Skip to main content Accessibility help
×
Hostname: page-component-848d4c4894-mwx4w Total loading time: 0 Render date: 2024-06-15T19:22:39.452Z Has data issue: false hasContentIssue false

PART III - THE MONETARY SYSTEM AND MONETARY POLICY

Published online by Cambridge University Press:  15 March 2010

Get access

Summary

For many years the fundamental notion employed to understand the pre-1914 Gold Standard was the Quantity Theory of Money, one form of which is represented in figure III.1. The money supply, Ms, depended on the quantity of gold and the willingness of the financial system to create assets, such as bank deposits, on that monetary base. Excessive credit creation drove up prices. That meant profits could be made by buying gold in the UK, and selling in another gold standard country where prices had not risen so much. If gold flowed out of the country, Ms shifted down to Ms1 and nominal income contracted.

The Bank of England was expected to maintain confidence in the monetary system so that there were no massive panic contractions in the supply of assets created by the private sector. (In a panic Ms shifts to Ms1 and nominal income falls to PY1. Most probably both prices and real income would decline.) Money demand, Md, increased with nominal income by a proportion k. If interest rates rose, perhaps because of an increase in the Bank's discount rate, k fell as the cost of holding money for transactions purposes increased. The same increase in interest rates also tended to reduce Ms.

Type
Chapter
Information
New Perspectives on the Late Victorian Economy
Essays in Quantitative Economic History, 1860–1914
, pp. 249 - 250
Publisher: Cambridge University Press
Print publication year: 1991

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×