North East India and the First World War

North East India and the First World War

This is a guest blog by Pratap Chhetri 

2014 marked the centennial year of the start of World War I or the Great War, as it is known. Across the globe from London to Auckland commemorative functions are being held to honour the memory of the brave and valiant soldiers who fought in the First World War and gave their lives for the humanity. These commemorations will last till 2018. Of late India too has geared up and started recalling the supreme sacrifices of its soldiers. This is a part of history we, as a nation should all take pride in – lest we forget.

India and the Great War

Maj Fell unveiling the War Memorial in 1926 in Aijal(Aizawl) dedicated to men of the 1st Assam Rifles who served in World War I
Maj Fell unveiling the War Memorial in 1926 in Aijal(Aizawl) dedicated to men of the 1st Assam Rifles who served in World War I

Undivided India’s participation numbered more than 900,000 combatants and 600,000 non-combatants in the War. More than 70,000 soldiers died on the battle front in various theatres of the war – France, Turkey and Mesoptamia, earning 9200 decorations which among others included 12 Victoria Crosses. Yet the Indian narrative remains largely untold and forgotten. Western academics and historians have always dealt with the Great War as a ‘white-man’s narrative’ forgetting the significant contributions of ‘the non-whites’ in the War. On the other hand, India has also shied away from taking credit and trumpeting its contribution because the War was fought for imperial defence under British colonial yoke. Whatever be the stance, the fact remains that India’s contribution was overwhelming. Indians fought right from the start to almost the finish. It was the first time in India’s history that soldiers of the Raj, Imperial Defence troops of Indian states, auxiliaries and labour force from all corners of the country – North, South, East and West and even from North East India participated in the War which changed the course of the world.

North East India’s Contribution to World War I

For millions from the modern world, the Great War that lasted from 1914 to 1918 was a theatre of sorrow and grief. But for the thousands of men who went to serve as paid volunteer labourers as a part of the Indian Labour Corps during 1917-18 in France on the Western Front from the then primitive North East India – a region that had been annexed by the British just a few decades prior to the start of the War; it was an epic journey of adventure and discovery into a hitherto unknown world. For these tribal men who had never seen modern civilization and whose contacts with the outside world were very limited, the War was a blessed opportunity that opened the horizons of their world enlightening them and the societies, they came from. The War acted as a catalyst that hastened the advent of modern civilization and aided the growth of education and spread of Christianity in faraway North East India. Most important of all, political consciousness began to slowly dawn amongst the Nagas, Khasis, Garo and Lushais as a result of their first exposure to modern civilization, thanks to this global conflict.

Men from present day North East India were a part of the 21,000 strong Indian Labour Corps who were recruited by the British from the non-martial races and tribals of present day Eastern and North Eastern India in early 1917 to serve as labourers and porters in the theatres of the action in France on the Western Front. These Labour Corps were christened from the regions that they came from – Garo Labour Corps, Khasi Labour Corps, Lushai Labour Corps, Manipuri Labour Corps, Naga Labour Corps and even the Chin Labour Corps from today’s Chin state of Myanmar, which was then still a part of British India. Each of the Labour Corps had a number of units. Each corps unit was roughly made of 500 men commanded by British officers and even sometimes by men who had worked in the region in various capacities but with little military experience. In some cases these officers were assisted by British missionaries who were spreading the Gospel in various corners of the then excluded areas of the north eastern part of India. These missionaries performed an important role – that of interpreters as these men would not have understood English and also acted as chaplains for the early converts.

Who were these men? Why did they go to fight for the British who had launched punitive mission against various tribes? What did they do? How did they adapt to their new vocation? What adventures did they meet with? These are some questions that arouse curiosity. Answers to these pertinent questions will require a lot of scholarly research. This article is a humble attempt to chronicle the origins and journeys of the various Labour Corps from the North East on whom war service as labourers was thrust by force, rather than by free will and choice.


