Written by Jonathan Barnes
|James Grant, founder of Grant’s Interest Rate Observer, is a longtime advocate of the gold standard and critic of Central Bank monetary policy. In this interview with CFA Magazine, Grant speaks about the failures of the current monetary system, the practical steps toward a new gold standard, and his assessment of Federal Reserve Chairman Ben Bernanke’s four lectures in opposition to the gold standard, given at George Washington University in March 2012.Why do we need a new gold standard?Unpredictability is the hallmark of today’s monetary system. Our midget interest rates: will they be with us for three fiscal quarters—or three years? We don’t know. So-called quantitative easing (a.k.a. money-printing): will there be another bout? We will have to wait to find out. This lack of predictability inhibits long-term investment by industry. It stymies savings by ordinary people.The gold standard is time tested, objective, and synchronous. It delivered more-than-satisfactory results for approximately 100 years between [the battle of] Waterloo and the First World War. It was objective in that currency values were fixed, defined as statutory weight of gold or silver, and it was synchronous in that the gold standard helped to coordinate economic activity among the participating gold-standard countries.
How do you respond to Federal Reserve Chairman Bernard Bernanke’s recent lectures?
Bernanke presents himself to be an historian. But his deconstruction of the gold standard was completely ahistorical. He says that the gold standard failed, but he fails to distinguish between the classical gold standard, which ended 1914 and the various “road company” versions of the 1920s, the 1940s, up to 1971. These distinctions are important.
A key element of the gold standard is the lack of a privileged or reserve currency. But with the Genoa Conference in 1922 and with the institution of the gold exchange standard in the 1920s and with the further relaxation of the rigor of the gold standard under Bretton Woods in 1944, the very heart and soul of the classical system was eviscerated. For instance, under the Bretton Woods system, only central banks could legally own gold. An essential feature of the classical gold standard was that anyone could own gold. It was the people’s money.
Bernanke trotted out a bunch of shibboleths, such as not having enough gold to go around. Yet gold production has kept pace with population growth for many, many years. Another is that it costs a lot to dig it out of the ground, as if the cost of conjuring up US$2 trillion electronically over the course of a couple of fiscal quarters were cost free. These lectures were not a serious critique of monetary arrangements, old or new. …