Host Juliette Sellgren is back from summer break, and in this episode she hosts Lawrence White on the podcast. He is an economics professor at George Mason University with a specialty in the history and theory of banking and money and is the author of several books including Better Money: Gold, Fiat, or Bitcoin.

We talk about why on earth money and monetary policy come across as so intimidating, then he takes us on a tour of the different currencies we’ve used. We talk about federal banks, the debate between Alexander Hamilton and Thomas Jefferson, and the use of cryptocurrencies.

Don't miss Janet Bufton's Great Antidote Extra on this episode.



Want to explore more:
John Burrow, Cryptocurrency, Money, and Adam Smith, at AdamSmithWorks.
Lawrence White, Competing Money Supplies, in the Concise Encyclopedia of Econnomics.
Arnold Kling, Nicolás Cachanosky, and Leonidas Zelmanovitz discuss White's book in this episode of From the Shelf at Econlib.

Juliette Sellgren 

Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliette Sellgren, and this is my podcast, the Great Antidote named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www Adam Smith works.org.

Welcome back. On the podcast, we talk a lot about regulation and inflation, but we don't talk a ton about money, the source of these prices and big numbers and kind of an important aspect that seems very relevant to the story that we haven't quite gotten to. So today I'm excited to welcome Lawrence White to the podcast to talk to us about this. He is an economics professor at George Mason and he has a specialty in the history and theory of money and banking, and he's the author of several books, including Better Money, gold, Fiat, or Bitcoin. Go check it out. Welcome to the podcast.

Thank you Juliette.

So before we get started, what is one of the most, what is the most important thing that people my age or in my generation should know that we don't?

Lawrence White (1.22)

Well, there's a long list, I suppose that people in any generation should know that they don't. I think the most important lesson of economics is that there are such things as undesigned orders. That orderly arrangements come about from the bottom up through the mutual adjustment of the components. There are spontaneous orders is another way of putting it. And so not everything you see in the world was planned by somebody or instituted by somebody or invented things emerged spontaneously. Spontaneously. Not in the sense that nobody has to do anything but that nobody aimed at the overall order. And that means that we can't rearrange things the way we can to use Adam Smith's metaphor, rearrange pieces on a chessboard because the pieces have their own motives and plans. And so there's a embodied wisdom in the arrangements that people make for themselves and the overall order. So we have to be very careful about trying to muck with it.

Yeah, because even as humans trying to understand it, even understand ourselves, we don't really know so intricate and beautiful and we just see the other side.

So that's the general point. The specific application of it that I emphasize in my work is that money is one of these spontaneous orders. Your generation and my generation take it for granted because they've always lived under a regime where money comes from the government that money is a creature of government, but that's not true. So you have to study a little history to learn that there have been all kinds of private monetary arrangements that have worked quite well, 

Juliette Sellgren 

Let's get into it.

Okay.

Alright. So my first question might make more sense if I start with a little admission about myself. I really like to learn, but there are a few topics that have been truly daunting for me. And I think this might be true for everyone, but maybe not- where I know I don't know. And I'm curious, and it's interesting. And I also know that it takes years of experience and applied learning to kind of have authority on a topic. Maybe it's kind of in my head, and these topics might be more approachable than I think, but I kind of stay away from having deep opinions or convictions about them because I know that someone else knows better. And sometimes this doesn't get in the way of me having an opinion, and sometimes it does. So when it comes to foreign policy and the origin of natural rights and money and monetary policy, this happens to me a lot. So ironically, this is your topic of expertise. So you might not have experienced this when it comes to money and monetary policy, but why on earth is it so seemingly complex and why am I so intimidated even though it seems to be one of the most relevant and important topics for people to understand? Is it just me? Is it really complex and intimidating?

Well, there are a body of experts who have, in a sense, an interest in making it appear difficult and obtuse because they want you to rely on their expertise. This is true in other fields too, I suppose. But in the case of money, we have money being supplied by central banks, and so they want you to rely on them. They sometimes make it more complicated than it really is. One of the marvelous things about the last 15 years I guess it's been, is that we now have privately issued media of exchange like Bitcoin. They haven't yet become commonly accepted for everyday transactions, but for a lot of people, it's awakened them to the idea that there can be money that doesn't come from government, that comes from the private sector.

