The Glitter of Gold: France, Bimetallism, and the Emergence of the International Gold Standard, 1848-1873 (review)

Despite the deluge of popular and academic tomes alternatively preaching the benefits and threats of globalization, national (often linguistic) divisions among European and American academics still exist. While building a bridge across the still formidable Atlantic divide, these two books tackle a similar set of issues, albeit in two very distinct fashions. With insights on the roles played by England and France in first creating and then maintaining the gold standard—and its associated advantages and hardships—drawn from some of the best scholars in the field, the books deal with the conditions that help build and conversely weaken stable financial markets.

The Glitter of Gold is a wonderful translation of and expansion on Marc Flandreau's earlier book L'Or du monde—expanded with some material from articles, some of which have already appeared in English—on the theme of France's transition from bimetallism to the gold standard. It is one of those rare books that effectively combines economic theory with history. For those enamored of formulas, Flandreau expresses relationships symbolically; for those interested in how the system worked in reality, there are detailed descriptions of how institutions functioned.

Flandreau begins with a discussion of the long debate over bimetallism, which may appear quaint for those readers whose knowledge of business and economic history starts in 1914. Flandreau reminds us that "in a world far, far away" there was not only a period of extensive global exchange of goods and services in the context of rate stability and "convertibility" of foreign exchange, but also considerable debate about how the stability and convertibility should best be achieved. Much of the book deals with the theory and mechanics of how France managed its currency convertibility with gold and silver from 1848 to 1873, playing with the price of the two metals to maintain convertibility of French currency with whichever metal had the smallest opportunity cost for the Banque de France. He explains how private and "public" arbitrage activities forced a workable ratio of the prices of the two metals. Given the newness and fragility of even bimetallism, Flandreau argues that the Banque de France's reluctance to give up an "unbroken" system was understandable.

Having concluded that bimetallism worked, Flandreau attacks the problem of why it disappeared in many countries, notably France. He begins with an analysis of the purely economic factors contributing to the change—for example, relative gold and silver production levels, shifting regional trading patterns and loyalties, and increasing concerns over transaction costs—all real factors but collectively inconclusive for explaining France's and Germany's adoption of the "gold standard," even in a modified form. Ultimately, as Flandreau reminds us, politics forced the decision. France's defeat at the hands of Prussia, its payment of a five-billion-franc indemnity to the new Germany financed by sales of silver, the suspension of silver minting, and France's continued membership in the Latin Union all combined to destabilize markets. Despite its military victory, Germany was left weakened by its inability to sell its own holdings of silver (Thalers), a virtual silver version of the Midas Touch. France adopted an "awkward" form of the gold standard, in which its currency was legally still backed by gold and silver but without the fresh minting of silver.

Here then, Flandreau comes back to an earlier and much-disputed conviction: namely, that English-inspired economic ideas were not really the driving force behind the near-worldwide implementation of the gold standard and that the gold standard's near-automatic adjustment mechanisms helped create a halcyon...