Dear Wash. Post: 'Lord of Finance' Review Ignores Fact

16 February 2009

Editor, Washington Post Book World

1150 15th St., NW

Washington, DC 20071

Dear Editor:

Regardless of the merits or demerits of the gold standard, Frank Ahrens – reviewing Liaquat Ahamed's "Lords of Finance" [1] – ignores an important historical fact when he joins Ahamed in indicting that monetary institution (Feb. 15).

When Britain returned to the gold standard in 1925, it did so at the pre-WWI pound sterling price of gold. But because of inflation during the previous ten years, this price of gold was about ten percent too low. The result was deflationary pressures. These pressures, combined with Britain's unusual downward rigidity of wages and prices, caused significant hardship in that country.

Had Britain in 1925 returned to the gold standard at a price of gold more consistent with the lower value of the pound sterling, the troubles suffered then by the British economy would have been less severe.

Sincerely,

Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.