Gold, Money and Trade

  • Leonard Gomes


Free trade and the gold standard are inseparably associated with the nineteenth-century and its classical economists. However, except for Great Britain (from 1816) and Portugal (from 1854) the gold standard was not generally adopted until 1879; hence adherence to the international gold standard lasted only thirty-five years, i.e. until 1914. To later generations it epitomised all that was good and bad in classical laissez-faire and its regime of free trade. To those who see the good in it, it stands for monetary order, low interest rates, price stability and high rates of economic growth. To those who see it ‘warts and all’ the gold standard was a ‘fair-weather’ system that worked well only so long as the world economy was booming. Memories of the inter-war years are still vivid and for those deeply scarred by the depression it stands for deflation, unemployment and hardship.


Exchange Rate Central Bank Foreign Trade Money Supply Money Stock 
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Notes and References

  1. 1.
    The process whereby ‘good money drives out bad money’. Although associated with Sir Thomas Gresham, counsellor to Elizabeth I, the principle was understood at least from the early fourteenth century. The process is clearly observed in a bimetallic system. If, for instance, the free-market price of gold in terms of silver is higher than the government mint price, then the overvalued metal (gold) will be melted down and replaced by silver coins (the undervalued metal). Thus, ‘bad’ money (in this case silver, the metal less favoured in the free market) drives out ‘good’ money (gold, the metal more favoured in the free market). Similarly, worn, clipped or debased coins tend to drive out of circulation good, full-bodied, mint-condition coins.Google Scholar
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  52. 44.
    J. G. Gilbart, ‘The Currency: Banking’, Westminster Review (1841) no. 35, p. 67.Google Scholar
  53. 45.
    For some comments on the weaknesses of the monetarist interpretation and an affirmation of the view that the classical gold standard was, indeed, a sterling system, see Charles P. Kindleberger, A Financial History of Western Europe (London: Allen & Unwin, 1984) pp. 68–70.Google Scholar
  54. 46.
    In his book, History of the World Economy: International Relations Since 1850 (London: Wheatsheaf Books, 1983) p. 181.Google Scholar
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  56. 48.
    White, op. cit. p. 149.Google Scholar

Copyright information

© Leonard Gomes 1987

Authors and Affiliations

  • Leonard Gomes
    • 1
  1. 1.Middlesex PolytechnicLondonUK

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