TOS Blog: Daily Commentary from an Objectivist Perspective

Bernanke Defends Fed Policy that Turned Dollar Into Four Cents

Federal Reserve chair Ben Bernanke is “one of the most powerful men in Washington,” notes the New York Times. Of course he is: He holds near-dictatorial powers over the nation’s money supply.

In a recent talk at George Washington University, Bernanke condemned the gold standard for hampering the government’s ability to spend money. The New York Times reports: “Tying the supply of money to the supply of a precious metal limits a government’s ability to address economic problems, Mr. Bernanke explained.”

But limiting the government’s power to meddle in the economy is one of the great virtues of a commodity-backed currency.

Economist George Selgin offers a detailed rebuttal of Bernanke’s lecture. Selgin addresses Bernanke’s historical claims in detail and summarizes Bernanke’s central evasion:

That central banks’ own policies might actually cause inflation, or contribute to the business cycle, or trigger crises, or blow-up asset bubbles—these are possibilities to which every economist worth his or her salt attaches some importance, if not overwhelming importance. But they are also possibilities that every true-blue central banker avoids like so many landmines.

But perhaps the most vivid demonstration of the destructive nature of the Fed is the falling value of the dollar. According to “The Inflation Calculator,” a 2010 dollar had the same purchasing power as did four cents in 1910. The Fed’s printing of fiat money, which Bernanke desperately defends, has sunk the value of the dollar and promises more inflation in coming years.

Insofar as the Fed continues to exist, it should be required by law to return to and remain on a gold standard. Ultimately, though, as Yaron Brook of the Ayn Rand Institute points out, central banking and its fiat currency should be ended and replaced with free market banking and money.

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Image: Wikimedia Commons

Posted in: Banking and Monetary Policy

Comments are welcome so long as they are civil.
  • Mike Kevitt

    Establishing a 100% gold std. & ending the cen. bank will limit the pwr. of gvt. to meddle in “the economy”.  But, that pwr. must be ended, not just limited.  That requires measures & action well beyond money & banking.  All these require basic intellectual groundwork concerning definitions of concepts of human relations, morality, reason & many others &, indeed, concerning a union of philosophy & gvt. (not “state”) where law & gvt. are well defined concepts derived from philosophy, as are all the other concepts.  All this entails that philosophy, science & all the rest be hard-fastened to the fact of the life of the individual human & what that life requires for its maintenance & improvement in the context of human relations.  People of reason & knowledge must implement the whole context in principle & in writing, & pursue it in action for any part if it, such as money & banking, to function properly in perpetuity.

  • Anonymous

    These calculations about dollars in 1912 versus dollars in 2012 don’t mean anything because we’ve gotten vastly wealthier in real terms since then. Ordinary Americans can buy things now with their current money which didn’t even exist as ideas a century ago. The richest American in 1912 couldn’t have gotten a prescription for a generic statin or a blood pressure lowering drug to extend his healthy life for any amount of gold, whereas I can buy a three months’ supply for about $10, literally about what a waitress would earn in tip money from serving a few diners in a downmarket restaurant.

  • Anonymous

    The invention and creation of new goods and services creates deflationary pressure. The more valuable and amazing things we can buy with the dollar, the more its worth increases. Which makes the last century’s inflation all the more (horrifically) impressive. The voracious appetite of govt has outpaced even the near miraculous innovation we’ve seen this century.

  • Anonymous

    And so we should applaud all the inflation since 1912 as taking advantage of all the technological advances since then, rather than condemn it in spite of the technology?  After all, look at how it has helped the poor!

    It has actually been a fun house for people inappropriately called politicians and special interest groups rather than called the crooks that they are. 

    “Special interests” is probably always a euphemisn for crooks, but “politician” is actually the term for an honorable activity where government is kept within its proper bounds.

  • Peter Namtvedt

    Instead of saying “Tying the supply of money to the supply of a precious metal limits a government’s ability to address economic problems” Bernanke should have said “Tying the supply of money to the supply of a precious metal limits a
    government’s ability to *create* economic problems.”