By late 1915, the British War Committee, later known as the War Cabinet realized that shortage of labour might cost them dearly in the Western Front in France. As the War progressed, combatants could not be spared for non-combat roles. Unskilled labour was found to be needed for building roads and laying railway tracks, handling ammunition, docks, supply and storms depots, forestry, quarries, hutting, trench building and grave digging. Since the demand for labour could not be met from ‘the home turf’, it had to be imported from the British colonies abroad and even from China.

In January 1917, the Secretary of State for India wrote to the Viceroy asking if India could supply labour for the Western Front in France. While the big provinces such as Punjab, United Provinces, Madras, Bombay and others were already drafting and had sent soldiers in great numbers, the onus of providing labour fell on Assam, Bengal, Orissa and the North Western Frontier Province, who were not much represented in the British Indian Army.

The Assam Administration through the Chief Commissioner Archdale Earle responded saying that ‘eight to ten thousand able bodied hill men’ would be recruited for France. In Assam, amongst the tribal areas that were under British administration there was already an administrative and tributary structure in place through which demands for collies for portering and road building and even for expeditionary and punitive missions were regularly placed to the tribal chiefs by the Administration. It was perhaps this policy that the Chief Commissioner might have counted upon to generate the numbers1.

The Labour Corps was the organization that provided essential services to the army such as cooking, laundry, moving supplies and stores, burying the dead, unloading ships and trains and repairing roads and railways. Many of the Labour Corps’ worked far behind the frontlines but Indian labourers were often used for more dangerous work close to the action such as building fortifications or moving ammunition.

Lushai Labour Corps

The Lushai Labour Corps was initially called the 27th Lushai Labour Corps but it seems this Crops was later split up and numbered as – 26th, 27th, 28th and 29th Lushai Labour Companies. Around 2100 Lushais (Mizos now) left Aijal(Aizawl now); of which around 425 were from South Lushai Hills. They reached Marseilles in June 1917 and worked on fortifications, charcoal making and other taxing tasks. The corps was commanded by Lt. Col. Playfair. Rev.D. E. Jones ‘Zosaphluia’, one of the pioneer missionaries of the Welsh Mission in the Lushai Hills also was a part of the Corps. At the end of their service many were invited to visit Wales but none were prepared to prolong their stay in Europe. After more than a year on the frontline, the Corps headed back home in May 1918 and reached Lushai Hills in June 1918. 71 men perished the majority of who were war casualties. The names of these men are inscribed in the War Memorial in the heart of Aizawl. Every year on 7th December, Armed Forces Flag Day, wreaths are laid and sacrifices of these men as well as others who laid down their lives in the Second World War and other post Independent operations are commemorated.

War Memorial at Shillong
War Memorial at Shillong

It is interesting to note that in 1915 two years prior to the birth of the Lushai Labour Corps, a group of 30 young Lushais, somehow joined the 8th Army Bearer Corps and went to Mesopotamia. One among them was Lance Havildar Lalhema who received a Mention-in-Dispatches for his bravery and this commendation was signed by none other than Winston Churchill, who was at that time, the War Secretary. Seven of these men reportedly perished. Their names too, are inscribed on the War Memorial in Aizawl.

These men saw football being played for the first time and brought back the game to Mizoram. Till today, a particular variety of spinach which was brought from France goes by the name feren which means France. A popular folk song which was composed when the men left for France called ‘German Ral Run’ is still sung even today by Mizo youngsters.

Khasi Labour Corps

The Khasi Labour Corps initially seems to have been known as the 26th Khasi Labour Corps which was later divided into four companies – 22nd, 34th, 55th and 56th with perhaps maybe 500 men in each company. There seems to be no exact estimate of the number of men in this corps, or even if the numbers exists, it has not been reported in available literature on the subject. Herbert Cunningham Clougston and F B Wilkins were the European officers of the Corps while David Stephen Davies, a Presbyterian missionary and Rev. Shai Rabooh, a Khasi preacher also accompanied the Corps to France. 67 men died and to commemorate their sacrifices, a memorial ‘Mot Phran’ (which in Khasi means Stone from France) with the names of those who died inscribed on it was installed and inaugurated by the DC of Khasi-Jaintia Hills in 1924 at Iewduh in the heart of Shillong. Carved on the memorial is a quotation from the Roman lyrical poet Horace’s poem Odes : Dulce et decorum est pro patria mori. (It is sweet and right to die for your country). The memorial still stands intact, though neglected over the years.

