The Price of Time: Agreeing with the Views, Less Convinced by the Arguments

After reading Edward Chancellor’s The Price of Time: The Real Story of Interest, I agree with much of his thinking, but am less satisfied with the evidence and arguments. I couldn’t find the corresponding entry on Douban, so I’ll record my rating here: 7 out of 10.

English-language cover · Source: the author’s website. Cover copyright remains with its rights holders.

Interest Rates, Deflation, and the Great Depression

Reading this book brought the new Federal Reserve chair, Kevin Warsh, to mind. I wonder whether he has read it too. The discussions of natural interest rates, market rates, and less central bank intervention prompted that association.

Chancellor favors the gold standard and less government and central bank intervention, while criticizing easy money and low interest rates. He is less afraid of deflation than mainstream economists tend to be. He does acknowledge, though, that much of the fear of deflation comes from social and political pressure: high unemployment makes workers and voters dissatisfied with their governments and society more unstable.

He also questions the goal of “price stability,” which central banks now treat as an article of faith. A stable price index does not mean credit is not expanding.

In Chapter 6, he challenges two common explanations of the Great Depression:

1. After Strong’s death, the Federal Reserve tightened monetary policy to curb rising stock prices, playing a decisive role in causing the crisis.
2. The gold standard constrained the response: after rate cuts and monetary easing, gold flowed out, forcing the Fed to raise rates and tighten policy in late 1931, worsening the crisis.

To me, his reasoning seems close to the Austrian school. He traces the problem to Strong’s rate cuts and easy-money policies in the 1920s, intended to maintain price stability, which fueled the subsequent credit bubble. In his account, the later monetary easing and government spending prolonged and spread the crisis.

As I understand him, he would rather accept the short-term pain of allowing deflation than the prolonged pain of easy money. Thinking about deflationary pressures in China in recent years and inflation troubles in some overseas economies, deflation may not look entirely bad from that perspective.

Similar Austrian Leanings, Different Answers

Chancellor also discusses what wealth means and rejects Bitcoin as a virtual currency. His views contrast with those of Saifedean Ammous, the author of The Bitcoin Standard. Both are admirers of the Austrian school, yet they differ sharply on this issue.

Chapter 18, on China, was one of the most enjoyable parts of reading the Taiwanese translation. Still, the discussion of government financial repression and shadow banking felt somewhat familiar. On these subjects, I would recommend The Fiscal Code of the Central Empire (《中央帝国的财政密码》) and Wu Xiaobo’s Gains and Losses of China’s Economic Reforms Through the Ages (《历代经济变革得失》).

The conclusion and afterword were actually the strongest and most concentrated parts of the book. “The New Road to Serfdom”—perhaps the Austrian school does have successors after all.

Agreement Does Not Make an Argument Convincing

Overall, I am quite receptive to Chancellor’s views. I already lean toward the Austrian school and support liberal economists such as Hayek, while having little regard for today’s mainstream New Keynesian economics.

But the evidence and argumentation are hardly outstanding. Quite often, he seems to push too hard, making the argument less convincing.

The earlier historical stories and figures are well told. Yet the closer he gets to the modern era, to our own lives and the territory we know, the more he seems to struggle.

Perhaps that is one of the difficulties of belonging to a school outside the mainstream. Since the twentieth century, Keynesianism has flourished, followed by Friedman’s monetarism and then today’s New Keynesianism. The gold-standard era before the Great Depression, and the age of classical economics, may be the distant golden age the Austrian school understands and identifies with best.

Macroeconomics really does let a hundred flowers bloom. Ask ten economists and you get eleven opinions. It is still far too complicated: experiments are hard, and so are predictions.