The Monetary Approach to the Balance of Payments

V. APPLICATION TO ECONOMIC HISTORY

16

How the Gold Standard Worked, 1880–1913¹

DONALD N. MCCLOSKEY AND J. RICHARD ZECHER

1   THE MONETARY THEORY AND ITS IMPLICATIONS FOR THE GOLD STANDARD

Each intellectual generation since the mercantilists has revised or refined the understanding of how the balance of payments is kept in equilibrium under a system of fixed exchange rates, and all these understandings find a place in the historical literature on the gold standard of the late nineteenth century. It is difficult, therefore, to locate the orthodox view on how the gold standard worked, for it is many views. If one can find historical and economic writings describing the gold standard (and other systems of fixed exchange rates) in the manner of Hume, ...