WASHINGTON — The Federal Reserve’s chairman, Ben S. Bernanke, spent the better part of an hour Tuesday afternoon carefully explaining to a class of college students why the United States abandoned the gold standard in the 1930s.
The Federal Reserve chairman, Ben Bernanke, on Tuesday during one of his planned lectures at George Washington University.
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“Unfortunately gold standards are far from perfect monetary systems,” he told the class of 30 undergraduates at George Washington University.
Tying the supply of money to the supply of a precious metal limits a government’s ability to address economic problems, Mr. Bernanke explained.
Adopting the gold standard, he said, “means swearing that no matter how bad unemployment gets you are not going to do anything about it.”
Mr. Bernanke, one of the most powerful men in Washington, has agreed to moonlight as a college professor, delivering four lectures on central banking over the next two weeks. He also will read some student papers.
It is not a typical use of a Fed chairman’s time. But Mr. Bernanke, who has greatly expanded the central bank’s role in the nation’s economic policy, is looking for ways to raise and improve its public profile, too.
The Fed is concerned that it is neither loved nor understood by many Americans, and that public anger could lead to constraints on its powers.
Mr. Bernanke has appeared twice on the CBS News program “60 Minutes” and held town-hall meetings with college students and military personnel. Since last year, he has held news conferences after selected meetings of the Fed’s policy-making committee. Under his leadership, the Fed has increased the availability of information about its internal deliberations. Earlier this month, the Fed began a Twitter feed.
Mr. Bernanke spoke Tuesday about the history of monetary policy in the United States, including the Fed’s creation in 1913, and its role in causing the Great Depression. He framed much of this history as a critique of the gold standard, which was dropped in the early 1930s in a decision that mainstream economists regard as obviously correct, hugely beneficial and essentially irreversible.
Congressman Ron Paul, a Texas Republican who is running for president, has won a loyal following, including among college students, for his campaign to restore a gold standard. In such a system, the availability of money is determined largely by formula — in proportion to the availability of gold — rather than the discretion of policy makers.
Mr. Bernanke has treated this advocacy as obviously misguided, generally declining to engage with Mr. Paul at Congressional hearings. But the Fed’s longstanding practice of ignoring most critics most of the time has not served it well in recent years, as its aggressive policies have made it the subject of public scrutiny.
So on Tuesday, in careful and simple language, Mr. Bernanke took the time to explain his opposition to the gold standard.
The problem with such a standard, Mr. Bernanke explained, is that it limits the ability of government to address economic problems by adjusting the amount of money circulating in the economy. Proponents see this as an advantage, because they believe that policy makers will do more harm than good, in part by making decisions that prioritize short-term benefits over longer-term costs.
But Mr. Bernanke said that history was clearly on the side of flexible policy. In particular, he described the standard view among economic historians that the rigidity of the gold standard amplified the Great Depression.
He noted that the policies of modern nations tying the value of their currencies to those of other nations have the same downside. He cited the example of China, which maintains the value of its currency in relation to the dollar.
“Fixed exchange rates between countries tend to transmit both good and bad policies between countries and take away the independence those countries have to manage their economic policy,” Mr. Bernanke said.
Mr. Bernanke taught at Princeton before joining the Federal Reserve in 2002, and he slipped comfortably into his former role as a college professor. He set aside his usual practice as Fed chairman of reading from prepared remarks. He told a few dry jokes. He answered student questions with evident pleasure.
He did not, however, entirely abandon the caution required by his office. He arrived in a suit and tie, looking every inch the Washington bureaucrat, and he skirted questions about current policy, offering brief and familiar boilerplate responses.
The students, who were selected through an essay contest, also did not lose track of the fact that the speaker was not an ordinary professor. Several said they had chosen a school in Washington for the chance at such moments.
“It always surprises you to realize that this guy actually exists and he’s not just on TV,” said Max Sanders, a 19-year-old from New York.
“It’s a once-in-a-lifetime opportunity to hear lectures from him,” said Noah Wiviott, 21, of New Jersey. “He clearly knows what he’s talking about.”
Not everyone, however, found him convincing.
Yuqi Wu, a 20-year-old student from China, said she did not agree with Mr. Bernanke’s criticism of her government’s monetary policy.
“I definitely support the Chinese government’s position,” she said.
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