An Exclusive Interview with Lewis E. Lehrman, Part 4

It is an extraordinary privilege to present this exclusive interview with Lewis E. Lehrman, in 21 installments, of which this is the fourth. 

Lewis E. Lehrman has written widely about economic and monetary policy.  He has co-authored the book Money and the Coming World Order (1976) with renowned MIT Economist Charles Kindleberger and others.  Lehrman has written about economics in publications such as Harper's, The Washington Post, The New York Times, The Wall Street Journal, Weekly Standard, Crisis, Policy Review and National Review.  His writings about monetary economics earned him an appointment by President Ronald Reagan to the Presidential Gold Commission in 1981.  Along with Congressman Ron Paul, Lewis Lehrman collaborated on a minority report of the commission, which was published as The Case for Gold (1982).

Lehrman published seven volumes on “Rueff Monetary Economics” (The Collected Works of Jacques Rueff, 1997, Plon, in French).  Jacques Rueff, the distinguished French monetary economist, established the monetary and economic plan of the Fifth French Republic, as President DeGaulle's chief financial advisor. The primary purpose of the plan was to restore economic prosperity, a stable French currency, and the end of French inflation by means of convertibility to gold of the French franc.  Lehrman has been named to the advisory board of the American Principles Project’s Gold Standard 2012 initiative.

 Lewis E. Lehrman [Photo by Ralph Benko]

Q. What is the key distinction between the classical gold standard and the Interwar, or "gold-exchange," standard and why do you see the "gold-exchange standard as a temporary expedient that was, and proved, inherently pernicious?

The classical gold standard of the late 19th and early 20th centuries required adjustment among all nations of sustained disequilibrium (deficits) in each nation’s overall balance-of-payments.  If the United States experienced an overall balance-of-payments deficit with a certain country, or many countries, it must settle such deficit in gold.  Or by exporting the value of goods and services other than gold, thereby to reestablish equilibrium in its balance-of-payments, extinguishing debt, limiting domestic consumption, stabilizing the general price level, and therefore maintaining equilibrium among nations in the monetary system of the integrated trading World.  Almost all key currencies were then based upon a defined parity with the gold monetary standard, a common standard among the national currencies of the great nations.  Convertible currencies coexisted with no official reserve currencies other than gold.  Strict convertibility to gold, the simple adjustment mechanism of the classical gold standard, ruled out sustained inflation or deflation -- intensifying the integration of  the world trading system.

When the classical gold standard was corrupted by elevation of any one currency, such as sterling, or the dollar, to the role of an official reserve currency for the purpose of settling international payments deficits (1922-40; 1945-1971; 1971-2015), then the balance-of-payments-deficit of the reserve currency country, say the dollar, was sustained, even perpetuated, because the reserve currency country could (and can) finance its deficits by issuing its own currency -- leading to excessive leverage at home and abroad.  At some point, a major crisis occurs such as a major war or national insolvencies, whereby the world might no longer accept the reserve currency (such as the dollar today) in settlement of balance-of-payments deficits.  A great depression, as in 1931, could be the result.

 

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

In Memoriam
Professor Jacques Rueff
(1896-1978)

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