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Thursday, January 15, 2009

Brad DeLong's 2008 Notes for Econ 210a: April 16: The Gold Standard

Apr 16: Gold standard and pre-WWI globalization [DeLong]

Start with David Hume:

  • Mercantilism: Import a little, export a lot, all the money flows into your country and you become rich. What does Hume say is wrong with that?

  • David Hume, "Of the Balance of Trade": IT is very usual, in nations ignorant of the nature of commerce, to prohibit the exportation of commodities, and to preserve among themselves whatever they think valuable and useful. They do not consider, that, in this prohibition, they act directly contrary to their intention; and that the more is exported of any commodity, the more will be raised at home, of which they themselves will always have the first offer. It is well known to the learned, that the ancient laws of ATHENS rendered the exportation of figs criminal; that being supposed a species of fruit so excellent in ATTICA, that the ATHENIANS deemed it too delicious for the palate of any foreigner. And in this ridiculous prohibition they were so much in earnest, that informers were thence called sycophants among them, from two GREEK words, which signify figs and discoverer.40 , a There are proofs in many old acts of parliament of the same ignorance in the nature of commerce, particularly in the reign of EDWARD III.41 And to this day, in FRANCE, the exportation of corn is almost always prohibited; in order, as they say, to prevent famines; though it is evident, that nothing contributes more to the frequent famines, which so much distress that fertile country.... These errors, one may say, are gross and palpable: But there still prevails, even in nations well acquainted with commerce, a strong jealousy with regard to the balance of trade, and a fear, that all their gold and silver may be leaving them. This seems to me, almost in every case, a groundless apprehension; and I should as soon dread, that all our springs and rivers should be exhausted, as that money should abandon a kingdom where there are people and industry. Let us carefully preserve these latter advantages; and we need never be apprehensive of losing the former.... But as any body of water may be raised above the level of the surrounding element, if the former has no communication with the latter; so in money, if the communication be cut off, by any material or physical impediment, (for all laws alone are ineffectual) there may, in such a case, be a very great inequality of money. Thus the immense distance of CHINA, together with the monopolies of our INDIA companies, obstructing the communication, preserve in EUROPE the gold and silver, especially the latter, in much greater plenty than they are found in that kingdom.*47 But, notwithstanding this great obstruction, the force of the causes abovementioned is still evident. The skill and ingenuity of EUROPE in general surpasses perhaps that of CHINA, with regard to manual arts and manufactures; yet are we never able to trade thither without great disadvantage. And were it not for the continual recruits,° which we receive from AMERICA, money would soon sink in EUROPE, and rise in CHINA, till it came nearly to a level in both places. Nor can any reasonable man doubt, but that industrious nation, were they as near us as POLAND or BARBARY, would drain us of the overplus of our specie, and draw to themselves a larger share of the WEST INDIAN treasures. We need not have recourse to a physical attraction, in order to explain the necessity of this operation. There is a moral attraction, arising from the interests and passions of men, which is full as potent and infallible...

What was the gold standard?

How did the gold standard really work?

International capital flows under the gold standard:

Commodity trade and dynamic comparative advantage:

  • Douglas Irwin (1998), "Did Late Nineteen Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry," NBER Working paper no. 6835 (December), http://www.nber.org/papers/w6835

on Thursday, January 15, 2009 at 08:15 PM in Other Notes |

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