Juliette Sellgren (5.57)

So as a teacher of money and the history of this, it's basically your job to make what to me is big and scary, less big and scary. And as a podcast host, I guess it's my job to give you a platform to do this other than just a classroom and hopefully to get some important implications in gems of knowledge along the way. Why is it so important to understand money and how it influences the economy and how the economy runs with relation to money?

Well, monetary theorists like to say that one half of every transaction is money. That is money is on one side of every trade of money for goods. And so if the monetary system doesn't work well, then trade is disrupted. And so the entire economy can be disrupted, can be deranged or discoordinated. So it's important to have a money that behaves itself. We've relied on central banks to manage the supply of money. They haven't done such a great job. Much of what I've written has looked at the performance of the classical gold standard and compared it to the behavior of fiat money systems. And what we find, we find inflation was lower and business cycles weren't any worse. So it doesn't seem like a net positive to have moved from commodity money to the kind of money we have today. Fiat money not redeemable for anything issued by governments.

Juliette Sellgren (7.45)

So let's back up a few steps maybe and we'll get there. And I'm excited. But historically, there have been a lot of different types of money, and as the title of your book reads, gold, fiat, and Bitcoin. So what have been the most historically relevant and important types of money?

Well, if you go back to really early times when the economies were only very partially monetized, you see lots of different goods serving as commonly accepted media of exchange that is serving on one side of most trades. You get shells, barley, copper, silver, and it's clear that these were not instituted by wise kings. These arose from the activities of traders, and there's no official stamp on a cowrie shell that's serving as money. And in fact, the shell is no different from a cowrie that doesn't serve his money physically. And that points us to the idea that money is a social convention, it's a set of common acceptance as a medium of exchange is a matter of the plans people make, not of the physical properties of the object playing that role. So from this variety of commodity monies, gold and silver eventually emerged as the nearly universal internationally traded monies because they served the role of a hand-to-hand medium of exchange better than any of the other commodities.

And there's a standard list of what you would like to have in a hand-to-hand medium of exchange. You want it to be precious. That doesn't take too much bulk to convey a good amount of value. You want it to be durable. You want it to be divisible in case you want to make change. You want it to be easily recognized by your trading partners so you don't get into a hassle. And so gold and silver played those roles, although it should be noted not until coinage was developed, because before coinage you had just raw gold and silver. They don't play that role so well because they're not uniform.

But the development of metallurgy and coinage as a way of certifying the weight and purity of pieces of gold and silver was a big advance. And that pushed out the other commodity monies. So there's kind of a survival of the fittest commodity monies. Most of the world is on a silver standard in ancient times and through the middle Ages, and not until modern times does Great Britain stumble onto a gold standard and the US followed, and then other countries followed in the second half of the 19th century. So it was actually a silver standard for most of world history in the first World War. The countries that enter the war find that the gold standard is a constraint. It stops them from printing as much money as they would like to print to pay for the war. And so they scuttle the gold standard. And so the gold standard doesn't fail.

It's terminated by governments that don't like the constraint that it places on their finances. And after the first World War, it's never really allowed to revive. There's chaos in the inner war period after the second World War. We get the Bretton Woods system in which the United States dollar is redeemable for gold at $35 an ounce, not for US citizens. They were prohibited from owning gold, but for foreign central banks. So other currencies are pegged to the dollar and the dollar is pegged to gold, and that system gets launched after the second World War. It falls apart finally in 1971 because it has an inner contradiction built into it. We can go into that if you like. And since 1971, we've had nothing but fiat monies, monies not backed by redemption for gold or anything else issued at the whim, if you like, of governments since 2000, well, the Euro being a prominent example, we've had fiat monies supposedly restricted or disciplined by inflation targets.

So that's been a big development. But we learned last year when we hit 9% inflation in the US and more than 10% inflation in Europe that these inflation targets of typically of 2% are not really that binding. The European Central Bank is way above its target and taking its sweet time to get back to 2% the Federal Reserve System, the United States, likewise. And so that's the state we're in now. We have these nominal commitments to low inflation, but we've seen big violations of them. So the question is that I discuss in my book Better Money, is there a better system? Would a gold standard work better? Would a Bitcoin standard work better than the status quo?

