Published by EH.NET (January 2004)

Luca Einaudi, Money and Politics: European Monetary Unification and the International Gold Standard (1865-1873). Oxford: Oxford University Press, 2001. xiii + 241 pp. $100 (cloth), ISBN: 0-19-924366-2.

Reviewed for EH.NET by Benjamin J. Cohen, Department of Political Science, University of California at Santa Barbara.

Research in recent years has greatly revised our understanding of the origins of the classical gold standard. Once, the monetary regime that dominated the pre-World War I era was perceived as largely apolitical — a system that came to prevail over available alternatives mainly because of its inherent superiority in preserving currency values and financial stability. Today, however, we know better, thanks to the work of such able scholars as Barry Eichengreen, Michael Bordo, Marc Flandreau, and Marcello de Cecco. The political roots of the gold standard lie exposed, going back to the Great Power politics of the 1860s. Now comes Luca Einaudi, currently a research associate at Cambridge University, to add more detail to the story. It is a fascinating tale.

Einaudi’s focus is on the failed attempt in the 1860s to achieve a broad monetary union in Europe, despite the best efforts of the government of France under Napoleon III. In contrast to most previous studies of the era, which concentrate on the protracted contest between the rival systems of gold monometallism and bimetallism, Money and Politics stresses the pivotal role of the debate on European monetary unification that followed creation of the Latin Monetary Union (LMU) in 1865. In 1867 Paris convened an international monetary conference that voted unanimously in favor of a universal coinage building on the LMU-franc system. But even though a number of governments subsequently passed laws to adopt the LMU system, seemingly placing Europe on the road to full monetary unification, the effort ultimately failed, owing in good part to resistance from both Britain and the new German Empire. For Einaudi, the clash of national interests provoked by France’s ambitious project was decisive in accounting for the final triumph of gold. A seemingly neutral standard based on gold proved politically more acceptable than a monetary union under French leadership.

Based on extensive new archival research, the book is organized into five chapters. Following a general overview in the first chapter of Europe’s monetary arrangements and politics in 1865, Einaudi examines the birth of the LMU in chapter 2, the intellectual debate provoked by the 1867 monetary conference in chapter 3, the subsequent history of the LMU in chapter 4, and the responses of Britain and Prussia, later Germany, in chapter 5. In an epilogue, Einaudi summarizes the analysis and laments the failure of France’s initiative which, he suggests, might well have been more effective than was the gold standard in promoting peace and cooperation in Europe.

Central to Einaudi’s narrative is F?lix Esquirou de Parieu, vice president of the French Council of State (1855-1870) and chief architect of France’s monetary project. Originally trained as a lawyer, Parieu in time became one of France’s leading financial specialists and, from 1858 onward, a determined advocate of European monetary unification. In 1865, declares Einaudi, Parieu was “the right man in the right place for monetary diplomacy. … a curious mixture of political realism and utopian aspirations” (pp. 49, 54). Parieu presided over both the Convention of 1865 and the 1867 monetary conference, and the LMU and the universal-coinage proposal were each largely his creation. The project’s ultimate failure left him personally embittered and politically marginalized.

The villain of the piece, according to Einaudi, was the “growing wave of nationalism” (p. 189) at the time — specifically, the Great Power aspirations of Britain and Prussia-Germany. The British, with their superiority in manufacturing and with London’s role at the apex of global finance, were reluctant to subscribe to any arrangement that would leave them subordinate to their historical enemy, France. For Britain, the fabled pound was “the symbol of its economic success. [Britain] had no wish to see it overshadowed” (p. 193). London sent no official delegation to the conference in 1867 and flatly refused to accept the conference’s recommendations. From Prussia the initial response was more ambiguous, but after the fierce Franco-Prussian War (1870-1871) and the emergence of the new German Empire under Prussian leadership, it was clear that the Germans too would be unwilling to follow France’s lead. In Einaudi’s words: “The Franco-Prussian War crushed the political equilibrium on which the Union was based. … unification and coordination could not survive the poisoned atmosphere between France and Germany” (pp. 89, 189).

Overall, Einaudi’s analysis is difficult to fault and adds substantially to our knowledge of the origins of the gold standard. Some might question the central role assigned to France in his narrative, but in fact such an emphasis seems a welcome corrective to the priority traditionally accorded Britain in the bulk of the English-language literature. However dominant the City of London may have been in global finance at the time, Paris remained a powerful monetary force for much of the European continent. Likewise, some might question the lack of attention paid to the underlying economics of the period — in particular, the shifting price relationship between gold and silver, which undoubtedly doomed the bimetallic standard favored by France’s Ministry of Finance — but this too may be justified by the paucity of political analysis characteristic of many other scholarly contributions. Meticulously researched and clearly written, Money and Politics belongs on the bookshelf of anyone with a professional interest in international monetary history.

Benjamin J. Cohen is the Louis G. Lancaster Professor of International Political Economy at the University of California, Santa Barbara, and is the author of The Future of Money (Princeton University Press, 2003).