Introduction

What was the traditional approach to the gold standard? In this chapter, I try to provide an answer to the question by examining the works of major writers on the subject since the eighteenth century. The choice of writers and works surveyed is based on my judgment that the works encompassed a significant share of the content of the traditional approach and that the writers played a significant role in the history of economic thought.

Six major themes formed the traditional approach, and five major schools of thought may be identified.

Major themes in the literature

The first theme, which runs from Cantillon to present-day writers, was that gold (the precious metals) was an ideal monetary standard, domestically and internationally, because of its unique qualities both as a standard of value and a medium of exchange. A stable price level in the long run that an automatically operated gold standard produced, in line with the commodity theory of money, was invariably contrasted to the evils of inconvertible fiduciary money. At the hands of even wellmeaning policymakers the latter would inevitably lead to depreciation of the value of money. However, most writers, following Adam Smith, emphasized the social saving from using fiduciary money instead of a commodity money and hence were concerned with the properties of a convertible (or mixed) standard to ensure price stability.

The second theme was the price-specie-flow mechanism.