Item in Forbes.com:
9, 2013: Bitcoin Is a Junk Currency, But It Lays the
Foundation For Better Money
Current Accounts and Gold Flows, 1850-1913
May 12, 2013
You often hear that the gold standard system of the
late-19th century "kept the balance of payments in balance,"
and that flows of gold offset "balance of payments
imbalances." Some people talk about a "price-specie-flow"
mechanism along these lines.
It's a total fantasy.
Actually, the gold standard system of the time allowed
greater capital flows, which are known as a "balance of
payments imbalance" for some reason. It was a great time of
globalization, which was not matched until the 1980s. None
of this had anything to do with flows of gold. Flows of gold
are easy to understand, because it is just like flows of
anything else -- it goes from where it is in relative
surplus (countries with mines, for example), and people have
more than they want, and wish to trade it for something
else, to places of relative shortage (countries without
mines), where people want more than they have, and are
willing to trade something else for it. No different than
copper or iPhones really.
I looked at this in the past:
4, 2012: U.S. Current Accounts and Bullion Flows,
However, today I am using a rather nice dataset from the
NBER, available here:
Obviously, the "balance of payments imbalances" of the time
were actually quite large! Canada and Australia, for
example, had current account deficits of over 10% of GDP at
times. Britain was, of course, the capital exporting
champion of the time, with current account surpluses
(overseas capital flows) often in excess of 5% of GDP.
As we can see, current account balances had nothing to do
with gold flows. Britain was, on average, a modest gold
importer, as one would expect for a country without gold
Australia has a little different story, because of course it
has a big gold mining industry (relative to GDP). Thus, it
was a gold exporter. Australia also ran a big "current
account deficit" (capital imports), because all those mines
took capital to build. The capital came from Europe --
probably mostly from Britain.