In 1915, the British Government ordered the expulsion of the German Catholic missionaries of the Congregation of the Divine Saviour (Salvatorians) who had set foot in the Khasi Hills in 1890. It was this congregation that laid the early foundations of the Catholic Church in the region and perhaps the North East too. The first Catholic Church in the North East was built by this Congregation in 1913 on the same site where the Cathedral of Mary Help of Christians stands today.

Garo Labour Corps

The Cenotaph in Tura which commemorates the 69th Garo Labour Corps
The Cenotaph in Tura which commemorates the 69th Garo Labour Corps

During April 1917, in reponse to the Deputy Commissioner’s call for enlistment in the Labour Corps, 1000 men were recruited from various places across Garo Hills. This corps was to be the 69th Garo Labour Company. The men were stationed in Tura for almost four months due to delay in receiving orders. During this period many of the recruits suffered from various diseases. By the time the Corps left Tura for France in August 1917, only about 500 of them were declared fit to move to France. Some of these recruits died enroute the long 5000 kilometre journey across the Indian Ocean, the Red Sea and the Mediterranean Sea and according to some records, only 456 of them reached France.

In May 1918, the Garos were allowed to return to their homeland. They arrived at Tura on July 16, 1918. As they were officially released at Gauhati, some of them got down here, some at Goalpara district stations and some at Garobadha while only 120 men actually arrived at Tura.

A total of 58 men died. One died while the recruits were still camping at Tura, one at Garden Reach, Calcutta, one on boarding the ship at Alexandria and 55 men in France. The names of these men find a place in the Cenotaph that was erected in Lower Bapupara in Tura to commemorate the Corps. The day of their return from France – 16th July is solemnly observed every year as a day of remembrance as the Garo Labour Corps Day.

By late April 1917, almost all the Labour Corps were released since their contract was only for a one year term but there seems to have been some re-organization of the remaining Indian Corps into four Companies and one of them was the 84th Garo Company. These four companies stayed on till the end of the War. It is not known definitely whether some men from the 69th Garo Labour Company stayed back and were a part of the new Company or simply it was an error of nomenclature.

Naga Labour Corps

Around 2000 Nagas – 1000 Semas, 400 Lothas, 200 Regmas, 200 Aos and 200 Changs and other Trans-frontier tribes seems to have been recruited and this group of men were designated as the 21st Naga Labour Corps. According to some written documents quoted in various books the 21st Naga Labour Corps arrived in France in two main groups (688 men on 21 June 1917 and 992 men on 2 July 1917). The Deputy Commissioner, Mr. H. C. Barnes went in command with a number of clerks and Dobashis(interpreters). It is presumed that more than 400 men perhaps were not found fit to sail for France.  These men were initially divided into the 15th, 16th, 17th and 18th Naga Labour Companies. To avoid confusion with other Indian Labour Corps units serving in Mesopotamia at that time, these companies were renumbered as the 35th, 36th, 37th and 38th (Naga) Labour Companies. The men of the Naga Labour Corps worked in Mametz, Le Transloy, Haute Avesnes, Contalmaison and Guillemont on salvage work, road repairs among others.  Another batch of 817 Naga Hills recruits which was waiting to go to France was diverted to the Kuki operations in January 1918. This draft consisted of 60 Lhotas, 90 Semas, 120 Aos, 60 Kukis and Kacha Nagas and 480 Angamis.  There is no known Memorial in Nagaland to commemorate the men who died in France. But amongst all the tribes, the Nagas were the first to realize the need to organize and unite themselves. Men who returned from France formed a socio-political association called the Naga Club with branches in Kohima and Mokokchung immediately after their return in 1918. This was the association that later in 1928 sent a representation to the Simon Commission asking them the right of choice of self determination when the British left India.

