Barry Eichengreen 223THE GENESIS OF MONETARY SYSTEMS
AND THE THEORY OF HEGEMONIC STABILITY
My analysis begins with an examination of the genesis of three different monetary
systems: the classical gold standard, the interwar gold exchange standard, and the
Bretton Woods system.
The Classical Gold Standard
Of the three episodes considered here, the origins of the classical gold standard
are the most difficult to assess, for in the nineteenth century there were no centralized
discussions, like those in Genoa in 1922 or Bretton Woods in 1944, concerned
with the design of the international monetary system. There was general agreement
that currencies should have a metallic basis and that payments imbalances should
be settled by international shipments of specie. But there was no consensus about
which precious metals should serve as the basis for money supplies or how free
international specie movements should be.
Only Britain maintained a full-fledged gold standard for anything approaching
the century preceding 1913. Although gold coins had circulated alongside silver
since the fourteenth century, Britain had been on a de facto gold standard since
1717, when Sir Isaac Newton, as master of the mint, set too high a silver price
of gold and drove full-bodied silver coins from circulation. In 1798 silver coinage
was suspended, and after 1819 silver was no longer accepted to redeem paper
currency. But for half a century following its official adoption of the gold standard
in 1821, Britain essentially remained alone. Other countries that retained bimetallic
standards were buffeted by alternating gold and silver discoveries. The United
States and France, for example, were officially bimetallic, but their internal
circulations were placed on a silver basis by growing Mexican and South American
silver production in the early decades of the nineteenth century. The market
price of silver was thus depressed relative to the mint price, which encouraged
silver to be imported for coinage and gold to be shipped abroad where its price
was higher. Then, starting in 1848, gold discoveries in Russia, Australia, and
California depressed the market price of gold below the mint price, all but driving
silver from circulation and placing bimetallic currencies on a gold basis. Finally,
silver discoveries in Nevada and other mining territories starting in the 1870s
dramatically inflated the silver price of gold and forced the bimetallic currencies
back onto a silver basis.
The last of these disturbances led nearly all bimetallic countries to adopt the
gold standard, starting with Germany in 1871. Why, after taking no comparable
action in response to previous disturbances, did countries respond to post-1870
fluctuations in the price of silver by abandoning bimetallism and adopting gold?
What role, if any, did Britain, the hegemonic financial power, play in their
decisions?
One reason for the decision to adopt gold was the desire to prevent the
inflation that would result from continued silver convertibility and coinage.