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.

Metallist Rules of the Gold Standard Achieved a Fundamental Liberal Objective by Removing Economic Processes from Discretionary Manipulation

At the very heart of the metallist orthodoxy lay a strong laissez-faire ethic, and this was embodied in the central injunctions calling for the preservation of the purchasing power of the national monetary unit through some rule dictating money creation. It was this metallist injunction, by which inflation was to be controlled, that gave the preference for stable money a liberal character. The alternative to a metallist rule was a discretionary manipulation of the money supply. This made the purchasing power of money subject to the idiosyncrasies and whims of public authorities. There was no certainty that these authorities would use this discretion in a capricious manner, but similarly there was no guarantee against it. Metallist rules essentially effected a fundamental liberal objective: removing economic processes from central, public, discretionary manipulation. Moreover, that growth in the money supply was dictated by changes in the stock of gold fundamentally subjected the value of money to market processes: the supply and demand for metal. This in turn prevented any artificial elements from influencing the purchasing power of money, since the value of one set of commodities (i.e., consumable goods) was indexed to the value of another set of commodities (metal). Hence money creation was to be an outcome of the impersonal forces of the market, and whatever outcomes (good or bad) resulted from these forces were deemed preferable to outcomes deriving from central management under a fiat regime where the value of money was established by the decree of some central authority (i.e., had an artificial or contrived value).

--Giulio M. Gallarotti, The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880-1914 (New York: Oxford University Press, 1995), 55-56.