The Golden Era of Prosperity and Sound Money
The Franco-Prussian War ended in 1871, and with it came an extraordinary transformation: the world’s major economies transitioned to the gold standard, ushering in an unprecedented period of global prosperity. Known as La Belle Époque (The Beautiful Era) in Europe and the Gilded Age in the United States, this era marked the pinnacle of human flourishing, driven in part by the adoption of sound money.
By the dawn of the 20th century, gold had become the universal monetary standard, tying the world’s currencies together in a system that fostered international trade, capital accumulation, and technological innovation. It was a period unlike any the world had seen before — and one we may never see again.
A Universal Monetary Standard
Under the gold standard, each nation’s currency was tied directly to a fixed weight of gold. For instance, the British pound represented 7.3 grams of gold, the French franc 0.29 grams, and the German mark 0.36 grams. Exchange rates between these currencies were as straightforward as converting inches to centimeters.
This universal system eliminated the uncertainty of fluctuating exchange rates and created a stable environment for global trade. Gold coins were recognized and accepted across borders, and many countries’ currencies were interchangeable as they represented the same underlying value: gold.
Unlike today’s fiat currencies, money supply was determined not by central bankers but by the natural workings of the market. People spent and saved as they saw fit, and governments were constrained by the amount of gold in their treasuries. The result was a self-regulating system that fostered economic freedom and stability.
The Flourishing of Trade, Industry, and Innovation
The adoption of the gold standard coincided with revolutionary advancements in transportation and communication. Railroads connected continents, steamships crossed oceans, and the telegraph allowed information to travel at unprecedented speeds. These innovations, combined with sound money, enabled trade and investment to flourish on a global scale.
With monetary stability came rising savings rates in the world’s most advanced economies. This capital was reinvested into industrialization, urbanization, and technological progress, driving humanity into the modern age. By 1900, more than 50 nations had officially adopted the gold standard, while others still used gold coins for trade.
This era saw the invention of transformative technologies, from electricity to automobiles, as well as groundbreaking achievements in medicine and the arts. The global economy expanded rapidly, and living standards improved dramatically. It was truly a golden age of human progress.
The Constraints of Sound Money
The gold standard’s success was not just economic — it also restrained governments. Without the ability to print money at will, governments were forced to live within their means. Excessive spending, whether on wars or domestic programs, was kept in check by the finite supply of gold reserves.
This monetary restraint also reflected broader societal freedoms. As Ludwig von Mises observed:
“The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic.”
During La Belle Époque, governments were relatively small, with minimal interference in the daily lives of their citizens. Economic freedom and sound money were the foundation of a prosperous and peaceful world.
The Fragility of the Gold Standard
Despite its many benefits, the gold standard was not without flaws. It relied heavily on trust — trust in governments and banks to maintain the integrity of the system.
Two key vulnerabilities eventually undermined the gold standard:
- Excessive Credit Creation: Even under a gold standard, banks and governments often issued more paper money and credit than their gold reserves could support. This practice made the system prone to financial crises when too many people tried to redeem their paper money for gold at the same time.
- Centralization of Gold Reserves: Gold reserves were concentrated in a few central banks, making them vulnerable to government control. This centralization allowed governments to manipulate the money supply during times of war or economic crisis.
These weaknesses became apparent during World War I, when most nations suspended the gold standard to finance their military efforts. This marked the beginning of the end for the global gold standard.
The Collapse of La Belle Époque
The outbreak of World War I in 1914 shattered the stability of the gold standard and brought La Belle Époque to a tragic end. Governments abandoned sound money in favor of inflationary policies, printing paper currency to fund their war efforts.
As the war dragged on, the link between money and gold was severed, and the global economy plunged into turmoil. Only a few neutral nations, like Switzerland and Sweden, maintained the gold standard into the 1930s.
The 20th century became defined by fiat currencies — money issued by governments with no backing in gold. This shift allowed for massive government intervention in the economy, but it came at the cost of stability, as inflation and economic crises became regular features of the modern world.
The Lessons of La Belle Époque
The legacy of La Belle Époque is a powerful reminder of the transformative power of sound money. By anchoring currencies to gold, the world achieved unprecedented levels of trade, innovation, and prosperity.
However, the era also exposed the vulnerabilities of centralization. When governments gained control over gold reserves, they eventually succumbed to the temptation to expand the money supply and abandon monetary discipline.
As Mises warned:
“The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.”
The collapse of the gold standard paved the way for the rise of fiat currencies, with central banks manipulating money supplies to suit political agendas. Yet, even in a world of fiat money, gold has never lost its allure. Central banks continue to hold vast reserves of gold as a hedge against economic uncertainty, proving that its role as a store of value endures.
La Belle Époque was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.