Unfortunately during the Second World War in 1940, the building holding the lists of men of Labour Corps units was destroyed by Japanese bombings.

Officers of the Garhwal Rifles, Pont du Hem, France, August 1915 (Picture credit The Ashok Nath Foundation, Sweden)
Officers of the Garhwal Rifles, Pont du Hem, France, August 1915 (Picture credit The Ashok Nath Foundation, Sweden)

Manipur Labour Corps In early 1917, the Raja of Manipur Chura Chand Singh and the Political Agent Lt. Col. H.W.G. Cole sent official requisitions to all villages in the hill areas of Manipur to recruit men for the labour Corps. The villages were required to supply able bodied men in proportion to their population. Many of the villages were aghast at the idea of sending their men to unknown lands from where perhaps they might not return at all. But despite the fears of the people, about 2000 men were recruited for the 22nd Manipur Labour Corps which again like the rest of the other Corps was divided into four companies – 39th,40th,65th and 66th Manipur Labour Companies. The majority of men in the Manipur Labour Corps were Meiteis, Tangkhuls, Koms, Kukis. Angom Porom Singh, the first Meitei Christian and Porachao led the Meitei contingent; R. S. Ruichumhoa, one of the first educated among the Tangkhuls of Manipur and one of the early evangelists among the Western Tangkhuls led the 1200 strong Tangkhul contingent; Teba Kurong led the Kom contigent while Thomsong Ngulhoa, a Kuki Christian evangelist was the leader of the Kuki recruits.  In 1916, the Raja of Manipur Sri Churachand Singh had offered to raise two detachments of men from the ranks of the State Military Police to aid the British in the War. 315 men who formed the Double Company underwent training with the 3/39th Garhwalis in Lansdowne before they were pressed into active service in Mesopotamia during 1917-18. The Double Company was under the command of the Mr. F. B. Blackie who was the Private Secretary to the Raja of Manipur. Churachand Singh visited these men in Lansdowne in February 1917 to bolster their spirits before they embarked on their arduous journey and dangerous duty. The Raja also made monetary contributions for the purchase of four motor ambulances and an aeroplane besides subscribing to the War Fund.  In September 1917, when another requisition was placed for fresh labour drafts, the hill tribes especially the Kukis revolted and took up arms against the Raja and the British. This revolt known as the Kuki Rebellion (Uprising) of 1917-1919 or Zou-Gal was perhaps the largest ever uprising against the British in North East India by any tribe in the region.


In 1917, King Birendrakishore Manikya offered one lakh rupees to the War Fund besides a annual contribution of Rs.15,000 annually during the continuance of the War. The Tripura Durbar also sent 800 shirts for the 11 Rajputs serving in Mesopotamia. At the request of the Munitions Board, the Tripura Durbar sent 23,000 bamboo for rivetment work in Mesopotamia. There was also an effort to obtain men for the Army and the Durbar offered a cash donation of Rs. 25 or a free grant of 6 bighas of land for those who enslisted from Tripura. In 1917, 17 men were recruited and in the course of the war about 40 men enlisted.

Hundreds of labourers were victims to long-range shelling, air raids, and enemy action during the German Spring Offensive in 1918. Illness claimed the lives of many more, particularly during the influenza pandemic of 1918. Many died on the long journey to France via foot, rail and ships.

The names of men who died during the War are inscribed in various Memorials such as Neuve Chapelle in France, Basra Memorial in Iraq and Heliopolis Memorial in Egypt and hundreds were buried in cemeteries across France such as Ayette Indian and Chinese Cemetery, Mazargues War Cemetery Marseilles, La Chapelette British and Indian Cemetery, Haute Avesnes British Cemetery, St. Sever Cemetery, Rouen, Blargies Communal Cemetery Extension and also at the Mala Cemetery in Yemen and at the Faenza Communal Cemetery in Italy.

