Professor Bernanke rails against gold standard

Federal Reserve Chairman Ben Bernanke headed back to the classroom Tuesday, and defended the Fed against its most outspoken critic, Ron Paul.

In a lecture otherwise about Fed history and the Great Depression, Bernanke devoted four slides to discussing "problems of the gold standard."

For years, Congressman (and now presidential candidate) Ron Paul has argued to abolish the Fed and revert back to a system where U.S. dollars can be redeemed for gold.

The United States abolished the gold standard in 1933, and fully moved away from a fixed exchange rate in 1971. Bernanke defended that decision Tuesday, saying a gold standard creates an "awful big waste of resources."

"To have a gold standard, you have to go to South Africa or someplace and dig up tons of gold and move  it to New York and put it in the basement of the Federal Reserve Bank of New York and that's a lot of effort and work," he said.

A student pressed him on the issue, asking him to play Devil's advocate: "Given everything that we know about monetary policy now and about the modern economy, why is there still an argument for returning to the gold standard and is it even possible?"

Bernanke didn't bite. He said that there is not enough gold for a global gold standard and that "the world has changed."

"I understand the impulse, but I think if you look at actual history, you'll see that the  gold standard didn't work that well and it worked particularly poorly after World War I," he added. "There's a good bit of evidence that the gold standard was one of the main reasons that the Depression was so deep and long."

Tuesday's lecture is the first of a four-part series at George Washington University. The Fed plans to post the full videos online.

Bernanke already has a long history in academia. Before he joined the Federal Reserve's Board of Governors in 2002, he taught economics at Princeton University.