So I guess I want to take a moment to go through if we think about the most prominent thinkers with relation to economics and money, talking through what their takes were. And I think this kind of as it evolves with history, it can kind of give us some sort of insight onto how, I guess what is happening at the time, but also how is money conceived in a way. So let's talk about Adam Smith. What did he think about money? What was the situation in Scotland with money at this time?

That's an excellent question, and I've actually written a bit about Adam Smith and Money, and I refer the listener to my book, the Clash of Economic Ideas in which there are a couple of chapters about the evolution of the international monetary system and what economists have thought about it and what debates they've had about it. Smith lived in Scotland, which was a free banking system, meaning that the government did not have a monopoly on issuing currency. The common currency was paper bank notes issued by a dozen to two dozen, depending on the year competing commercial banks.

And the experience was much different from what has been called free banking in the United States, but in the United States, it wasn't really free in Scotland, it was much freer in the sense of being limited by fewer legal restrictions. There were only a couple of minimal restrictions on the banks. They could issue as much money as they liked. There was no restriction on the quantity, and they were free to branch out and to be as capitalized as they liked things that were not true in the United States. So this system worked quite well. The notes of different banks circulated one-to-one at par value. There wasn't any confusion created by having different brands of currency any more than we have confusion today by having checks written on dozens of different banks.

Interestingly, Scotland still has competitive note issue. There's still three banks in Scotland that never lost their right to issue paper money. So if you go to Scotland, you'll find Bank of Scotland notes, Royal Bank of Scotland notes and Clydesdale bank notes circulating one-to-one against each other and one-to-one against Bank of England notes. So Smith praised the system for a couple of reasons. He said, look, more competition among banks forces them to be more liberal with their customers. They have to pay more interest on deposits. They have to charge less interest on loans than if one bank had of monopoly. So competition's good for consumers in those ways, but it also disciplines the banks from over issuing. No bank can just arbitrarily issue more bank notes, say by making copious loans to its customers without these notes coming back, being deposited in other banks and coming back through the clearing system where banks exchange their claims on each other.

And so the bank that over issues, it's going to find itself losing reserves to other banks, has to redeem more of its notes than it has notes of the other banks to redeem against them. This is an adverse clearings, we call it in banking lingo. And so that kept the banking system in line, kept each bank in line with the other banks, and then the system as a whole was kept in line with the international gold standard through inflows and outflows of gold to the rest of the world. So the famous price species flow mechanism was explained by Smith's friend, David Hume back in the 1750s, that if a country has more money than people want to hold in relation to their wealth, they'll spend it off. And so it'll leave the country when they spend it domestically. They'll bid prices up. If there's an excess supply of money, prices will go up.

That's the price part that will make imports more attractive. Goods and world markets will be cheaper. But to buy imports, you have to export money, you have to export gold. They don't take bank notes, and so the excess money will flow out. And so an outflow of gold is the symptom and the correction for an excess supply of money, and it will limit itself. That was Hume's main point. The mercantilists thought, oh, you got to bottle up all your gold. You got to pass laws restricting people from exporting gold. You got to encourage the import of gold and discourage the export of gold. And Hume said, that's all nonsense. It will regulate itself. And he explained this through thought experiments, and these are kind of the first comparative static thought experiments in economics.

Wow. So Smith drew on that and added to it a better understanding of how the banking system in Scotland worked. And so that's what he advocated more competition in banking. He had no brief for creating a central bank. He did refer to the Bank of England, which had been created in 1694 and dominated the system in England. He did refer to it as a great engine of state, and some people have taken that as praise for the Bank of England, but I'm pretty sure it wasn't praise, it was just descriptive. Smith was not in favor of a great state, and therefore he would not have been in favor of a great engine of state that, and he was a critic of the English government borrowing too much money to fight wars, to colonize and to police the oceans. So he was not in favor of the Bank of England's role in facilitating government borrowing by when necessary buying government bonds.

