Harold James is Professor of History and International Affairs at Princeton University and Professor of History at the European University Institute, Florence. He is the author of The Creation and Destruction of Value: The Globalization Cycle.

LONDON: The European Monetary Union, as many of its critics maintain, looks a lot like the pre-1913 gold standard, which imposed fixed exchange rates on extremely diverse economies. But is that resemblance as bad as it sounds, or as the euro’s critics insist?

The appeal of the historic gold standard lay in an institutional capacity to build confidence. A completely fixed exchange rate rules out monetary-policy initiative, and consequently makes adjustment to large external imbalances very difficult to carry out. And the burden is unequal, because there is much more pressure on deficit countries to adjust via deflation than on creditor countries to allow higher inflation.

Pessimists are especially worried by the unpleasant gold-standard analogies and lessons. They foresee years and even decades of slow growth in Europe. Politically, too, the process of adjustment by deflation in deficit countries is so unpleasant and difficult that many pessimists think it will ultimately prove to be unsustainable.

But critics of the euro should take the gold-standard analogy more seriously. Like any system in the real world, it was more complex, more interesting, and also filled with more real policy possibilities than textbook caricatures suggest.