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The emergence of the Classical Gold Standard

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  • Matthias Morys

Abstract

This paper asks why the Classical Gold Standard (1870s - 1914) emerged: Why did the vastmajority of countries tie their currencies to gold in the late 19th century, while there was onlyone country – the UK – on gold in 1850? The literature distinguishes a number of theories toexplain why gold won over bimetallism and silver. We will show the pitfalls of these theories(macroeconomic theory, ideological theory, political economy of choice between gold andsilver) and show that neither the early English lead in following gold nor the German shift togold in 1873 were as decisive as conventional accounts have it. Similarly, we argue that thesilver supply shock materializing in the early 1870s was only the nail in the coffin of silverand bimetallic standards. Instead, we focus on the impact of the 1850s gold supply shock (dueto the immense gold discoveries in California and Australia) on the European monetarysystem. Studying monetary commissions in 13 European countries between 1861 and 1874,we show that the pan-European movement in favour of gold monometallism was motivatedby three key factors: gold being available in sufficient quantities to actually contemplate thetransition to gold monometallism for a larger number of countries (while silver had becomeextremely scarce in the bimetallic bloc, which was the single most important currency area interms of GDP), widespread misgivings over the working of bimetallism and the fact that goldcould encapsulate substantially more value in the same volume than silver (i.e. coinconvenience). In our view, then, the emergence of the Classical Gold Standard was imminentin the late 1860s; which European country would move first – which is often erroneouslyattributed to Germany – is of secondary importance.

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Bibliographic Info

Paper provided by CHERRY, c/o Department of Economics, University of York in its series Centre for Historical Economics and Related Research at York (CHERRY) Discussion Papers with number 12/01.

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Date of creation: Jan 2012
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Handle: RePEc:yor:cherry:12/01

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  1. Oppers, S.E., 1994. "Was the Worldwide Shift to Gold Inevitable? An Analysis of the End pf Bimetalism," Working Papers 351, Research Seminar in International Economics, University of Michigan.
  2. Allen, Robert C., 2001. "The Great Divergence in European Wages and Prices from the Middle Ages to the First World War," Explorations in Economic History, Elsevier, vol. 38(4), pages 411-447, October.
  3. Luca L. Einaudi, 2000. "From the franc to the ‘Europe’: the attempted transformation of the Latin Monetary Union into a European Monetary Union, 1865-1873," Economic History Review, Economic History Society, vol. 53(2), pages 284-308, 05.
  4. Eichengreen, Barry & Flandreau, Marc, 1994. "The Geography of the Gold Standard," CEPR Discussion Papers 1050, C.E.P.R. Discussion Papers.
  5. Hugh Rockoff & Michael D. Bordo, 1996. "The Gold Standard as a "Good Housekeeping Seal of Approval"," Departmental Working Papers 199528, Rutgers University, Department of Economics.
  6. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 85-104, Fall.
  7. Meissner, Christopher M., 2005. "A new world order: explaining the international diffusion of the gold standard, 1870-1913," Journal of International Economics, Elsevier, vol. 66(2), pages 385-406, July.
  8. repec:ubc:bricol:88-36 is not listed on IDEAS
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