The gold standard self-corrected trade imbalances through domestic price and wage adjustment.

Evidence

But that wasn’t the half of it. The gold standard also worked as a mechanism of adjustment for international trade by bringing states’ exports and imports into balance through the inflation and deflation of domestic prices and wages. For example, if a country on gold exported more than it imported, it would, in effect, be importing gold from the recipient countries. This would add to its own domestic money supply, enabling the issuance of more domestic currency. It would also raise wages and prices as the economy boomed but It would also make its exports less competitive and its imports cheaper. Over time, this country’s trade surplus would turn into a trade deficit, with more imports than exports. Gold would move out of the country to pay for these increased imports. Domestic prices and wages would fall as the money supply (tied to gold) shrank, but the country’s competitiveness would improve (cheaper exports), and the trade balance would right itself as exports picked up and imports fell. — Mark Blyth, Austerity, 490

Categorization

• DEFINE: Lays out the price-specie-flow adjustment mechanism in accessible terms.
• XREF: This mechanism is the crucial backdrop for understanding why deflation was the ‘medicine’ of interwar austerity. — connects to: The gold standard was a major cause of the world’s two worst economic depressions. — Mark Blyth, Austerity: The History of a Dangerous…, 485; The gold standard’s self-regulating automaticity became politically fatal once workers got involved. — Mark Blyth, Austerity: The History of a Dangerous…, 491; Gold standard currencies had fixed parities and central banks limited issuance to gold reserves — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64 (+1 more)

Broader Connections

• Gold standard currencies had fixed parities and central banks limited issuance to gold reserves #qualifies (0.78) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64
• Fixed exchange rates trade employment stability for external balance #qualifies (0.75) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 295