The Gold Standard As a Rule: An Essay in Exploration

In this paper, we show that the monetary rule followed by a number of key countries before 1914 represented a commitment mechanism preventing the monetary authorities from changing planned future policy. The experiences of these major countries suggest that the gold standard was intended as a contingent rule. By that we mean that the authorities could temporarily abandon the fixed price of gold during an emergency (such as wartime) on the understanding that convertibility at the original price of gold would be restored when the emergency passed.