During the late nineteenth century, the global economy was characterized by use of a gold standard. The gold standard helped to unite the economies of the world’s nations, thereby leading to increased prosperity and stability. The success of the gold standard was related to the particular circumstances of the time. As conditions changed, the gold standard became less viable and was eventually dropped. This paper will describe the pros and cons of the gold standard as it existed in the nineteenth century. In this way, an explanation will be provided for why the gold standard rose to prominence and then declined.
The gold standard is a monetary system in which the value of a nation’s currency is attached to the value of gold. In this system, gold can be exchanged for currency and currency can be exchanged for gold. During the nineteenth century, the major nations of the world switched to the gold standard, thereby replacing the previous system of bimetallism (a standard based on the values of both gold and silver). In 1821, Britain was the first nation to adopt the gold standard. At the time, Britain was the wealthiest and most powerful nation in the world. In order to facilitate international trade, other nations began following Britain’s example (Eichengreen 7). The change did not occur smoothly in every country. For example, after the United States adopted the gold standard in 1873, a politician named William Jennings Bryan led a movement to switch to a silver standard instead. At that time, silver was relatively cheap because an abundance of it had been discovered in the mines of the Western U.S. Bryan, an advocate for the rights of farmers and other laborers...
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...ple, monetary authorities were more concerned with convertibility and national interests than they were with economic issues on the domestic level. The gold standard also declined because of the problem of governments needing reserves in order to back up their currencies. Governments were not always able to meet this demand, especially as the world’s supply of gold dwindled over time.
Balachandran, G. “Power and Markets in Global Finance: The Gold Standard, 1890-1926.” Journal of Global History 3 (2008), 313-335.
Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press, 1996.
Galbraith, John Kenneth. Economics in Perspective: A Critical History. Boston: Houghton Mifflin Company, 1987.
Weatherford, Jack. The History of Money. New York: Three Rivers Press, 1997.
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