Exclusive interview with Prof. Lawrence White, Part 4

Lawrence H. White is an  economics professor at George Mason University who teaches graduate level monetary theory and policy.

Lawrence White

As described by the Wikipedia, "White earned his BA at Harvard University (1977) and PhD at the University of California at Los Angeles (1982). Before his current role at George Mason University he held a position as F. A. Hayek Professor of Economic History with the University of Missouri–St. Louis Economics department from 2000 to 2009, teaching American Economic History, Monetary Theory, and Money and Banking. Previously, he was Assistant Professor at New York University and Associate Professor at The University of Georgia in Athens, Georgia.

"Articles by White on monetary theory and banking history have appeared in the American Economic Review, the Journal of Economic Literature, the Journal of Money, Credit, and Banking as well as other professional journals. White is an associate editor of the "Review of Austrian Economics", a contributing editor to the Foundation for Economic Education's magazine The Freeman and an adjunct scholar of the Cato Institute."  Thegoldstandardnow.org is pleased to present this exclusive interview, originally to be published in three parts, now extended to four, of which this is the final:


Q:  Chancellor of the Exchequer Winston Churchill famously considered his 1925 resumption of the pound sterling at pre-war parity a blunder, the greatest of his career.  What are the political risks involved with resuming the gold standard?  How might such risks be substantially mitigated?


A: I’ve already indicated much of the answer, I think.  Churchill’s blunder was that the pre-war parity required a return to the pre-war price level, which was far below the 1925 UK price level, and so meant forcing UK prices and wages dramatically downward.  The US with its more flexible wages and prices had gone through a deflation in 1920-21 with a fairly brief and mild recession, but the UK was not so fortunate, and the macroeconomic pain was acute.  The risks of setting the parity at too many ounces of gold per dollar can be mitigated by re-entering at something close to the current dollar price of gold.


Q: You are a prominent member of the "free banking" -- i.e., decentralized rather than central bank -- school.  How important is this relative to the restoration of the classical gold standard?

A: Very important. Free banking systems have a strong track record. Central banking systems have a poor track record.  Presumably intending to improve matters, central bankers can’t help intervening.  But in doing so they tend to impair rather than to improve on the continuous automatic adjustments of the gold standard.  By “sterilizing” gold inflows or outflows, they bottle up adjustment forces until a crisis erupts.  The hobbling and mismanagement of the gold standard by central banks during the interwar period, the period known as the gold-exchange standard, led to repeated crises and finally to the Great Depression.  The pre-war classical gold standard, with less or no government intervention (the US and several other participating countries had no central banks) worked much more smoothly.  Free banking means eliminating the big player who loosens the constraints on money and credit and thereby undermines the performance of a gold-based monetary system.

Q:  What questions are you giving prominence to in your current and anticipated work?

A: I’ve mentioned my recent work contrasting the classical gold standard period to the Federal Reserve period in the United States.  At the moment I’m writing a paper on the workings of the market for cryptocurrencies, Bitcoin and the rest. One of many questions is how they compare to gold as potential monetary standards. My preliminary answer is that we should expect them to be more volatile in purchasing power, because unlike gold the quantity “mined” does not increase to accommodate an increase in demand.  Next month, I will be giving a talk in Ecuador in defense of their dollarization system.  It’s the closest they can come, for now, to being on an international gold standard. For later, I’ve been toying with the idea of writing a small book with the working title of “How to be a Monetary Reformer but Not a Crackpot.”  The idea would be to emphasize the sound case for sound money, and to warn against arguments on both sides, for and against our status quo institutions, that rely on fuzzy or wishful thinking.

To read Part 1, click here.




Kathleen M. Packard, Publisher
Ralph J. Benko, Editor

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