drives out bad money’. Although associated with Sir Thomas Gresham, counsellor to Elizabeth I, the principle was understood at least from the early fourteenth century. The process is clearly observed in a bimetallic system. If, for instance, the free-market price of gold in terms of silver is higher than the government mint price, then the overvalued metal (gold) will be melted down and replaced by silver coins (the undervalued metal). Thus, ‘bad’ money (in this case silver, the metal less favoured in the free market) drives out ‘good’ money (gold, the metal more favoured in the free market). Similarly, worn, clipped or debased coins tend to drive out of circulation good, full-bodied, mint-condition coins.
The Cunliffe Report is reprinted in T. S. Ashton and R. S. Sayers (eds) Papers in English Monetary History (Oxford: Clarendon Press, 1953). (There is also a 1979 reprint by Arno Press, New York.)
Data and indices of monetary phenomena for this period are contained in Norman J. Silberling, ‘British Prices and Business Cycles, 1779–1850’, Review of Economic Statistics, vol. v (Oct 1923) (supplement) pp. 232 and 255.
Walter Boyd, A Letter to the Right Honourable William Pitt, on the Influence of the Stoppage of Issues in Specie at the Bank of England; on the Prices of Provisions, and Other Commodities (London: J. Wright, 1801) preface, p. XXXI.
Malthus, Population (1803 ed.) p. 404.
Henry Thornton, An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, ed. F. A. Hayek (New York, 1962).
Thornton, Paper Credit (1802) op. cit. p. 246.
Ibid. p. 198.
Ibid. p. 199.
On Thornton’s change of attitude between 1802 and 1811 see John Hicks, Critics Essays in Monetary Theory (Oxford U.P., 1967) pp. 185–6; also
Charles F. Peake, ‘Henry Thornton: An Accurate Perspective’, History of Political Economy, vol. 14, no. 1 (1982) pp. 116–18.
Thornton, Paper Credit, op. cit. p. 143.
Malthus, Edinburgh Review (Feb 1811) vol. XVII, pp. 342–3.
Ibid. p. 359.
For the Report see the edition by Edwin Cannan, The Paper Pound of 1797–1821: A Reprint of the Bullion Report (London: King, 1919).
See Hansard, n.s. 14 (1826) cols 450–66.
Ibid. col. 80.
See the excellent study of the Free Banking literature by Lawrence H. White, Free Banking in Britain: Theory, Experience (Cambridge U.P., 1984).
Marion R. ‘Daugherty, The Currency-Banking Controversy’, parts I and II, Southern Economic Journal (1942–3) vol. 9, pp. 140–55, 241–51;
Lloyd Mints, A History of Banking Theory (Chicago U.P., 1945).
Parliamentary Papers (House of Commons) Report from the Select Committee on Banks of Issue (1840) vol. IV, Q. 2654.
Ricardo, Works, op. cit. vol. IV pp. 276–85. James Mill supported the principle behind Ricardo’s plan: The issuing of notes’, he said, ‘is one of that small number of businesses which it suits a government to conduct. …’ Elements of Political Economy (1821) op. cit. p. 113.
The Radcliffe Report, Cmnd 827, endorsed what became known as ‘hydraulic Keynesianism’ and rejected the Quantity Theory of Money.
J. S. Mill in Westminster Review, no. 41 (1844) pp. 590–1.
Thomas Tooke, An Inquiry into the Currency Principle, 2nd ed. (London: Longman, 1844) p. 121.
Rudiger Dornbusch and Jacob A. Frenkel, ‘The Gold Standard Crisis of 1847’, Journal of International Economics, vol. 16, no. 1/2 (Feb 1984) pp. 1–27.
Ibid. p. 22.
Robert Torrens, A Letter to the Right Honourable Lord Viscount Melbourne on the Causes of the Recent Derangement in the Money Market, and on Bank Reform (London: Longman, 1837) p. 44.
Walter Bagehot, Lombard Street: A Description of the Money Market (London: King, 1873) p.71.
Karl Marx, A Contribution to the Critique of Political Economy, Introduction by Maurice Dobb (London: Lawrence & Wishart, 1971) p. 14.
E.g. A Contribution, pp. 56 ff., 215 ff.; Capital, vol. I, pp. 94 ff., vol. III, chs 28 and 34.
Marx, A Contribution, op. cit. p. 179.
Marx, Capital, vol. I, p. 94.
Marx, A Contribution, op. cit. pp. 105–6.
Ibid. p. 182.
Ibid. p. 186.
Marx, Grundrisse, p. 791.
Marx, Capital, vol. I, p. 242.
Marx, A Contribution, op. cit. p. 149; Grundrisse (German ed.) p. 881.
For an account of business complaints against the international complications of the gold standard, see Frank W. Fetter, The Development of British Monetary Orthodoxy 1797–1875 (Cambridge, Mass.: Harvard U.P. 1965) p. 237–9.
Taussig, International Trade (1927) op. cit. pp. 239, 261.
Robert Triffin, The Evolution of the International Monetary System: Historical Reappraisal and Future Perspectives (Princeton U.P., 1964);
Arthur I. Bloomfield, Monetary Policy under the International Gold Standard, 1880–1914 (Federal Reserve Bank of New York, 1959);
A. G. Ford, The Gold Standard 1880–1914: Britain and Argentina (Oxford: Clarendon Press, 1960;
Marcello de Cecco, Gold and Empire (Oxford: Blackwell, 1974).
Mill, Principles, 7th ed. (London: Parker & Co., 1871) book IV, ch. VIII, sec. 4.
J. Robinson, ‘The Need for a Reconsideration of the Theory of International Trade’ (1973) reprinted in Collected Economic Essays, vol. IV, op. cit. p. 20.
J. M. Keynes, A Treatise on Money, vol. II (London: Macmillan, 1930) pp. 306–7.
A well-known early version of this monetarist interpretation is Donald N. McCloskey and J. Richard Zecher, ‘How the Gold Standard Worked, 1880–1913’, in The Monetary Approach to the Balance of Payments, ed. J. Frenkel and H. G. Johnson (London: Allen & Unwin, 1976); reprinted in
McCloskey, Enterprise and Trade in Victorian Britain (London: Allen & Unwin, 1981) pp. 184–208.
For a recent interpretation along these lines which highlights international capital mobility and portfolio adjustment see John E. Floyd, World Monetary Equilibrium, (London: Allan, 1985) ch. 4.
J. G. Gilbart, ‘The Currency: Banking’, Westminster Review (1841) no. 35, p. 67.
For some comments on the weaknesses of the monetarist interpretation and an affirmation of the view that the classical gold standard was, indeed, a sterling system, see Charles P. Kindleberger, A Financial History of Western Europe (London: Allen & Unwin, 1984) pp. 68–70.
In his book, History of the World Economy: International Relations Since 1850 (London: Wheatsheaf Books, 1983) p. 181.
A. I. Bloomfield, Short-term Capital Movements Under the Pre–1914 Gold Standard (Princeton U.P., 1963) pp. 90–1.
White, op. cit. p. 149.
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© 1987 Leonard Gomes
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Gomes, L. (1987). Gold, Money and Trade. In: Foreign Trade and the National Economy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-08992-5_6
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