The idea of a gold standard was, in fact, put to Bernanke in front of the Senate two days ago, and Ben admitted that gold “did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. [Sure, Ben, unlike the total peace and calm we have enjoyed as a result of the confetti standard pursued by the Federal Reserve.] So I don’t think it’s a panacea, and there are also other practical problems like the fact that we don’t have enough gold to support the money supply.”
It’s true we don’t have enough gold at the last prices on the board (i.e., the price is too low). But if every country in the world was required to hold a certain percentage of its paper currency in gold, as has been the case in the past, the price of gold would rise substantially and, voila, there would be enough. Just because the “market cap” of gold seems “not big enough” at the moment (a common refrain), doesn’t mean the supply of gold is insufficient. Not surprisingly, Bernanke’s conclusion was, for the reasons just mentioned, “I don’t think that a full-fledged gold standard would be practical at this point.”
I do find it somewhat interesting that he wasn’t more disdainful of the idea. Perhaps even he understands that the massive imbalances that we all currently must endure would be reduced under some form of a gold standard, though it is still hard for me to believe that he could doubt his own abilities to that degree.