Gold and the Gold Standard: The Story of Gold Money, Past, Present, and Future

159 Pages·2011·1.69 MB·English

by  Edwin Walter Kemmerer

GOLD AND THE
GOLD STANDARD
The Story of Gold Money
Past, Present and Future
BY
EDWIN WALTER KEMMERER
Emeritus Professor of International Finance
Princeton University
FIRST EDITION
McGRAW-HILL BOOK COMPANY, INC.
NEW YORK AND LONDON
1944
Ludwig von Mises Institute
Mises.org
ISBN: 9781610161749
Prefatory Note
At the end of the war, this world will be confronted with the problem of
rehabilitating its monetary systems and of thereby bringing order out of the
monetary chaos that has been created. Many different kinds of monetary
standards will have their advocates, and the debate will be a vigorous one in
terms of both light and heat. Early discussions of the problem should contribute
to the formation of an intelligent public opinion. It is with the thought of making
such a contribution that this book is being written.
Prominent among the contenders for first position in the world’s monetary
systems of the early postwar future will be the gold standard, which, though
badly battered and bruised, can still claim, by reason of its past record, to be the
heir apparent.
The discussion that follows attempts to explain briefly the origin and history
of gold money and of the gold standard, the fundamental principles of the gold
standard, its defects and merits, and to outline a plan for a future international
gold standard.
In the preparation of this book I have received aid from many friends—too
many to mention by name in a brief prefatory note. I must, however, make
exception by expressing my particular gratitude to Dr. Louis C. West and
Professor Philip K. Hitti, of Princeton, for their valuable suggestions concerning
the money of ancient times, and to my son Professor Donald L. Kemmerer, of
the University of Illinois, and Professor Oskar Morgenstern, of Princeton, both
of whom read the entire manuscript and gave me many useful criticisms and
suggestions, most of which I have adopted.
EDWIN WALTER KEMMERER.
PRINCETON, N. J.,
October, 1944.
Contents
Prefatory Note
Chapter I
The Place of Gold in the Money of Ancient and Medieval Times
Origin of the Gold Standard—Early Coinage in Asia Minor—Coinage in the
Land of the Greeks—The Position of Gold in the Money of Ancient Rome:
Bronze Money; Silver Money—Gold Money during the Republic—Gold
Money during the Empire in the West—The Place of Gold in the Money of
Continental Europe during the Middle Ages—Characteristics of the
Economy of the Middle Ages—Gold Coins—Seigniorage.
Chapter II
Two Thousand Years of Gold Money in England
Developments from Ancient Times to 1492—From the Reign of Henry III to
the Discovery of America in 1492—Developments from 1492 to 1821
—Silver Predominant over Gold for Two Centuries of Quasi Bimetallism
—Gold Predominant over Silver for a Century—The Paper Pound—Bank
Notes and Deposit Currency—Lord Liverpool’s Letter to the King—Gold
Standard Legally Adopted—The Gold Standard Goes into Operation.
Chapter III
Gold Money and the Gold Standard in the United States Prior to the First World
War
The Preconstitutional Period—The Colonial Period—The Period of the
Revolution and the Confederation: Coinage Plans Proposed—A National
Currency Established: Metallic Money and the Constitution; Hamilton’s
Report on the Mint—The Dollar Recommended as the Monetary Unit:
Hamilton in Favor of Bimetallism—Gold in the Bimetallic System, 1792 to
1861—Gold Undervalued, 1792 to 1834: American Silver Coins Forced Out
of Circulation by Defective Foreign Silver Coins—Agitation for
Monometallism—Bimetallism Continued—How the New-Ratio Worked
—Bimetallism Legally Discontinued in 1873—The Beginning of a De Facto
Gold Standard—The Gold Standard in Operation, 1879 to 1914—Declining
Commodity Prices—Bimetallists’ Criticisms of Gold Standard—In Defense
of the Gold Standard—“Doing Something for Silver”: The Bland-Allison
Act; The Sherman Purchase Act, of 1890—The Gold Standard Act of 1900.
Chapter IV
The Breakdown of the International Gold Standard—Its Recovery and Relapse
The International Monetary Situation Following the Outbreak of the First
World War—Public Sentiment Strong for a Return to Gold—The Return to
Gold—Rates of Stabilization—The Gold Standard of the Twenties—The
Changed Economic Milieu—A Changed and Weakened Gold Standard: A
Gold-bullion and Gold-exchange Standard Superseding the Gold-coin
