The Accidental Emergence of the Gold Standard
The debate over the merits of bimetallism and gold monometallism is ongoing, and it is clear that many economists hold a conventional view that must be reevaluated.
The review of the 1860s monetary reform debate by Mark Flandreau in 1996 shows that the emergence of the gold standard was heavily conditioned by circumstance. Without the Australian and Californian gold discoveries in the early 1850s, it is unlikely that the debate over the relative merits of bimetallism and gold monometallism would have gained traction in the first place. This influx of gold caused the crowding out of silver specie in France and brought about the fear that bimetallism might be at risk. This fear was particularly acute in Germany, which was using a silver standard, and feared being left behind on a floating silver currency if the bimetallic block moved to gold.
The emergence of the gold standard from 1870 to 1880 is a widely contested and controversial topic. For many years, economists have held the conventional view that gold monometallism was superior to bimetallism and that the gold standard was a preferable monetary system to bimetallism. However, there is growing evidence to suggest that this view is only partially accurate and that bimetallism might have survived if policymakers had not acted as they did in the 1870s.
The review of the 1860s monetary reform debate by Mark Flandreau in 1996 shows that the emergence of the gold standard was heavily conditioned by circumstance. Without the Australian and Californian gold discoveries in the early 1850s, it is unlikely that the debate over the relative merits of bimetallism and gold monometallism would have gained traction in the first place. This influx of gold caused the crowding out of silver specie in France and brought about the fear that bimetallism might be at risk. This fear was particularly acute in Germany, which was using a silver standard, and feared being left behind on a floating silver currency if the bimetallic block moved to gold.
The desire to find an alternative to bimetallism was initially conducted in a spirit of international cooperation. There was a sense that the threat to monetary stability was a common problem that required a common solution, illustrated by the 1867 International Monetary Conference, which aimed to create a harmonized global currency system. However, when the climate turned acerbic in the 1870s, Germany and France acted unilaterally, resulting in the termination of global bimetallism in a disorderly manner.
Milton Friedman, in his research on U.S. monetary history during the nineteenth century, discovered that the conventional view of the superiority of monometallism over bimetallism is dubious at best. He found that bimetallism may have been a more stable monetary standard than gold monometallism and that silver monometallism may have been preferable to gold monometallism.
The current narrative of the emergence of the classical gold standard established by Flandreau (1996) and Oppers (1996) is that it was essentially an “accident of history” triggered by uncoordinated policy decisions by Germany and France in the early 1870s. The accident was heavily conditioned by circumstance and that the fear of the end of bimetallism that appeared legitimate in the 1860s was unfounded. In other words, had policymakers not acted as they did in the 1870s, bimetallism might have survived, and the economic pain of the late 1870s and 1880s may have been avoided.
The debate over the merits of bimetallism and gold monometallism is ongoing, and it is clear that many economists hold a conventional view that must be reevaluated. The history of the emergence of the gold standard must be told accurately so that policymakers can make informed decisions about the future of the global monetary system. For this to happen, it is important that the evidence is carefully considered and that all sides of the argument are considered. Only then can we come to an informed consensus on the issue.