Maybe this will reveal, if I understand it or not, this question. Okay. So maybe would a parallel to competitive banking inside a country kind of be currencies between different countries, the way that exchange rates work and kind of compete with each other in a way? I don't know how competitive it actually is. Well, no, I would say it is. We complain about it is the less competitive part. We're like, ah, it costs more money. But I guess it does affect behavior. So it is competition even if it just feels like we're just complaining about it. But is that a good way to understand what competitive banking really looks like?

Lawrence White (21.42)

Yeah. Yes and no. Actually, there is competition among fiat currencies today and a currency that's less inflationary will attract more business. So more people want to hold Swiss francs because they're less inflationary. And in Latin America, we see people moving to US dollars when the local currency is more inflationary. And so there is a competition among fiat currencies, but it operates through changes in the exchange rate. Whereas the banking competition I'm talking about doesn't operate through changes in the exchange rate among bank notes of different banks. They continue to trade one-to-one. It operates through quantity changes through a bank that over issues, losing reserves and then being disciplined and having to stop having to reverse course. And a country say you have a country has a single bank, and it over issues, that central bank will lose reserves to the rest of the world and will have to stop if it wants to maintain the convertibility of its bank notes into gold. So the Bank of England went through many cycles where they would over issue start losing reserves and then have to tighten. So there is a competition among issuers of bank notes, but it operates through this adverse clearing mechanism. That's what disciplines over issue rather than through exchange rates. Exchange rates don't really stop a bank, a central bank from continuing to have high inflation if it doesn't mind it shrinking its market share.

And of course, when we see really high inflation, it's usually because central banks are printing money to help pay the government's bills and political forces make it difficult for them to refuse.

So kind of along this line, it is just occurring to me as we're talking about this, how really banking and money, there is a market, we talk about the money market, but no one, maybe no one who doesn't specialize in this topic thinks about money and banking as something that could be a competitive market. Whereas you hear often people saying like, oh, well, healthcare and education and blah, blah blah should not be subjected to competition and prices and all of that. But we, no one even says that about money as far as I'm aware, because we've just had a central bank, a fiat currency, all of this for so long that the idea that it could be competitive in any sort of way is kind of so foreign to us is just, it's kind of wild. No,

That's right. So when I started work on the Scottish free banking system, it was like an unknown chapter in monetary history. Very few people had heard about it, even monetary historians, which is why my dissertation advisor encouraged me to work on it. He said, this is news. But there have always been people who defended the gold standard against fiat money. But those that I met early in my career just took it for granted that the gold standard would be run by a central bank. Even they weren't aware of the possibilities of making the issue of gold-backed currency competitive. But now, as I said, a lot of people's eyes have been opened by cryptocurrencies to the possibility of privately issued money and to the disadvantages of government monopoly and money.

So I guess let's talk about the creation of the Central bank in America. So Alexander Hamilton, this is basically the extent that I know about it. He had a little trade, did a little dance with Jefferson and Madison, and that got us a central bank and a capital in Washington DC or something. So I guess why would one create a central bank? Why did he think that this was the way to go

Way? Well, to be a little pedantic, I wouldn't call the first bank of the United States a central bank in the sense that it did very little of what modern central banks do. You could call it a national bank, and that's the way Hamilton thought of it. And

The one then, why do we need a national bank? 

The one thing it did that central banks, that Federal Reserve system does was its liabilities served as reserves for other banks in the system. So it was a banker's bank, but it didn't have a monopoly on note issue. There were private commercial banks that also issued notes. That was especially true by the time of the second bank of the United States. It was surrounded by the first bank by dozens, and the second bank by hundreds of private commercial banks also issuing notes. The banks of the United States didn't regulate the other banks the way the Federal Reserve system does. They didn't take any responsibility for maintaining the soundness of the banking system. They were not regulators of other banks. They were not lenders of last resort to other banks, and they didn't conduct monetary policy because the international gold and silver standard controlled the quantity of money.

