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All that Glitters Is Not Laissez-Faire


Review: The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire
(March Review, 2011)

All that Glitters Is Not Laissez-Faire
by Steven Bryan (New York: Columbia University Press, 2010)

Review by Joseph Arena

Sometimes the coincidences of history are uncanny.  On Sunday, September 14, 2008, the remnants of Hurricane Ike slammed into Columbus, Ohio.  With power knocked out by the storm, I ended the day reading by flashlight.  The next morning, walking amidst downed branches and scattered leaves, the newspaper headlines screamed that Lehman Brothers had failed, sending financial markets worldwide into free-fall.

As the natural disaster revealed the limitations of the local infrastructure, the human catastrophe that spun-out from that particular "Black Monday" asked historians to reconsider the traditional narrative of the world economy in the 20th century.

Up to that point, as masterfully told in Jeffry Frieden's Global Capitalism: Its Fall and Rise in the Twentieth Century (2006), the story went something like this:

In 1846, Great Britain, the cradle of the Industrial Revolution, abolished its protectionist Corn Laws and inaugurated a new era of "free trade."  Until the outbreak of the First World War in 1914, the combination of new technology with the "classically liberal" philosophy of laissez-faire and the "universal money" of the gold standard, created the conditions for a worldwide boom in investment and production.  The destabilizing effects of conflict then pushed states into the marketplace, where they remained for a half-century or more, in guises ranging from Stalin's brutal attempt at forging "socialism in one country" to the benign aegis of the Bretton Woods exchange rate regime.  A series of shocks, ranging from Nixon's severing of gold-dollar convertibility in 1971 to the Deng Xiaoping's reopening of China, and the fall of the Berlin Wall in 1989, ended this regime.  By the early twentieth century both developed and developing nations embraced a  "neoliberal" agenda promoting for free trade, deregulation, and privatization.  By the beginning of the 21st century, it seemed that the world economy had, after a long detour, returned to something resembling  "free market" origins.

Of course in the fall of 2008 it was the world's governments, the supposedly "shrinking state," not private investors, that rescued the imprudent financiers and with them, the world economy.  For the historically minded, this raises an important question; had there ever been an era of pure laissez-faire?  The answer, according to Steven Bryan's The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire, is no.

Based on extensive research in original language primary sources, Bryan's work is an effectively written addition to the growing body of truly "globalized" historical monographs.  Divided into three concise sections, The Gold Standard at the Turn of the Twentieth Century first examines at the global ascent, both as philosophy and as policy, of gold-backed currencies before World War I.  Then Bryan turns to two growing "peripheral" states, Argentina and Japan, and shows how policymakers adapted this aspect of English-style liberal economics for their own nationalist ends.  This is not to say that Bryan dismisses the conventional elements of late 19th century economic history, rather he contextualizes the use of gold with other geopolitical objectives of emerging nations.

"Whereas free trade, deregulation, and a supposedly vanishing state constitute the cornerstones of late twentieth-century globalization, global economic activity the years before World War I was most remarkable for combining expanding trade, growth, and industrialization with a range of statist economic institutions, restrictions on trade, and nationalist ideology united in pursuit of the of the dominant goals for the age: industry and empire."  (9)

The turn toward the gold standard was part of a larger shift away from laissez-faire and towards an expansion of state power oriented toward global military and economic competition.  Until 1873, when a newly united Germany adopted the gold standard, most nations had, with the notable exception of Britain, followed the principles of either bimetallism or a silver standard.  The adoption of this "universal money," as students of the Populists in the United States can attest, lacked universally popularity.  Rather than by popular acclaim, Bryan argues that the gold standard through action of expansionist bureaucrats.  Technocrats, such as Russia's Sergei Witte, pushed for gold in order to borrow on the London-centered world credit market, in order to expand their nation's military-industrial capabilities.

Other nationalist aims also factored into the adoption of gold.  For Germany, gold offered a way to define the new nation by breaking away from the silver based (and French-led) Latin Monetary Union.  In the United States, where coining silver halted in 1873, gold deflated the economy (aiding creditors) after the issuance of fiat money "greenbacks" to fund the Civil War (1861-65).  A similar process occurred when Russia went on gold in 1897 in order to withdraw the paper that had flooded the economy during the Crimean War (1853-56).  Colonies, such as India under the British Raj, had no choice in the matter but to follow the "home" country in adopting gold.  The decisions of middle powers, like Argentina and Japan, proved more complicated.

For Argentine Carlos Pellegrini, the leader of that nation's adoption of the gold standard, the key objective of the new currency was the industrialization of the resource-rich, but sparsely populated country.  Thus the adoption of Law 3871 in 1899, with its conversion to gold at a devalued exchange rate, sought to promote Pellegrini's "two utopias" of domestic industrial promotion and the gold standard.

In Japan, the policy debate surrounding gold, spearheaded by finance minister Matsukata Masayoshi, resulted in the same outcome as in Argentina, adoption of the gold standard at a devalued rate, but for very different reasons.  Rather than the industrial growth advocated by Pellegrini, in Japan, the gold standard served as the handmaiden of imperial expansion. 

As industrialization took-off, following the Meiji Restoration of 1868, Japanese leaders turned their attention from the defensive posture they had assumed following the arrival of Commodore Matthew Perry and his "Black Ships" in 1853, to imperialism colonizing Taiwan and the Korean Peninsula.  Adopting gold allowed Japan to import capital goods and finance the foreign expenditures, such as borrowing for the Russo-Japanese War (1904-05) that paved the way for imperial growth.   

Beyond the practicalities of expansion, the gold standard in Japan took on a kind of  "civilizational" character-a belief that using gold per se defined a modern, "advanced" nation.

As Soeda Juichi, one of Masayoshi's allies argued, "For uncivilized nations, shells and hides may do; but as we advance, something better such as silver becomes necessary.  As the unit of prices rises by still higher advance toward civilization, silver become too heavy, and something that embodies more value in less volume is needed.  This need is best satisfied by gold."  (156)

In his epilogue, Bryan argues that this ideology that fused concepts of "status" and "character" to gold after the end of World War I, which proved to be standard's undoing.  Rather than adjusting exchange raters to match the change in economic conditions, policymakers around the world embraced a deflationary  "liquidationism" in a vain attempt to uphold pre-war exchange rates.  The Great Depression disproved these arguments and began the transition of gold from the center to the periphery of the international monetary system.

Bryan's work takes on the notion of a "golden age" of laissez faire economics where states stepped back and the rule of markets went uncontested. The gold standard could, and did, fit into a variety of economic regimes, from the liberal and cosmopolitan, to the illiberal and nationalist.  The plasticity of economic philosophy, highlighted by the interventions of erstwhile proponents of "free market" in the 2008 crisis, is not new.  Indeed The Gold Standard at the Turn of the Twentieth Century is ultimately a cautionary tale about the perils of remaining, in the words of John Maynard Keynes, "slaves to some defunct economist."


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  • All that Glitters Is Not Laissez-Faire

    The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire (New York: Columbia University Press, 2010)

  • All that Glitters Is Not Laissez-Faire

    Map of the World in 1910

    Source: Wikimedia Commons

  • All that Glitters Is Not Laissez-Faire

    A gold bar

    Source: Wikimedia Commons

  • All that Glitters Is Not Laissez-Faire

    McKinley 1900 campaign poster, the crowd is lifting him up on a gold coin

    Source: Wikimedia Commons

  • All that Glitters Is Not Laissez-Faire

    Political cartoon criticizing the Democratic Party’s support of the silver standard in the 1896 election

    Source: Wikimedia Commons