*The Gold Standard at the Turn of the Twentieth Century*

The author is Steven Bryan, a historian, and the subtitle is Rising Powers, Global Money, and the Age of Empire.  This book offers a great deal of previous unpresented information on the operation of the gold standard in Japan, Russia, Turkey, and Argentina, based on original rather than secondary sources.  Here is a summary paragraph at the end of the book:

The connection between nineteenth-century great power politics, empire building, and militarism and the gold standard was obscured after World War I in the rush to reinstate the form of the gold standard while ignoring its substance and the varied rationales and motivations that had supported it.  Despite the rose-colored hues of nostalgia that flourished after the war, the gold standard did not exist in some magical land separate from the rest of the late nineteenth-century world.  For better or worse, the gold standard was as much a part of the age of empire as it was of the age of industry.

Here is the book's home page.  Here is the p.99 test applied to the book.

Comments

Will the gold standard ever return? One needn't necessarily be for it to think that it might. For instance if certain of our trading partners started demanding gold instead of dollars. Or am I wrong?

Remember that our trading partners do not sit at a large table opposite our ministers of trade and make export and import deals. Rather it is a mosaic off individual, voluntary transactions between American firms and various foreign buyers and sellers. So, any foreign firm can strike its deals with Walmart or Sears or whomever and require payment in Euro, yen or yuan, rather than dollars. Even though we have a central bank, we have a decentralized payment system.

Imagine that gold is used as a currency.
Imagine that gold deflates less than other currencies.

Wouldn't everyone want to hold their gold and pay in other currencies? And when you receive payment in some other currency, you take however much of it you intend to hold as an investment, and convert that part to gold, and pay the rest to somebody else? You'd prefer to pay with the fastest-inflating currency you hold, of course. They of course would prefer to be paid in a slower-inflating currency and might demand a discount to accept your money.

If gold is unreasonably stable, if it deflates, then it becomes an investment opportunity. The better an investment it is, the worse it serves as a currency.

And people will use replacement currencies.

The longer you intend to hold your cash as cash before you spend it, the more you care about inflation hedges. No matter what currency you are paid in, you can use it to buy gold if that's what you want to do. Does it matter whether you demand that they take their currency and buy gold now, and pay you in gold, instead of buying the gold yourself?

Again, the better gold serves as an inflation hedge, the better it is as an investment, the worse it is as a currency.

Am I wrong?

I don't see why everyone is so keen to turn control over the inflation of their currency over to gold miners.

The 19th century gold standard was driven by the government offering to buy all gold offered to it a price well above any foreseeable market clearing price.

How else could the governments--central banks -- accumulate their stocks of gold?

So was this really a free market?

Silas Marner we didn't have a gold standard even when we had a gold standard.

They wound up storing the gold, and they printed four (4) gold certificate dollars for each dollar of gold. Then they printed five (5) other dollars for each gold certificate. Then they let banks use the cash as reserves and pump up the money supply another four or five times.

The fundamental reason was that even then, gold was not currency.

Gold is a commodity and an investment opportunity. Gold is utterly inadequate as a currency.

However, I have thought of a way that might make it work, given the proper technology.

First, we collect the gold into a bank. We put a bunch of motorized webcams in with the gold, and we issue currency that is backed by the gold. You might get a piece of currency that is backed by a gold bar labeled XYZ123 that is in room 19, shelf 12, bay 16. Your currency represents ownership of one thousandth of that bar, the last tenth on the right, the next-to-last tenth up, and the 3rd from last tenth to the front. You can look at your gold over the internet anytime you want and coverm that bar XYX123 is where they say it is.

Any time you make a transaction they send the notice to the bank who adjusts ownership of your currency accordingly. So if something happens to your money, for a fee the bank will discredit the old money and issue you new.

So we get all the advantages of a gold standard and also all the advantages of credit cards, with no fractional reserve banking.

But this does not give us inflation! So to get that, you could lose ownership of your little corner of the bar, very gradually. Perhaps 1%/year. This is the bank's fee for creating all this gold-backed money and watching over it for you. In the very old days somebody with gold would go to the king's mint and would pay a fee to get his gold converted into gold coins. Anybody could do it. French merchants could take gold to the English mint and get english coins. The costs of the money were paid by the person who got the coins minted. But now we could have the payments made by whoever held onto the money. The longer you keep it, the bigger the fees. When you lose enough of it, the bank can issue a new note for the rest.

But we can do better! The bigger GDP gets, the more the money is worth, right? You use the same gold to buy and sell stuff regardless how much stuff there is. So when GDP goes up, reduce the amount of gold each piece of currency is worth proportionately, and issue new money. If GDP goes up, do the reverse.

So we get all the advantages of a gold standard, credit cards, and a predictable mild inflation, without the evils of fractional-reserve banking!

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