But what they were supposed to do was help finance the federal government. So Hamilton took as his model, the Bank of England, which was founded in order to lend the government money and managed the government's working balances. So it served as the banker to the British government, and that's what Hamilton wanted for the United States. And the Bank of the United States main client on both sides of the balance sheet was the federal government that is, its loans initially were mostly to the federal government. Well, maybe I shouldn't exaggerate that. The curious thing about the first and second banks of the United States was that they were also commercial banks. So the federal government owned 20% of the stock, but the rest was owned by private shareholders. And they did lend money to the federal government, but they also lent money to ordinary businesses, especially at the branches. They both set up branch banking networks and the Bank of the United States. And New Orleans wasn't lending money to the federal government. It was lending money to local businesses in New Orleans.

So it was an odd mix of public and private enterprise. And that was, of course, the complaint that the opponents made about it. First Jefferson opposed it. And later, Jackson, who considered himself a Jeffersonian opposed it. And they had two main arguments. One was that it was unconstitutional. That's the better known argument. But they also had an economic argument, which was that it's behaved as a monopolist. The irony is that they didn't really take their own rhetoric seriously, because if you think the problem is monopoly, there's only one bank that's allowed to branch nationwide. The solution is let's have dozens of banks that are allowed to branch nationwide. But the Jeffersonians were against that too, because they didn't want the federal government to have to be chartering banks or any other corporations. They wanted all that power at the state level. So the irony is Hamiltonians wanted one bank that was branching nationwide. The Jeffersonian said, oh, that's a monopoly. We should have zero, which is not the solution to Monopoly. So actually an economist named Nick Carat, and I have a paper trying to explain why neither Jefferson nor Hamilton took seriously Adam Smith's advice, which was to have dozens of nationwide branched banks issuing currency.

So Hamilton wants a national bank, and Jefferson wants state banks.

Only state banks.

But do we really need either,

Well, we need banks.

Yeah, but do we need a state bank or a national bank?

So state bank here simply means state governments gave permission to the banks to operate. They chartered the banks. And really we don't need a law as many states had that said, you can't operate a bank without our permission. I mean, we could just have free entry into banking, but most states had restraining acts that said, you can't operate a banking business, at least as a corporation with limited liability unless you get a charter from the state legislature. And in fact, the state legislatures in those days, about two thirds of their time was spent passing special incorporation acts for businesses, banks, canal companies, toll road companies. Later. Railroads wasn't until the 1840s that it became possible to incorporate just by filing some paperwork the way it's possible today. So that was an important reform in the state constitutions. In the 1840s and fifties, after lots of state chartered corporations went bankrupt, only a few states had their own banks. That is where the state government owned the bank. Kentucky was one of them. And it raised the constitutional issue because the constitution explicitly prohibits state governments from issuing money. And the question is, is the bank of the state of Kentucky equivalent to the state of Kentucky issuing money? And the court said, nah, it's okay. Which was a curious decision.

So okay, then we move away from gold-backed currency to fiat currency. And you talked about how there's this big change in the amount of inflation. Can you kind of put some scope on this? What really happens when you use a fiat currency instead of a gold back currency and why?

So rounding to the nearest whole number, the inflation rate under the classical gold standard in the United States, that's 1879 to 1914 is zero. There's zero inflation over the entire period. There were years in which inflation was one or 2% or minus one or 2%. But a remarkable thing about the gold standard is that movements in the price level are self-correcting. If prices start to fall, let's say, because the economy is growing and there's more demand for money, and therefore the value of money rises relative to goods and services. So that's falling prices of goods and services that makes it more profitable to mine gold. And so gold miners will dig a little deeper. Gold will flow in from the rest of the world through the price species flow mechanism. But domestically, miners will dig a little deeper and you'll get an increase in the quantity of gold, and that'll bring the purchasing power back down to its sort of long run trend. And vice versa, if you have a rise in prices fall in the purchasing power of gold, that will discourage gold mining. So it's a self-correcting system. So it's not a historical accident that the average inflation rate was zero. That's kind of built into the economics of gold mining under fiat money. There's no such self-correcting mechanism. It's entirely up to what inflation rate the central bank is comfortable with. And the average inflation rate in the United States since 1971, rounded to the nearest whole number, has been about 4% cent.

