The pricespecie flow mechanism is a logical argument by David Hume (1711

1776) against the Mercantilist idea that a nation should strive for a positive
balance of trade, or net exports. The argument considers the effects of
international transactions in a gold standard, a system in which gold is the
official means of international payments and each nations currency is in the
form of gold itself or of paper currency fully convertible into gold.
Hume argued that when a country with a gold standard had a positive balance
of trade, gold would flow into the country in the amount that the value of
exports exceeds the value of imports. Conversely, when such a country had a
negative balance of trade, gold would flow out of the country in the amount
that the value of imports exceeds the value of exports. Consequently, in the
absence of any offsetting actions by the central bank on the quantity of money
in circulation (called sterilization), the money supply would rise in a country
with a positive balance of trade and fall in a country with a negative balance of
trade. Using a theory called the quantity theory of money, Hume argued that in
countries where the quantity of money increases, inflation would set in and the
prices of goods and services would tend to rise while in countries where the
money supply decreases, deflation would occur as the prices of goods and
services fell.
The higher prices would, in the countries with a positive balance of trade,
cause exports to decrease and imports to increase, which will alter the balance
of trade downwards towards a neutral balance. Inversely, in countries with a
negative balance of trade, the lower prices would cause exports to increase
and imports to decrease, which will heighten the balance of trade towards a
neutral balance. These adjustments in the balance of trade will continue until
the balance of trade equals zero in all countries involved in the exchange.
The pricespecie flow mechanism can also be applied to a state's entire
balance of payments, which accounts not only for the value of net exports and
similar transactions (the current account), but also the financial account, which
accounts for flows of financial assets across countries, and the capital account,
which accounts for non-market and other special international transactions. But
under a gold standard, transactions in the financial account would be
conducted in gold or currency convertible into gold, which would also affect the
quantity of money in circulation in each country.

The gold specie standard arose from the widespread acceptance of gold as
currency.[7] Various commodities have been used as money; typically, the one
that loses the least value over time becomes the accepted form.[8] The use of
gold as money began thousands of years ago in Asia Minor.[9].

A gold standard is a monetary system in which the economic unit of account

is based on a fixed quantity of gold. Three types may be distinguished:

specie, exchange, and bullion.

In the gold specie standard the monetary unit is associated with the value of
circulating gold coins or the monetary unit has the value of a certain
circulating gold coin, but other coins may be made of less valuable metal.
The gold bullion standard is a system in which gold coins do not circulate, but
the authorities agree to sell gold bullion on demand at a fixed price in
exchange for the circulating currency.
The gold exchange standard usually does not involve the circulation of gold
coins. The main feature of the gold exchange standard is that the government
guarantees a fixed exchange rate to the currency of another country that uses
a gold standard (specie or bullion), regardless of what type of notes or coins
are used as a means of exchange. This creates a de facto gold standard,
where the value of the means of exchange has a fixed external value in terms
of gold that is independent of the inherent value of the means of exchange
itself.