This paper surveys studies of the operation of the classical gold standard
published subsequent to the appearance of Alec Ford's The Gold Standard 1880-1914:
Britain and Argentina in 1962. Contributions tend to fall under two
headings: those which emphasize stock equilibrium in money markets (examples
of the so-called "monetary approach") and those which emphasize instead stockflow
interactions in bond markets. The paper then addresses the perennial
question of how the gold standard worked. A central element of my explanation
for the stability of the gold standard at the center is the credibility of the
official commitment to gold. Knowing that policymakers would intervene in
defense of the gold standard, markets responded in the same direction in
anticipation of official action. Hence the need for actual intervention was
minimized. Credibility derived from the fact that the commitment to the gold
standard was international. Central banks like the Bank of England could rely
on foreign assistance in times of exceptional stress. Again, the need for
actual assistance was minimized because the commitment to offer it was fully
credible. Thus, international cooperation is a central element of my
explanation of how the classical gold standard worked.
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