Profitability in the International Gold Market in the Early History of the Gold Standard

By looking at the available evidence on the London gold market in the late eighteenth century and early nineteenth century, the paper presents a new formulation of the gold points and models the market behaviour behind gold movements. While there is evidence that the merchants’ behaviour sustained the purchasing power parity of gold in terms of currency, there is none to support the view that gold flows realized the purchasing power parity of gold in terms of traded commodities. Therefore, the equilibrium condition imposed by both the monetary approval and the price-specie-flow mechanism seems unnecessarily restrictive.