ABSTRACT
This paper presents an analysis, mainly in graphical terms, of the gold-exchange standard, reduced to its essential features. Mundell’s analysis of what he called the crisis problem [5] seems to have been the first attempt to formalize the working of the system in the framework of a theoretical model. The present paper is intended as a further step in the same direction. In contrast to Mundell, it emphasizes long-run growth equilibrium rather than the dynamics of control and possible collapse. It has been correctly observed that the working of the gold-exchange standard is in many respects similar to bimetallism [1]. In both cases, the centrepiece of the mechanism, under full employment, is the interplay between commodity price levels and the supply of monetary assets. Neither system can be properly understood if this interplay is disregarded and prices are assumed to be given. In the following analysis, prices, both absolute and relative, will thus play an important role. The exposition will concentrate on the full-employment case. For unemployment, variations in output would probably take the place of price variations.
