|Reviewer(s):||Meissner, Christopher M.|
Published by EH.NET (January 2002)
Ted Wilson, Battles for the Standard: Bimetallism and the Spread of the Gold Standard in the Nineteenth Century. Aldershot, UK: Ashgate, 2001. xi + 200 pp. $69.95 (cloth), ISBN: 1-85928-436-1.
Reviewed for EH.NET by Christopher M. Meissner, Faculty of Economics and Politics, University of Cambridge.
In Battles for the Standard, Ted Wilson aims to explain why the gold standard moved from an exclusively British institution at the beginning of the nineteenth century to the most widely used monetary arrangement in the world by 1910. The author offers a number of case studies each of which emphasize that broad ranging explanations are inadequate to explain why the world went to gold. Wilson also examines bimetallism as a brake on the spread of the gold standard between 1870 and 1913. In his opinion, bimetallists failed because of the inability to formulate a coherent vision of what the candidate regime would look like and how the system would perform if implemented. Those interested in institutional change or the evolution of the international monetary system will feel the book presents some interesting research.
Wilson opens with a general examination of monetary arrangements during the nineteenth century. A series of chapters then outlines nineteenth century monetary history in Great Britain, France, India, and the US. The penultimate chapter considers and challenges current explanations for the emergence of the gold standard making reference to particular country experiences and the final chapter is about bimetallism in England during the 1890s.
The country coverage begins with Great Britain. The goal is to explain why it chose the gold standard in 1816 long before any other country had done so, and why it clung so steadfastly to the gold standard after 1870 in the face of considerable international maneuvering to establish bimetallism. British currency had been de facto gold through much of the 1700s and until 1800 lacked small denomination coins. The remedy was to implement a de jure gold standard so as to free England from the effects of Gresham’s law and to keep token silver coins in circulation. The fact that gold was the outcome in 1816 seems to have been pure historical coincidence. The author also gives air time to Angela Redish’s explanation that technological advances in steam pressing in the late eighteenth century allowed a token silver coinage which people could not counterfeit and which circulated along with full-bodied gold coins. This was an answer to bimetallism. It provided coins of silver and gold in denominations and weights appropriate to the value of a particular transaction without being exposed to Gresham’s Law. Wilson points out that few contemporary sources cite the steam technology as a reason for adopting the gold standard, and so he is skeptical that British obstinacy was based on these arguments. Furthermore European countries with access to the same technology did not adopt gold immediately. But arguments like Redish’s also rely on the notion that a gold standard was suited for more-developed countries because their average transaction was of a high value and bulky silver was inconvenient. And Germany and France did not reach the levels of 1820 British per capita GDP until about the 1860s precisely when these countries began agitating for an international gold standard (Maddison, 2001). The author explains how, during the 1880s, an appreciating exchange rate vis-?-vis silver countries made necessary imports cheaper while politically impotent agricultural interests were thrashed about by import competition. Britain therefore clung to gold.
Continuing his global overview, Wilson looks at France’s deep romance with bimetallism — a regime it finally relinquished in 1878 as the world silver market collapsed. It is suggested that the example of French bimetallism and its success between 1850 and 1870 provided a success story to which bimetallists in the 1890s could refer. In discussing France’s strong support for bimetallism up to 1878, Wilson dismisses the notion that the Banque de France benefited from the arbitrage opportunities bimetallism presented. Instead, Wilson argues tradition and historical esteem for the status quo explain France’s policies in the period. Although this explanation may be correct, the evidence presented is not convincing. For one, Wilson claims that since the gold price in terms of silver was stable from 1850 to 1870 there were no arbitrage opportunities. But Flandreau (1996) argues just the opposite. Arbitrage, perhaps by private agents, (who incidentally had some say on the board of directors at the Bank) actually worked to keep the price from straying too far from the mint ratio. And Einaudi (2000) presents an in-depth analysis of Bank of France archival records from the 1870s showing what the interests of the Bank were. Wilson’s work could have benefited from such archival investigation if only to lay bare the economic motivations of relevant actors.
Indian monetary history from the early 1800s up to 1900 is next on Wilson’s list of case studies. The chapter opens with a lengthy narrative on early nineteenth century Indian monetary history, and a conventional view of Indian regime preference after 1870 is presented. After about 1873, colonial powers would have preferred a gold standard in order to stop the rise in the value of the home charges and to keep their silver denominated pensions from depreciating in gold terms. Local export-oriented industrialists supported silver largely because of the expansionary effect of a continuously depreciating currency.
Americanists will find Chapter 5 on the United States to be somewhat sparse if not highly stylized. Wilson portrays the country as a relatively backward place where frontiersmen sought salvation in paper currencies. This line of argument neglects, or at least avoids, discussing the economic interests of the constituencies that shaped the debate and international differences in political procedure and decision making. Wilson pays little attention to the standard debtor-creditor debate or to the more contemporary open-economy politics view of Jeffrey Frieden (1997) where exporters and transport interests supported a depreciating standard. Nevertheless, the discussion of the conflict with Great Britain over Venezuela in the 1890s and how the gold-bug Cleveland administration used political uncertainty and hence money market uncertainty to discredit silver agitation is intriguing. (Many readers will be irked by seeing McKinley repeatedly referred to as “McKinlay” towards the end of the chapter.)
