Alan Greenspan’s recent comments about gold have been making the rounds online. Greenspan famously declared during his tenure as Chairman of the Federal Reserve Board of Governors that the gold standard was obsolete because the Fed effectively acted as though it were on a gold standard.
But as I have testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was, and indeed since the late 1970s central bankers generally have behaved as though we were on the gold standard.
So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard? And the answer is: I do not think so, because we are acting as though we were there.
The video of Greenspan’s exchange with Congressman Ron Paul is worth watching too, as it occurred during Greenspan’s final hearing as Chairman before the House of Representatives. The housing bubble was well underway, and not much more than two years after Greenspan’s testimony the first rumblings of the financial crisis were beginning to be felt on Wall Street.
Unlike Alan Greenspan, who earlier in his life was a staunch defender of the gold standard, Fed Chairman Ben Bernanke has spent his entire career as a Keynesian. His erroneous thoughts about the Depression undoubtedly contributed to his decision to engage in quantitative easing, a decision the consequences of which the United States economy is still reeling from today. And also unlike Chairman Greenspan, Chairman Bernanke has never believed that gold is money.
Dr. Paul: Do you think gold is money?
Mr. Bernanke: No, it is not money; it is a precious metal.
Dr. Paul: Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?
Mr. Bernanke: It is an asset. Would you say Treasury bills are money? I do not think they are money either, but they are a financial asset.
Dr. Paul: Why do central banks hold it?
Mr. Bernanke: It is a form of reserves.
Dr. Paul: Why do not they hold diamonds?
Mr. Bernanke: It is tradition, a long-term tradition.
It’s a shame that Ron Paul is no longer in Congress to ask Chairman Yellen whether or not gold is money. But I suspect that her answer would be closer to Chairman Bernanke’s than Chairman Greenspan’s, especially now that Chairman Greenspan seems to have repudiated his Fed-era views and acknowledged that gold is money that is unmatched by any fiat currency.
Alan Greenspan, the prodigal son, has returned to the fold, or at least when it comes to gold. He has also been critical of quantitative easing, but has yet to repudiate or apologize for his actions as Federal Reserve Chairman. Perhaps it’s too soon to welcome him back fully, but these latest comments of his are a welcome sign that perhaps he is returning to the monetary sanity of his younger days. Is it too much to hope that his full conversion (or reversion) comes before he’s on his deathbed?