ABSTRACT
This essay reinterprets the gold standard by applying the monetary theory of the balance of payments to the experience of the two most important countries on it, America and Britain. Before explaining, testing and using the theory in detail, it will be useful to indicate a few of the ways in which accepting it will change the interpretation of the gold standard of the late nineteenth century. The most direct implication is that central bankers did not have control over the variables over which they and their historians have believed they had control. The theory assumes that interest rates and prices are determined on world markets, and therefore that the central bank of a small country has little influence over them and the central bank of a large country has influence over them only by way of its influence over the world as a whole.
