"I would like to mention a point raised last week by Alan Greenspan, Chairman of the Federal Reserve, during what may be his last testimony to Congress before he retires. He was asked by Congressman Ron Paul why doesn't the U.S. return to a gold standard when fiat money (paper money not backed by gold) created the problems of the 1970s in a scheme to induce inflation and defraud people of their hard earned money.
Greenspan didn't dispute Ron Paul's assessment of the 1970s, but said a 'scheme' would imply a conscious effort, yet the effects of the 1970s policies were "inadvertent." Greenspan said that in the early 1980s, a return to the gold standard, as he suggested at the time, may have been a prudent option, but that former Chairman Paul Volcker's policies were also effective.Nowadays, however, there is no need to return to a gold standard because central banks have learned from their mistakes and are acting as if there were a gold standard.
Greenspan must have forgotten George Bernard Shaw's quote: "You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."
Greenspan appears to be a victim of the same lack of modesty as all central bankers throughout history have been. Every generation of central bankers seems to believe that they have not only learned from the mistakes of the past, but also imply that no new mistakes will be made. During World War I, the German Reichsbank's central bankers -- all educated men --, believed financing a war is 'exogenous' and non-inflationary to the economy; hyper-inflation a few years down the road proved them wrong." A Snowball in the Making: China's Basket of Currencies Axel Merk
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