206 The Domestic Politics of International Monetary Order: The Gold Standard
The Napoleonic Wars set the stage for the formal institutionalization of the
gold standard in England, which was suspended due to the war effort from 1797
to 1821. Suspension brought inflation and the depreciation of sterling against
other currencies, which had distinct and predictable effects: a redistribution of
wealth from all creditors and producers of nontradable goods to all debtors and
producers of tradables. By violating the contract to redeem notes on demand for
a fixed weight of gold, suspension usurped the property rights of all persons whose
wealth consisted of money (creditors). In addition, depreciation worked to the
advantage of tradables producers by raising the prices of traded goods relative to
nontradables. This redistribution set the stage for a broad, intersectoral battle over
the terms of the postwar monetary settlement.
The key beneficiaries of suspension—and hence the advocates of “soft money”
rules—were farmers and manufacturers. Tenant farmers in particular found strong
incentives to support the existing state of monetary affairs.... The price of wheat,
for example, jumped from 6s. 9d. per bushel in 1797 to 16s. in 1800, while rents
on agricultural land remained fixed at pre-inflation levels by long-term leases....
Debtors of all classes gained by the long period of suspension as they made interest
and principal payments in a currency worth about 17 percent less in gold than
when their debts were contracted.
In addition, the monetary attitude of manufacturers and industrial labor tended
to correspond with that of the farmer, as industrial demand, prices, and wages all
rose as a result of the depreciation of sterling and the general stimulus of war.
The expansion, however, brought habits attuned to price, profit, and wage levels
that were difficult to sustain after the final defeat of Napoleon. With war’s end,
demand dropped off, import competition increased (as blockades were lifted),
and prices dropped dramatically. Domestic manufacturers, represented most vocally
by organized Birmingham industrialists, sided with farmers in seeking monetary
relief from the deflation/appreciation.... The coalition’s anti-gold-standard platform
alternatively called for the continuation of suspension, or a return to gold
convertibility at a rate substantially lower than the pre-war level....
In contrast to the views of farmers and manufacturers, depreciation was injurious
to England’s powerful creditor, rentier, and saver groups, who coalesced around
the gold standard.... The position of the landed aristocracy is instructive. From
the late seventeenth century on, this group built larger and larger estates and rented
their acres to tenant farmers in larger units on long leases.... During the inflationary
war years, landlords found that they were receiving only about two-thirds of their
rent in real terms. Unable to raise rents in line with the upward trend in commodity
prices, rentier lords became strong supporters of deflation and an early return to
the gold standard. In this they found ready allies in the rapidly internationalizing
financial sector.
London emerged from the Napoleonic Wars as the greatest financial center in
the world. Just as World War I helped shift the locus of world finance from London
to New York, the years of war from 1793 to 1815 helped cement London’s position
by disrupting established patterns of continental finance, especially those based
in Amsterdam. Émigré financiers, fleeing the tide of Napoleon’s invasions and
attracted by England’s political stability and the prospect of financing the country’s