Fed Chair-in-Waiting Benjamin Bernanke is a “Great Depression Buff”, reports the Wall Street Journal. Based on extensive research, he has drawn some important conclusions:
- Beware of outdated orthodoxies such as the gold standard.
- The Fed’s key objective should be stable prices.
- Don’t try to prick asset bubbles.
A magazine calling itself The Economist writes The little yellow god: Even at $500, it’s still a barbarous relic. And The Christian Science Monitor opines India’s costly love affair with gold “could be cutting the country’s economic growth by 0.4 percentage points per year.”The problem, as Chris Mayer writes, is that Bernanke read the wrong books. The most important neglected work is Rothbard’s America’s Great Depression. Mayer writes:
If every dollar must be backed by a certain amount of gold, then you cannot create money out of thin air. The gold standard says you must have the gold first. Governments find it harder to wage war, dole out entitlements and build public works with a gold standard tying them down. Banks can’t lend as much money; hence they can’t make as much money. This is why the banking interests of this country backed the creation of the Federal Reserve. They appreciated the value of a good cartel.
It’s a bit like a cash-only bar. People with little money who like to drink tend not like cash bars.
The problem, Mr. Sameulson, is not that there was not enough gold. The problem was too many dollars. When Roosevelt ordered Americans to surrender their gold coins in the spring of ‘33, he was not saving capitalism. He was burying it.
And my take on Bernanke and deflation.