So that's the difference in performance. And of course last year it was much more than that. In some years it's been less than that, so that's good. But in other years it's been more than that, and the price level under a fiat standard then is much less predictable. At the 10, 20, 30 year horizons, there's no tendency for high inflation to be corrected by low inflation, much less by deflation. So it's hard to predict what a dollar's going to be worth 10 years from now. You don't know how the inflation rate is going to evolve, and that discourages long-term lending. So one of the interesting contrasts is that under the gold standard, corporations issued 50 year bonds, railroad companies issued a hundred year bonds. There's no market for 50 or a hundred year bonds today, very few issuers, mostly governments even issue 30 year bonds. But corporate bonds are much shorter in average maturity under fiat money than they were under the gold standard. And that discourages long-term investment, or it makes it more expensive, more risky to finance a long-term project because you'd have to pay a huge premium to issue a long-term bond, an inflation risk premium. Instead, corporations issue short-term bonds and then roll them over as necessary, but rolling them over presents a risk that the interest rate will be higher at the time the rollover takes place. So that additional risk discourages long-term investment. It's hard to put a number on how big that effect is, but it's a noticeable effect.

Do you think, I mean, so I know that uncertainty and kind of fear is one of the big causes, catalysts, I don't know, magnifier of inflation, recessions, bank runs, all of the stuff that makes the economy go wonky in ways that we don't like because it hurts people and makes life harder. Do you think that moving to another, moving, I don't know, either back to the gold back standard or maybe an alternative currency like crypto would do, the trick does. Do you think that that would reduce kind of this uncertainty? I feel it looming. Everyone around me, my age is kind of freaking out. Yeah, it's a low key freak out, but we have no idea what the job market is going to look like when we get out of college, much less what's going to happen in the future. So do you think that kind of this extended uncertainty about inflation and the amount of fiat currency circulating, do you think that that could kind of, I don't know. I feel like this checks out almost.

Lawrence White (38.06)

Yeah, so we live in a system in which the central bank can decide to go from zero interest rates to 5% interest rates in the space of a year. And the Fed's policy doing that has been described as keep tightening until something breaks and something did broke, did break, no, did break, sorry, something broke. Silicon Valley Bank broke. Republic National Bank broke. These were banks that in a zero interest rate environment, reached for yield by buying long-term treasury bonds, never expecting interest rates to rise to 5%, which meant that their bonds paying 2% dropped in value because compared to new bonds, they're not yielding much. So the price goes down. So that's what made them insolvent this sudden change. Unexpected change in monetary policy. The bank regulators themselves didn't expect the change when they stress tested large banks, could they survive changes in various parameters in the economy?

They tested them for a rise in interest rates from zero to 2%. Well, Silicon Valley Bank could have survived 2%, but at 5% they were insolvent. So even the regulators didn't seem to see this coming, but the Fed was in a bind because it had destroyed its own credibility by letting inflation get above 5% and keep rising. So they decided we're going to fight the number one problem, which is inflation, and they tightened rather rapidly by historical standards, and it was not what many bankers were expecting. So that's a problem. There's a kind short-termism. Short-term thinking is encouraged by a regime in which things change quickly.

So a monetary system in which the quantity of money was governed by decentralized market forces like the International Gold standard, I think that would be an improvement. I don't know if we can get there. I don't think there's the political will to do that until we have a real crisis and nobody's hoping for that. But we also need banking reform because banks have adapted themselves to the system they're currently in, and especially the regulatory environment they're currently in where we have deposit insurance and we have too big to fail. And the threshold for being too big to fail keeps dropping. It used to be only the biggest banks, but the F D I C decided that Silicon Valley Bank was too big to allow the uninsured depositors to take losses.

I feel like with regards to this stuff, obviously there might not be hope for changes to the way we do money the way we do except cryptocurrency is, well, I don't know. Is it winter right now for cryptos? Maybe I haven't kept up with it in a minute. 

Bitcoin has come back from, its low, its recent lows, so it's around 30,000 now where it bottomed at around 15,000.

So what does the rise of alternative currency mean for banking and for the fiat currencies that we have today?

