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The Gold Standard and the Bank of England in the Crisis of 1847


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  • Rudiger Dornbusch
  • Jacob A. Frenkel


This paper examines the operation of the gold standard and the performance of the Bank of England during the crisis of 1847. The key feature of that crisis has been its origin: it originated from a massive real shock rather than from monetary disorder. A harvest failure gave rise to commercial distress and financial panic.Following a brief outline of the main events during the 1847 crisis, we present asimple model of the financial sector that captures the central characteristics of the crisis. The model, which highlights the role of confidence in both external and internal convertibility, is then used for interpreting the detailed characteristics of the financial crisis.Faced with a confidence crisis leading to international and external monetary drains,the Bank of England suspended Peel's act and thereby was allowed to issue fiat money without being constrained to have full gold backing. Our analysis shows that suspension of Peel's act was the proper policy required for the restoration of confidence. It also sheds light on the role of a lender of last resort in cases of banking panic.As for the evaluation of the gold standard, the 1847 crisis demonstrates that International capital flows have played a key role in the adjustnent mechanism. Further, it demonstrates that in contrast with the traditional representation, the gold standard has not been characterized by automatic, non-discretionary adjustment. On the contrary,banking policies and changes in the reserve-deposits and currency-deposits ratios have affected the money stock independently of gold flows.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1039.

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Date of creation: Dec 1982
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Publication status: published as Dornbusch, Rudiger and Jacob A. Frenkel. "The Gold Standard Crisis of 1847 ." Journal of International Economics, Vol. 16, No. 1/2, (February 1984),pp. 233-271.
Handle: RePEc:nbr:nberwo:1039

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Cited by:
  1. Willem H. Buiter & Jonathan Eaton, 1982. "On the Adequacy or Inadequacy of Keynesian Balance-of-Payments Theory: A Rejoinder," NBER Working Papers 1032, National Bureau of Economic Research, Inc.
  2. Miller, Victoria, 1996. "Speculative currency attacks with endogenously induced commercial bank crises," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(3), pages 383-403, June.
  3. Berlemann, Michael & Nenovsky, Nikolay, 2003. "Lending of first versus lending of last resort: The Bulgarian financial crisis of 1996/1997," Dresden Discussion Paper Series in Economics 11/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  4. della Paolera, Gerardo & Taylor, Alan M., 2002. "Internal versus external convertibility and emerging-market crises: lessons from Argentine history," Explorations in Economic History, Elsevier, Elsevier, vol. 39(4), pages 357-389, October.
  5. Michael D. Bordo, 1998. "The financial crisis of 1825 and the restructuring of the British financial system - commentary," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 77-82.
  6. Eric Vanhaute & Richard Paping & Cormac Ó Gráda, 2006. "The European subsistence crisis of 1845-1850 - a comparative perspective," Working Papers, School Of Economics, University College Dublin 200609, School Of Economics, University College Dublin.


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