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The literature on the emergence of the Gold Standard employs four main approaches: the 'structural theory', the 'transactions cost theory', the 'political economy argument', and the 'free-rider theory'. Although analytically distinct, these arguments are usually used together in historical accounts. In Discussion Paper No. 1210, Research Affiliate Marc Flandreau attempts to disentangle these analyses to provide a clearer understanding of their relative explanatory power. He believes that none of them really account for the radical transformations of the 1870s. Instead, he argues that the emergence of the Gold Standard was the product of a crisis resulting from inconsistent policy moves, which were themselves derived from 'beggar-my-neighbour' strategies between Germany and France. These actions created a series of difficulties that demanded the emergence of the Gold Standard institutions. The author builds a model of the pre-1870 international monetary system that allows him formally to test and reject the free-rider and structural views. He then uses historical and microeconomic evidence to criticize the transaction costs and political economy theories. His conclusion is twofold: first, the making of the Gold Standard was very much the result of path-dependency and coordination problems; and second, the very process through which the Gold Standard was adopted played a major role in shaping its operation. An Essay on the Emergence of the International Gold Standard, 1870-80 Marc Flandreau Discussion Paper No. 1210, July 1995 (IM) |