Well, it provides an alternative asset for diversifying your savings. And so a prudent amount of your retirement portfolio once you start building one that's more relevant to my generation than yours is something like three to 5% in some combination of gold and Bitcoin. When I see young people putting all their savings into Bitcoin, I shake my head because that's not prudent. The price is much too volatile. Diversification is your friend. So really index funds are the most efficient way to diversify your portfolio. Very few people are using Bitcoin as anything like money that is, they're not buying goods and services with Bitcoin. They're just holding it as a speculative investment. So it hasn't really played the role that its creators intended for it to play, which is as an alternative world money. Central banks though sometimes seem to be afraid of it as though it was a real threat to their market share. And so in many countries, there are prohibitions against using Bitcoin. The other thing that governments fear about it is that it's more private. It preserves anonymity or pseudonymity. It preserves privacy better than having an account in an ordinary bank, which your bank records can be requested at any time by federal authorities.

So I guess in terms of takeaways, I have two more questions. What is kind of the biggest thing we should take away? I know there's so much more that we haven't gotten to maybe grounds for another interview, but I guess what should we take away from the history of money and especially the stuff we've covered today?

Lawrence White (44.33)

At the very least, we should hold the Federal Reserve to higher standards in order to justify their existence, they should produce outcomes that are as good as the classical gold standard. And with the right monetary policy, since they can govern the quantity of money however they like, you could have inflation of zero or even negative one under our current regimes, and we should demand something like that from the Federal Reserve instead of what we have now, which is a weak commitment to a 2% target, which they violate for long stretches of time. And likewise, the European central banks. So we should hold central banks to better performance

And we should allow competition to the extent people want it among media of exchange. So eliminate the legal barriers to holding and using gold and Bitcoin. There are taxes, capital gains, taxes on gold and Bitcoin that you don't have on fiat money, for example. So that should fiat money go really wonky, we have a plan B, we have an alternative that people can adopt for themselves when fiat monies get really inflationary. If you look at Venezuela for example, people will put themselves on a better monetary standard. So we need to make sure that these better standards are available better as judged by the people who were thinking about adopting them.

It's funny, one of the many stories of many alternatives in the eyes of the people that are more suitable than the government currency, this one I like is they would use video game currency instead, which I just think is so funny and kind of, I guess consumer confidence is really applicable.

Lawrence White (46.57)

Well, in China, the banking system is used for surveillance of people's spending. And so people, they've made Bitcoin illegal. Some people do use Bitcoin, buy and sell goods for Bitcoin in order to escape that surveillance. But it takes a certain level of sophistication to be able to do that when it's all underground. But video game money and WeChat Pay and Alipay were alternative private payment systems that people adopted, I think mostly for privacy reasons that the Chinese government is cracking down on now, forcing everyone into their own central bank digital currency, which is a means of surveillance.

I think this kind of, unfortunately, really I think shows us just how important money is. And I guess even with everything money related that we dislike about the United States we're, we take for granted a lot about how important money is just because we can,

As long as you don't have to worry about it, but talk to people who live in high inflation economies and it's a continual headache.

Yeah, sounds like it. Even the inflation we've had, I mean, I know it's not good, even historically, it's pretty bad, but that's been stressful for many people, and so Sure. Yeah, I can't imagine if it was even more volatile, more consistently. I wish we had more time again, but I have one last question for you. What is one thing that you believed at one time in your life that you later changed your position on and why

You did tell me in advance that you were going to ask that question. And I tried to think of an answer, but I can't think of anything major. And I guess this is a confession of maybe inadequate intellectual curiosity or challenging, not challenging myself enough, but I was a libertarian in college and I remained a libertarian, maybe slightly less radical than I used to be.

You don't believe we should privatize the garbage trucks anymore, maybe?

Oh, garbage. Absolutely. I have a private garbage service where I live. 

Awesome.

That's not very radical. No privatizing the courts and the army. Those are the hard issues. And I guess I'm not as sanguine about doing that as I once was. I like to tell people that if you're familiar with the video game civilization, which has gone through many additions, it's a computer game in which you get to run your civilization and decide what to invest in terms of research and development, how many soldiers to put guarding your cities and so on. I discovered that if I left my cities undefended, that the barbarians took them over. So metaphorically, that is a concern. There does need to be preservation of order to the extent possible in private hands, but when it comes to the threat of invasion by other states, it's hard to think of how to prevent that without having your own state. However, limited.

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to The Great Antidote Podcast means a lot. The great antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at great antidote@libertyfund.org. Thank you.