Bernanke channeled Keynes to deflect Paul

September 2, 2011

Remember that exchange a couple of months ago between Congressman Ron Paul and Federal Reserve Chairman Bernanke over the definition of money? Pressed by the congressman during testimony, Bernanke said gold is not money. Paul retorted: “Why do central banks hold it?”

Bernanke paused and said: “It’s tradition, long-term tradition.”

One of the interesting things about the episode was how disparately it was perceived among different audiences. To most economists, Bernanke was stating the obvious. Gold is not money. You can’t walk into a coffee shop and pay for your doughnut with a raw piece of bullion. Not without at least eliciting a “let me get my manager” from the cashier. To Ron Paul’s libertarian supporters, however, this was a major ‘gotcha’ moment for the presidential hopeful.

What most observers do not realize, however, is that Bernanke was not only dismissing the suggestion that gold is equivalent to money, but also doing so by echoing Paul’s ideological nemesis: the late economist John Maynard Keynes.

In 1930, Keynes, a vocal opponent of a post-World War One attempt to return major world economies to the gold standard, wrote the following:

The choice of gold as a standard of value is chiefly based on tradition.

Keynes, who famously dismissed the gold standard as a “barbarous relic,” goes on to argue that scarcity and difficulty of transport make the precious metal ill-suited to be the basis of currency:

Gold is, and has always been, an extraordinarily scarce commodity. A modern liner could convey across the Atlantic in a single voyage all the gold which has been dredged or mined in seven thousand years.

And further down:

Gold is out of sight – gone back again into the soil. But when gods are no longer seen in a yellow panoply walking the earth, we begin to rationalize them; and it is not long before there is nothing left.


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if gold’s use as a medium of exchange was merely a matter of tradition, why is it illegal to use gold as money even now?

The truth is of course that fiat currency is imposed upon us by government force. And it is imposed upon us for one and only one reason: The bankers and the government can print up more of their magic tokens any time they want.

Posted by hjmaiere | Report as abusive

That’s why the price of gold has skyrocketed, right… What about having dollars bills actually BACKED by gold, then you could pay for stuff with technically with gold.

Why DO central banks hold gold? They should sell it and put the earnings towards the debt. What good does it do them to have it, for supposedly no purpose. “Tradition”, doesn’t really make a lot of sense to me.

Posted by whatever5678 | Report as abusive

what was the point to this article?

It doesnt shock anyone that bernanke supports keynes or keynesian economics.

It also shouldnt shock anyone that keynesian economics is sending Americas economy into recession mode again.

There are some principles that cannot be ignored.
1 – the printing of fiat money at a rapid rate will eventually lead to hyperinflation.
2 – Every empire tries to overexpand, be it through warfare or through bureaucracy will eventually cause economic or militarial disaster –

What you should titled this article: Paul channeled Common Sense and Freedom to Bernanke

I’m not a fan of simply the gold standard on its own – but it is money, regardless of what Bernanke says and one should be able to trade it or use it as legal tender. Either that or theres millions of insane people paying 1900 dollars for an ounce of metal.

Not that I fault Keynes. He wrote during the depression and during that time they needed a different philosophy – and I’m sure economists, politicians, the media, and corporations have all slandered his original intent and theories. Paul Krugman is a new Keynesian, some other egotist is an old.

Whatever the case – its failing. time for a new philosophy.

Posted by thomaspaine | Report as abusive

Is this supposed to be a gotcha article on Dr. Paul? The Fed prints money with absolutely NO wealth to back up the stated value on the bills and distributes them to foreign banks and corporations in the form of ‘loans’ and ‘stimulus’ and in doing so robs every American who holds treasury notes. Nice try but, the masses can read and they’ve found out about the Central Bank of Oz and they’re not happy about it… stop trying to bail-out the titanic, it’s sinking, let it go…

Posted by igoodnessi | Report as abusive

There’s an essay from Alan Greenspan, former FED chairman about “Gold and Economic Freedom” that is a must reading. Check: n_gold.htm

Posted by smacebr | Report as abusive

Try walking into an African village and paying for meal with a piece of paper with dead white guy on it. See how far that will get you. Offer a gold coin though and you’ll eat like a king. You probably would in Des Moines or New York City just as easily. Those who think gold isn’t money have simply never tried.

Posted by NewBrother | Report as abusive

Ron Paul doesn’t necessarily want us back on the gold standard. What he wants is for the federal reserve to not have sole monopoly over money. He believes in at least legalizing gold and silver as legal tender. Let there be competition. If gold and silver start being used in place of the dollar, then what’s wrong with that?

I am absolutely disgusted by this idea that the most powerful bankers in the world get together and decide what our monetary policy is going to be. How could anyone think this is a good idea? No, let there be multiple currencies competing at all times. If people start noticing their savings dwindling by holding dollars, they shouldn’t have to stick it in the risk stock market just to keep it from losing its value. They should be able to get rid of it and use a different currency that isn’t losing its value. This is common sense stuff.

Also, if gold is so terrible, answer me this: Would you rather stick $1,900 worth of u.s. dollars in a shoe box for 20 years, or 1 oz of gold in a shoe box for 20 years? It’s not a hard choice, guys.

Posted by dkey1983 | Report as abusive

Gold Standard, Schmold Standard. At this point it is all meaningless. The U.S. produces nothing so a gold standard would bleed Fort Knox in Fort Night because of foreign balance of trade settlements leaving us broke. Fiat currency will render us the same through inflation as the Federal government runs up debt with the Federal Reserve Board enabling.

The real issue is the Congress legislating away Constitutional Powers to others. Such acts of Congress violate Constitutional Law and have only centralized power in the hands of a few (Federal Reserve board Act, War Powers Acts, Patriot Act, Homeland Security Act and now the “Super Congress of Ten” with the President casting the final vote in a tie.

Only the People have the right to change the distribution of powers to the three branches of government and (or) create more branches(the FED)). This vehicle of change is called Constitutional Amendment. Such usurpation of power by a few in our government is called Despotism. Those who enabled it (our Congress) are called sycophants.

Posted by coyotle | Report as abusive