Nobel Laureate and game theorist John Nash recently gave a talk at Fordham explaining the need for a hard money, such as was provided by the gold standard. (HT2EPJ) From the Fordham account:

Nash told the audience that such financial crises would be less likely to occur if there was some international monetary standard, such as the gold standard or competition among worldwide currencies, to curb inflation and prevent the rise of mortgage abuses. He expressed some skepticism about a government bailout as a solution.

“I get the impression that the government is not ready to do anything that is really beyond a short-term basis,” said Nash, a senior research mathematician at Princeton. “[But] we need a natural stability of value.”

Nash said that various interest groups that subscribe to Keynesian, or short-term, economic theories have sold the public on the notion that inflation is acceptable or that “bad money is better than good money.” Such a notion, he said, led to the dangerous proliferation of bad mortgage loans—loans made on the gamble that house values would continue to rise and eventually turn a profit.

“A fixed-rate 30-year mortgage would be reasonable under the gold standard,” Nash said. “Now, there are variable rates, and adjustables, and convertibles, and it is very complicated” for homeowners to figure out what they are getting into. In fact, Nash said, nobody really knows the depth of the financial crisis.

Having an internationally oriented money standard would promote better quality currencies and less inflation, he added.

The announcement then starts talking about "A Beautiful Mind," which was a good movie but a terrible introduction to the life of Nash and his work. For one thing, Nash was a lot "crazier" (in quotes because I think that word really just means, "unusual") in real life than the movie portrayed. Apparently he walked into faculty meetings and would throw the New York Times (or some other paper) on the desk and say, "You guys see that headline? That's aliens communicating with me." Another time he turned down a job offer (I'm pretty sure in writing) by explaining that he had just become the ruler of Antarctica. (BTW I'm relying on my recollection of the book A Beautiful Mind, and so I might be botching the specifics. But the spirit is right.)

And in the movie, they depicted his wife as supportive, when in reality she had him committed, and arguably what pushed her over the edge was her learning that his productive powers might be compromised if he wasn't treated. (I remember writing something like, "He was her slave" in the margins.) Last thing: You know the bar scene, where Russell Crowe drawls, "Adam Smith needs updating!" and he goes through the analysis of how he and his buddies should pick up girls? Well that is THE EXACT OPPOSITE of a Nash equilibrium. It would be akin to Ron Howard making a movie about the young Einstein, and having him declare, "Isaac Newton was wrong! Light travels at different speeds, depending on the observer."

BTW if you enjoyed the above rant, you may like my dissection of a Hal Varian op ed that had boiled down game theory for the unwashed masses, and declared everyone irrational for not playing subgame perfect Nash equilibria in experimental settings.