Review Essay: Sound Money without Free Banking: Revisiting Economic Principles

Abstract

Professor Lawrence H. White is one of the founders of the modern free banking school and a major scholar of monetary theory and history. In Better Money: Gold, Fiat, or Bitcoin? he draws on close to four decades of scholarship to answer the question put in the title: which monetary standard would be better. It should not come as a surprise that Professor White sees the contest mainly between gold and bitcoin. What is a “better” money? Professor White proposes that this must be judged “nonpaternalistically” from the viewpoint of the money-holders themselves. This is surely the correct approach. Two criteria are laid down: a money must serve as a convenient and low-cost medium of exchange, which means non-declining and predictable purchasing power; and the monetary system as a whole should have desirable properties such as avoiding depressions associated with monetary disequilibrium (p. 17). While we find the approach and the first criterion eminently sensible, the second point is much more questionable. Much of the review is therefore devoted to aspects of this second point.