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Subject Area: Political Theory

Asian Monetary History: Gold & Silver - Leonard P. Liggio, Literature of Liberty, July/September 1979, vol. 2, No. 3 [1979]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Asian Monetary History: Gold & Silver

Christopher J.R. Wood and John G. Greenwood

  • University of Bristol and G.T. Management Ltd. (Hong Kong)

“Episodes from Asian Monetary History. The Fall of Silver: Part 1. China and the Silver Standards.” Asian Monetary Monitor 2 (July/August 1978): 33–43.

Under a bimetallic monetary standard of gold and silver, the silver standard countries had acted as automatic stabilizers, absorbing either gold or silver depending on their changing relative prices. But the government-induced shift from bimetallism to the predominant use of gold in the latter part of the nineteenth century, meant that the exchange rate between silver and gold standard countries was free to float for the first time. A combination of circumstances produced a longterm decline in silver prices which, in effect, was a continuous depreciation of this exchange rate. This chronic depreciation stimulated production and exports in the silver standard countries while rendering the exports of the gold standard countries relatively more expensive.

The government of India found fluctuations in the price of silver disquieting. These fluctuations were increased with the passage of the Sherman Act in the U.S. (1890) followed by a repeal of its silver purchase clause. The government acted to place India on a de facto gold exchange standard by intervening to maintain a fixed exchange rate between the India rupee and the British pound sterling.

The Chinese exchange rate would not be pegged and so it continued to fluctuate. These fluctuations meant that interest rates, prices, and output in China diverged from those in the gold standard countries. A floating exchange rate insulated China against an import of the trade cycle from the gold standard countries. Indeed, inflows and outflows of silver acted counter-cyclically in the world economy. The Chinese wholesale price index closely followed the Chinese exchange rate. The U.S. price of silver, and relative prices in the U.S. and in China, also closely followed each other. Chinese prices exhibited greater stability than did the price index in the gold standard countries. This monetary stability was shattered only in the 1930s, when the U.S. government's attempts to maintain the price of silver in effect imposed a massive deflation on the Chinese economy.