Standard; A Postwar Gold Standard That Was Subjected to More Managing;
Inadequate Gold Reserves—The Brief Life of the Postwar Gold Standard
—The Gold Standard in the United States since 1929—Events Leading to a
New Type of Gold Standard—The New Type of American Gold Standard.
Chapter V
Characteristics of the Gold Standard
What Constitutes a Gold Standard—Definition and Explanation—The
Monetary Unit, a Fixed Weight, Not a Fixed Value—Gold as a Money Metal
—The Demand for Gold, Highly Elastic: The Monetary Demand; the
Demand for Ornamentation; The Hoarding Demand—Characteristics of
Gold in Its Relation to the Gold Standard: A Fixed Price; An Unlimited
Market; The Production of Gold, Correlated Inversely with the Prices of
Other Commodities—Monetary Gold versus Gold in the Arts.
Chapter VI
Varieties of the Gold Standard
The Gold-coin Standard—The Gold Exchange Standard—Principles of the
Gold-exchange Standard as Exemplified in the Philippines, 1905-1910
—Advantages of the Gold-exchange Standard to the Philippines—The Gold-
exchange Standard and the First World War—The Genoa International
Conference and the Gold-exchange Standard—Widespread Adoption of the
Principle of the Gold-exchange Standard: The Postwar Gold-exchange
Standard Functioned through Central Banks—Weaknesses of the Postwar
Gold-exchange Standard: The Pyramiding of Gold Reserves; Lack of
Efficient Checks and Balances; Lack of Control by Authorities in the Home
Country; Effect on Public Confidence of Gold Imports and Exports—The
Gold-Bullion Standard.
Chapter VII
The Balance Sheet of the Gold Standard—Its Merits and Defects
Merits of the Gold Standard—Its Essentials Easily Understood—High Public
Confidence in Gold—Its Highly Automatic Character, Calling for Little
Political Management—An International Standard: Trade; International
Finance—Stability of Gold—Defects of the Gold Standard—A Creature of
Blind Natural Forces—Instability in Value—Rigidity—Expensiveness
—Essentially a Sterling Standard Prior to 1914—By Way of Rejoinder—No
Fair Test of the International Gold Standard since 1914—The Gold Standard
in the United States, 1918 to 1933.
Chapter VIII
The Monetary Standard of the Future
Preliminaries—Types of Postwar Gold Standard—Implementation of
International Gold Standard—Gold Convertibility—The Gold Standard and
the Central Bank—An International Bank—International Monetary
Conference.
Index
Gold and the Gold Standard
CHAPTER I
The Place of Gold in the Money of Ancient and Medieval Times
Speak of the moderns without contempt and of the ancients without idolatry; judge them all by their
merits and not by their age.—LORD CHESTERFIELD, 1748.
ORIGIN OF THE GOLD STANDARD
The gold standard in its “orthodox form” is a product of the nineteenth
century. Its roots, however, go deep into the past. This chapter will explore
1
briefly this early history of gold as money, i.e., as a commonly accepted
medium of exchange.
Gold, by reason of its beauty, its world-wide distribution, the facility with
which it could be obtained from the streams by crude methods of “panning,” and
the ease with which it could be “worked,” probably had a wider use as a medium
2
of exchange in very ancient times, and among primitive peoples in modern
times, than any other metal.
This metal was first used as money in such forms as nuggets of gold, gold
molded in the shape of shells, which served also as ornaments, and gold dust. In
ancient Mexico, Africa, and elsewhere, gold was put into transparent quills,
which were used as a common means of payment. It circulated in small cubes in
China as early as 1100 B.C. Many hundreds of years before the beginning of the
Christian Era, gold media of exchange were used in Asia Minor and a large part
of Europe. These early media were usually made of almost pure gold, the art of
hardening the metal by means of alloy apparently not having been introduced
until after the beginning of the Christian Era.
The earliest references I have been able to find in recorded history to the use
of one of the precious metals as a medium of exchange—in these cases, passing
1
by weight—are in the Code of Hammurabi, King of Babylon. They refer to
2
silver in about the year 1870 B.C.
The peoples of classical times had very little knowledge of the money of their
early ancestors. They had no books on money, and the few written records
available to them were chiefly on stone and papyri in the form of laws, decrees,