References and Acknowledgements

  1. Radhika Singha. ‘The recruiter’s eye on “the primitive”: to France in the Indian Labour Corps, and back, 1917-1918’, in James Kitchen, Alisa Miller and Laura Rowe et. al., Other Fronts, Other Combatants, Cambridge Scholar Series, 2011, pp.199-223. (Acknowledgement for cited passage from the article)
  2. L.W. Shakespeare; History of the Assam Rifles
  3. J P Mills; The Ao Nagas, The Lotha Nagas and The Regma Nagas
  4. Khomdan Singh Lisam; Encyclopaedia Of Manipur (3 Vol.)


Postscript : Facts and figures on the various Labour Corps have been culled from a number of documents and books. Very often these records do not match. Readers are requested to share any information that they might have on the Labour Corps with the writer at, for which the writer would be remain indebted; it could be pictures, books or even vernacular writings on the experiences of the members of the Labour Corps.


Remembering Jacob Hardy Smith

Like many universities, Nottingham was touched by the Great War. In this guest post, Emma Thorne looks at the story of one young man whose journey took him from Nottingham to the battlefields of Europe.

For almost 100 years, the name Captain Jacob Hardy Smith has been on permanent display on the marbled corridors of the University’s Trent Building. If you’re a member of staff or a student, chances are you’ve probably walked past it countless times without ever giving it a second glance.

Jacob Hardy Smith
Jacob Hardy Smith

Jacob is one of more than 200 officers and cadets from the University who gave their lives in service to their country during the First World War and whose sacrifice is commemorated in a special memorial plaque.

His name may have endured for almost a century but until recently it appeared that the details of Jacob’s life and heroic actions during the conflict, like those of his fellow servicemen, had been largely lost to history.University’s WW1 memorial plaque

That was until a chance enquiry to the University’s Centre for Hidden Histories led to Jacob being commemorated as part of an online initiative by the Imperial War Museum.

Prudie Robins, Jacob’s great niece got in touch with Michael Noble, Community Liaison Officer at the centre after discovering that Jacob had been a member of the Officer Training Corps (OTC) at University College Nottingham in April 1909 through an entry in the London Gazette.

Prudie, who lives in Lincolnshire, had been researching her family history in an effort to shed light on the story of her great uncle — her grandmother’s youngest brother — but the details were rather sketchy. However, she had discovered that Leicestershire-born Jacob, the son of a leather merchant, had joined the OTC at the University College Nottingham while studying the chemistry of tanning.

Researching the past

Michael Noble, Community Liaison Officer at the centre, was able to confirm that Jacob had been among the members of the college’s OTC and that his name is among those on the University’s First World War memorial. Colleague Professor John Beckett has been researching the OTC at University College as part of a wider history of The University of Nottingham which he is currently writing.

Even more excitingly, the academics were able to dig up some further information through the University’s Department of Manuscripts and Special Collections. Among the records related to the OTC were documents that made mention of Jacob Hardy Smith as a former OTC ‘old boy, done good’ — he got his commission into the Connaught Rangers, a regiment with affiliations to the Rifle Brigade, in 1914 and there is reference to the medals which he was awarded later in his career.Jacob Hardy Smith

Additionally, they uncovered a photograph of the OTC around the time when Jacob was a member, led by commanding officer Sam Trotman, although they were unable to identify his face among the crowd due to the quality of the image. Michael said:

“I sent a copy of the photograph to Prudie and she was delighted that we were able to confirm that there was a record of Jacob here. This started a dialogue between us and it was nice that we were able to support her in the research she had been doing into her own family history.”

Between them, they have been able to piece together the story of Jacob’s military service, starting with his training on the Isle of Sheppey in Kent as part of the 6th Battalion. Information from the Royal Green Jackets Museum shows he later joined the 3rd Battalion and was among the first wave of soldiers to arrive on French soil, landing on 10th September 1914, just over a month after Britain declared war on Germany.

An extract from the Rifle Brigade Chronicles reveals that Jacob led an attack on German trenches on the 25th September with great courage and determination and in which the Brits suffered heavy losses. The war record from the 3rd Battalion Rifle Brigade talks of how in October, 2nd Lieutenant JH Smith was mentioned in despatches and received the Military Cross for his part in the bold capture of an enemy officer in a separate skirmish.

