Does Circulation Need a Monetary Standard?

Abstract

Loosely speaking, the notion of a standard in economic literature usually carries the idea of something invariable, which helps to stabilize the economic system in one way or another. Three different meanings of this notion may be distinguished: 1. The standard of money, in which the monetary unit is defined, through the official fixation within that unit of the price of one unit of the standard. As an example, during more than two centuries England was on a gold standard, because the pound was defined as 123.24 grains of standard gold, which corresponded to the official price of £3 17 10 1/2 an ounce of standard gold, invented in 1717 by Isaac Newton, then ‘Master of the Mint’. 2. The standard of international monetary relations, in which all the monetary units of a given zone are directly or indirectly defined, and which may be obtained and used at a fixed price in each unit in order to settle international balances. As an example, most advanced economies have formed a gold standard system in various forms during the century up until 1971, when President Nixon ‘closed the gold window’. 3. The standard of value, in which relative prices may be measured in such a way as to neutralize the effects on measurement of the changes affecting the numéraire. The search for this standard is associated with a distinct strand of thought, originating with Smith and Ricardo, and has found an analytical expression in the concept of ‘standard commodity’ invented by Sraffa.