The following chapter ties up loose ends by confronting previous hypotheses about the emergence of the gold standard with historical experience. These focus not only on the countries already treated but also Germany and smaller peripheral countries. The seeds of what might have been an entire chapter on Germany appear here. Wilson asserts that Germany’s adoption of the gold standard “helped secure her economic leadership of Europe after 1870″ (p.124). Even if we are to believe the notion, what was the transmission mechanism? Was it that gold provided “hegemony over France” (p. 124) and somehow defeated this commercial rival or was it through increased trade benefits by linking up to the gold network? On historical grounds, we also have to suspect the digging has not been deep enough here. Wilson clings to a notion that the French indemnity of the Franco-Prussian war was paid in gold. Flandreau (1996) and Einaudi (2000) document that only about 5 percent of the indemnity was paid in specie the rest being paid in commercial paper drawable in various financial centers.
Even more confounding is the short follow up on the American adoption of the gold standard. The argument suggests that policy in the US was made without respect to the rest of the world. This is hardly the case. Much of the debate, which is documented in a lengthy set of congressional hearings held in the 1870s and published in 1879, was about ascertaining what exactly the rest of the world would be doing in the future. There is also a lengthy discussion on Bordo and Rockoff’s “Good Housekeeping Seal of Approval” hypothesis. The book proposes that there is no evidence that nations consciously sought to lower their borrowing costs or receive special treatment on international capital markets by adopting the gold standard. But historical evidence again snags the author’s momentum. It is widely argued that one of Russia’s primary motivations for moving to gold convertibility in the 1880s and 1890s was to attract foreign capital, and American Congressional discussions in the first decade of the 1900s on why China should adopt the gold standard centered on the ability to attract more foreign capital. A number of other aspects of monetary regime transformation such as lock-in and strategic complementarities, imperialistic preference for a non-gold periphery and precious metals discoveries are touched on near the end of this chapter as explanations for gold’s triumph.
The book winds down with a novel discussion of the emergence of a bimetallist movement in Great Britain near the end of the nineteenth century. Wilson centers his discussion in Lancashire. Essentially textile producers and laborers aligned themselves with a hope that bimetallism would stave off increased imports of Eastern textiles. Indian cotton manufactures benefited from the continuous depreciation of silver against gold and hence eroded market share, jobs and profits in England. Lancashire’s bimetallist agitators faced stiff resistance from City financiers and unsympathetic governments. But bimetallism appears to have been its own worst enemy. Its advocates failed because of the inability to present a coherent platform. What would the mint ratio be? Should it be the current market value of 35 to one or perhaps the older 15.5 to one? Should Britain insist on an international coalition to support such a move or would it go alone? Could Britain find a coalition in any case? No simple answers came from the movement, and gold took the day. The arguments here are interesting and suggestive, but the author could have spent more time on the little researched area of the viability of international bimetallism in the late nineteenth century. The author raises interesting questions, but there could be more discussion of the menu of alternatives and the benefits. Too little time is spent exploring the real benefits from the gold standard, and the author precipitously blames bimetallism’s failure on the incompetence of the movement’s leaders.
Overall this work is a good narrative of institutional change in the international monetary system. It provides a one-stop-shop for most of the current thinking about the emergence of the classical gold standard and the disappearance of bimetallism and silver between 1870 and 1913 while also providing a nice range of salient case studies. The book will prove useful for initiates to the literature. However those wishing to formulate solid opinions about the formation of an international monetary system will not feel the book has provided enough archival, statistical or theoretical ammunition to take out the more entrenched explanations. Nevertheless the book does succeed in laying the foundation for a debate about why bimetallism failed in the late nineteenth century. This is a corner of the literature that has seen far too little attention but it is a prime example of institutional change and path dependence in an important sphere of the economy. It certainly deserves more along these lines.
Einaudi, Luca (2001). Money and Politics: European Monetary Unification and the International Gold Standard (1865-1873). Oxford: Oxford University Press.
Flandreau, Marc (1996). “The French Crime of 1873: An Essay in the Emergence of the International Gold Standard, 1870-1880,” Journal of Economic History, 56 (4), 862-897.
Frieden, J.A. (1997) “Monetary Populism in Nineteenth Century America: An Open Economy Interpretation,” Journal of Economic History, 57 (2), 367-395.
Maddison, Angus (2001). The World Economy: A Millennial Perspective. Paris: Development Centre of the Organisation for Economic Co-operation and Development.
United States Monetary Commission (1879). Report of the Silver Commission. Government Printing Office, Washington, D.C.
Christopher M. Meissner is a lecturer in economics at the University of Cambridge and a fellow of King’s College. He is currently working on questions related to international finance and international monetary arrangements in the late nineteenth century and on connected lending in early nineteenth century New England banking.
|Subject(s):||Financial Markets, Financial Institutions, and Monetary History|
|Geographic Area(s):||General, International, or Comparative|
|Time Period(s):||20th Century: Pre WWII|