Meritorious service

The memorial to the fallen of the OTC, Nottingham
The memorial to the fallen of the OTC, Nottingham

Jacob died in No 2 Stationary Hospital on the Somme on 29th August 1916 from serious wounds sustained through fighting two enemy officers in hand to hand combat at Guillemont — both of whom he killed — and was awarded the Distinguished Service Order medal posthumously for his meritorious service.Jacob’s medals.

In recommending him for the DSO, Jacob’s commanding Colonel wrote:

“He was the best Company Commander by far that I have seen out here. Absolutely fearless on all occasions, he was a very fine example of what an officer should be. He had trained his Company to perfection and the way in which his Company behaved, after all the officers had been hit, was entirely due to him.”

Prudie has since made a special visit to his grave in the Abbeville Communal Cemetery on the Somme and she honoured his memory by planting a ceramic poppy at the recent WW1 memorial at The Tower of London. Through her research she was even able to uncover distant cousins who she hadn’t known existed. A big moment was the discovery that they too had some cherished possessions belonging to Jacob — most notably his original medals which Prudie had feared lost.

“The research really took over my life,” she said. “It was like a giant jigsaw puzzle and it has taken me the length and breadth of the country chasing leads. I would spend hours scanning the internet before finding another potential clue and then off I’d go again.”

The Centre for Hidden Histories is part of a partnership with the Imperial War Museum, which has uploaded many thousands of records of those who served to a searchable online resource through an initiative called Lives of the First World War. The initial data was taken from the Commonwealth War Graves Commission but has now expanded to include records from other sources including the British Merchant Navy and the British Women’s Royal Air Force Service Records.

The idea behind the initiative is to preserve these old records for posterity and to champion the men and women who gave their lives during the First World War.

“It’s like Facebook for dead people,” Michael added irreverently. “You can also upload images and documents and it produces a personal timeline from birth to death. Importantly, it also encourages other people such as family members to get involved in remembering them and telling their story by uploading their own materials.”

Preserving the past for future generations

The centre has worked with the museum to promote the resource but also to test it and, with Prudie’s permission, Michael used Jacob Hardy Smith as a test case and means of exploring the effectiveness of the site.

Between them they have posted everything they could find about Jacob, including old family photographs, images of surviving artefacts belonging to Jacob including a pocket watch, an engraved silver wallet and moving letters that Jacob sent home to family from the trenches — in one he includes a touching hand drawn sketch of his dugout for his five-year-old niece Joan.Jacob’s drawing of his dugoutJacob’s pocket watch

Prudie has found the resource to be a fantastic way of ensuring that Jacob’s story is preserved for future generations of her family, while enjoying the ability to contribute to building a fuller picture of his life and gallant actions. She added:

“I would recommend this type of family research to anyone, it really has been quite an adventure. Before I began on this journey I really knew very little about my grandmother’s side of our family. Previously, Jacob had been little more than an anonymous face in a photograph and a small collection of his surviving possessions. Now I feel I know more of the man and can be proud to be a part of his family.”

If Jacob’s tale has inspired you to dig into your own family’s history, why not come along to the Centre for Hidden History’s free Family History Day on University Park campus on Tuesday July 21? The event will offer the opportunity to learn how to go about uncovering clues to your ancestry and researching your family tree. There will also be the chance for members of the public to use the University’s specialist technology to make high quality scans of their photographs and documents. Representatives of the Lives of the First World War project will be there encouraging people to use the site to remember their families.

War, Finance and the Demise of the Gold Standard

War has an understandably profound effect on our global economy and the fiscal and monetary effects of war are often far reaching, a fact that can be demonstrated when you look at the history of gold prices in conjunction with major events like a world war.

Gold_BarsFinancial barometer

Financial markets are always going to be susceptible to bad news and concerns but it is interesting to note that war tends to lead to a specific type of inflation which is caused by expectation rather than actual changes.

This type of inflationary pressure occurs when prices begin to rise not because of physical changes in the level of supply and demand but are more driven by the fear of the changes that might happen as a result of a traumatic event like a world war.

