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The Road to Monetary Stability

by David Beckworth

Money, Gold, and History, by Lewis E. Lehrman (Lehrman Institute, 251 pp., $9.95)

In 2013, the Federal Reserve celebrated its 100th anniversary. During that century, the U.S. economy was subjected to numerous boom-and-bust cycles, the sharpest economic contractions in its history, and one decade of record-high inflation. Since these developments occurred on the Federal Reserve’s watch, many observers conclude that the Federal Reserve is to blame. Lewis E. Lehrman, however, says: Not so fast. In his latest book, Lehrman argues that the culprit was not the central bank, but the gradual decline of the gold standard. The slow shift from the hard constraint of an international gold standard to a world of floating exchange rates is, in his view, the real source of the macroeconomic instability. This is not a new argument for Lehrman: He has been making this point since the 1970s, when the United States left the gold standard. This new book is a compilation of his work since then.

Lehrman argues that not only is the gold standard the best way to maintain monetary stability, but it was pivotal to the formation of modern civilization. He argues that the British and American industrial revolution could not have happened without it. Its widespread adoption, he holds, was crucial to the first wave of globalization in the latter half of the 19th century. It created an environment of price stability that facilitated trade and made it easier for firms and households to make long-run economic plans. This monetary system reached its pinnacle with the international gold standard of 1879–1913. World War I shattered it, and since then the international monetary system has been on a downward trend toward greater instability.

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