STEVE INSKEEP, host:
It's MORNING EDITION from NPR News. I'm Steve Inskeep. Good morning.
Our Planet Money team, as part of their most recent adventure in investment journalism, purchased a gold coin. The gold coin cost them $418. And they've been using the coin to try to answer the question: What is money? For much of human history, gold was money. Today, they introduce us to a man who thinks we should go back to those days. Here are David Kestenbaum and Jacob Goldstein.
DAVID KESTENBAUM: When we met Jim Grant, he had just written an op-ed for the New York Times.
JACOB GOLDSTEIN: He was pining for the days when we were on the gold standard — when every dollar was backed by gold.
Mr. JIM GRANT (Grant's Interest Rate Observer): That's my line and I'm sticking to it.
KESTENBAUM: Grant publishes a well-known investment newsletter called Grant's Interest Rate Observer. People pay a lot of money to subscribe.
GOLDSTEIN: Grant seems like he's from another era. He wears a bow tie and works in this wood-paneled office on an old part of Wall Street.
KESTENBAUM: He's the sort of guy who uses the word risible instead of laughable. Grant starts to make the case for going back to the gold standard. One of the things he uses is our very own coin.
Mr. GRANT: This is it? This is all you guys have? Let the witness explain that this beautiful gold coin is packed in the cheesiest of plastic wrappings. You can imagine. The reason that money was called sound is that if you dropped it on a hard surface it would make a pleasing ring. Do you want to hear this thing ring? OK.
(Soundbite of clinking sound)
Now that is - that's money.
GOLDSTEIN: When you're on the gold standard, Grant says, money holds its value, because every dollar is backed by gold.
KESTENBAUM: If you're not on the gold standard the government can print as much money as it wants. And the more dollars that are out there, the less each dollar is worth.
GOLDSTEIN: We're all very familiar with this. It's called inflation.
KESTENBAUM: On the gold standard, money isn't something you can just create out of nowhere. It's something physical, constant.
Mr. GRANT: And that idea is deeply rooted I think in all of us. I mean, there's a few universal things - sex, mathematics, music, gold. All these things are universal.
GOLDSTEIN: It's only recently, Grant points out, that we adopted our current system. Which, obviously, he is not a fan of. How do we decide how much money should be out there now? We leave it up to the Federal Reserve.
KESTENBAUM: We leave it up, to a bunch of guys in a room.
Mr. GRANT: So the gold standard, the value is fixed and we adjusted our affairs to this north star of value. Today, the north star is like a comet. Ben Bernanke testifies one day he thinks that he wants to impart a little zest into our shopping by injecting more green paper dollars into the world. He thinks more of them will be more better. Why? Because it will cause prices to go up just enough. Not too much, but just enough. Do you believe that? It's risible - laughable.
GOLDSTEIN: Actually, most economists do believe that. They think Ben Bernanke, and the Federal Reserve, basically a bunch of guys in a room, is a preferable alternative the gold standard.
Mr. GRANT: The argument I'm making is in fact the wingnut argument. There's no getting around that. Every self respecting tenured faculty member in economics in this country, almost without exception, would laugh it out of court. It's not they disagree with it. They regard it as laughable.
GOLDSTEIN: So we left Jim Grant. And we called up Randall Parker. He's a professor of economics at East Carolina University.
KESTENBAUM; And Parker agrees with Jim Grant on one thing. The case for going back to the gold standard - that is the wingnut argument.
Professor RANDALL PARKER (Economics, East Carolina University): I think that it is a pernicious anachronism that should be kept in the history books. And to think that modern people today want to speak about its resurrection should absolutely horrify and terrify anyone who understands economics even a little bit.
GOLDSTEIN: The reason the gold standard should horrify you, Parker says, is that in a financial crisis like the one we just went through, it can make things worse. In fact, the gold standard was one of the causes of the Great Depression.
KESTENBAUM: Parker says when you're in a situation like the Great Depression what you need is for the Federal Reserve to put more money out into the economy to get things going again. Make it easier for businesses to borrow money and hire people. But if you're on the gold standard you can't do that. There's only so much gold in the world. That means there's only so much money.
GOLDSTEIN: Parker says the world only emerged from the Great Depression when countries started going off the gold standard.
Prof. PARKER: It's incredible and remarkable. The British left the gold standard in September of '31, and they instantly began to recover. We left the gold standard in March or April of 1933. We began to recover. The Spanish were never on the gold standard at all. They missed the Great Depression altogether.
GOLDSTEIN: For Parker and for most economists, going off the gold standard, moving to a world where money doesn't have to be backed by anything physical, where you can adjust the amount of money as needed, this was an important breakthrough. It was progress.
KESTENBAUM: Like we learned some important economic truth about the world. In a nutshell, this then is the history of money: We went from using actual gold coins to paper bills where we said it's, OK, trust us. We got gold in a vault.
GOLDSTEIN: To now, where we just say, trust us.
I'm Jacob Goldstein.
KESTENBAUM: And I'm David Kestenbaum, NPR News.