The start of World War 1 also marked the end of the gold standard, which is a major part of economic history in general and a fundamental part of how we view gold and its value to us and the economy in general.

The Gold Standard

Some financial analysts are of the opinion that the world gold standard of the late 19th century was as close to a perfect monetary system as you are likely to ever see.

Running from about 1870 through to 1914,  this period of time in our economic history was considered to be the best period for the gold standard since its introduction in 1819. The gold standard was the term used to describe a commitment by participating countries to set the prices of their domestic currencies in comparison to a specific amount of gold.

It was Sir Isaac Newton, who was the master of the mint in 1717, who overvalued the guinea in terms of silver and this led to a de facto gold standard being adopted in England. It wasn’t until 1819 that England then chose to formally adopt the gold standard, and the United States, which was already operating a formal bimetallic standard (gold and silver) by then, switched to a gold de facto agreement until Congress passed the Gold Standard Act in 1834.

When the gold standard was formally introduced into legislation, the price of gold was fixed at $20.67 per ounce, which is the price it remained at until 1933.

Other major developed countries subsequently adopted the gold standard in the 1870’s and this period in economic history between 1880 to the start of World War 1, is generally known as the classical gold standard.

This period of time witnessed unprecedented economic growth and an explosion in free trade in goods, labor and capital and to a large extent, most of the participating countries adhered to the gold standard during this time.
How the gold standard was used

The gold standard was utilised as a domestic standard to regulate the quantity and growth rate of each country’s money supply.

It worked on the basis that any new production of gold would add only a small amount to a country’s accumulated stock and due to the fact that the authorities agreed to guarantee the option to convert gold into non-gold money free of charge, this allowed the gold standard to help ensure that money supply and prices would not suffer from much volatility as a result of this agreement.

The idea worked in principle, but sudden surges in the level of world gold stocks caused by events such as major gold discoveries in Australia and California in the 1850’s, had a destabilising effect on price levels in the short term.

The gold standard also played a pivotal role in serving as an international standard to determine the value of a country’s currency in relation to the currencies of other countries.

This worked because the participating countries who adhered to the gold standard agreed to maintain a fixed price for gold, allowing rates of exchange to be fixed accordingly. As a result of this agreement to fix exchange rates, the gold standard had the effect of causing price levels around the world to move together.

Simmer Deep Gold Mine, Germiston, Transvaal, 1914
Simmer Deep Gold Mine, Germiston, Transvaal, 1914

In order for the gold standard to work in the way it was intended, it relied on the participating countries honoring the equivalent of a gentleman’s agreement and to abide by the rules of the game.This mean that if a country was running a balance-of-payments deficit, it was obliged to permit an outflow of gold until parity to the agreed par exchange rate had been restored.

The demise of the gold standard

The gold standard is no longer used by any government, although some financial experts consider that the appeal of the system is still very strong, despite some of the limitations and lack of flexibility that it offers in certain conditions.

Britain abandoned the gold standard completely in 1931 and the U.S followed suit in 1971. The replacement for the gold standard is fiat money, which is the term used to describe currency used as a result of a government order.

The price of gold today is determined solely by the demand for the metal but despite the fact that it is no longer operating as an international standard, it still has an important role to play in world economics.

Gold is utilised as a major financial asset for not just countries but central banks too. It also used by banks as a method of hedging against loans made to their government.

The effect of war on gold prices

It is interesting to note that the UK economy actually grew by about 7% between 1914 to 1918 despite World War 1 and the fact that so many men were absent and serving their country. The German economy actually shrank by 27% in the same period and the war saw an understandable decline in civilian consumption.

By the time we reached 1916, Britain was taking responsibility for funding not just their own war expenditure, but they were also meeting all of Italy’s costs plus two thirds of the war costs incurred by France and Russia.

As a result of this, gold reserves as well as overseas investments and the flow of private credit all just ran out, forcing Britain to go cap in hand to America and borrow $4 billion from the U.S Treasury.

This is a guest blog from Alternative Investment Headquarters. You can read more here