The Gold Standard Produces a Depoliticized Macroeconomy

The depoliticized macroeconomy of the gold standard had various consequences for the adjustment mechanism. Political non-involvement in the macroeconomy meant that the synchronous outcomes created by international market forces across economies could go uninterrupted. Monetary authorities found no political obstacles in the orthodox maintenance of a metallist system. There was little pressure to monetize deficits or inflate economies out of recession, both of which would have led to an overexpansion of money supplies which made the maintenance of convertibility more difficult. Strictly on the fiscal side, the manifestations of the depoliticized macroeconomy were small government sectors, typically balanced budgets, and the resilience of a prevailing norm of fiscal restraint. That fiscal prudence had such a strong normative foundation (both in itself and in the norms which depoliticized economic policy) relieved the gold standard from the inflationary pressures that have historically been inimical to metallist regimes. The period of the gold standard appeared to feature just as strong a form of fiscal orthodoxy as monetary orthodoxy. Finally, the limited political rewards to economic performance also minimized the tendencies for economic nationalism resulting in beggar-thy-neighbor policies. Manipulating exchange rates, trade barriers, and interest rates to redistribute or protect external surpluses and employment opportunities was less necessary in a world where the burden of inferior macroeconomic outcomes did not fall on political leaders. In the prewar world of laissez-faire, the domestic political incentives to exploit others was generally absent.

--Giulio M. Gallarotti, The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880-1914 (New York: Oxford University Press, 1995), 209.