Is empirically hard to uphold;
When bound to the ingot,
The high and low swing got
Too hard to be quickly controlled."
Fed Chairman Ben Bernanke has embarked on a series of four lectures at the George Washington University business school, on the role of the Federal Reserve system and the recent financial crisis. In his first lecture on Tuesday, on the origin and mission of the Fed, Prof. Bernanke came out swinging against the gold standard as a solution to our monetary and economic problems. The Chairman claimed that the gold standard:
- Creates deflation (famously decried by William Jennings Bryan in his "Cross of Gold" speech);
- Causes interest rates to rise during downturns and fall during good times - the exact opposite of what should happen, and a factor in the greater volatility that prevailed during the gold standard years;
- Links everyone's currencies, so that monetary policy in one country gets transmitted to others;
- Can quickly fall apart if speculators believe that the central bank has any other priorities than maintaining the gold standard (such as fighting unemployment).
Supporters of the gold standard (okay, gold bugs) were indignant at this use of the central bank / academic bully pulpit. James Rickards, author of Currency Wars, tweeted: "I'm not troubled when #Bernanke misleads Congress since they can fend for themselves. But today he misled college students. Disgraceful." Mr. Rickards disputes Mr. Bernanke's assertion (shared by many others) that the constraints imposed by the gold standard were a factor in the Fed's inadequate response to the Great Depression.