The United States Should Return to the Gold Standard

My CaseC1: Stability and GrowthThe current fiat system is relevant to this debate in that I want the United States to turn to a gold standard. To do that I have to prove why the gold standard is better than the fiat system and part of that is showing the faults of the fiat system. The fiat system has been quite unsatisfactory, as Forbes and Ames explain:"The ending of fixed exchange rates was a supreme act of mercantilism that ushered in a decade of stagnation and monetary chaos and laid the groundwork for the biggest disasters of recemt times. It helped to bring on the stock market crash of 1987. And it gave us the destructive cheap dollar policies of the past decade that set the stage for the 2008-2009 financial crisis." [1]Fixed exchange rates existed under the gold standard because the world's countries had been pegged to the dollar which was pegged to gold. Further:"In a 2000 study, researchers from Rutgers University, the University of California at Berkeley, and the World Bank analyzed data spanning 120 years of financial history and found that the 'crisis frequency since 1973 has been double that of the Bretton Woods and the classic gold standard periods and is rivaled only by the crsis-ridden 1920s and 1930s.'" [1]Money is just that, it's money. We must understand that money, as defined by Investopedia, is an official legal tender that is used as a medium of exchange. It brings the owner of a shop and a customer together and is far more efficient than a barter system. It is a unity of measurement by measuring what something is worth. The best money is money that is stable. Staibility is best achieved when money is linked to a commodity. Forbes continues:"Over the centuries, precious metals, such as silvers and especially gold, most often have served this purpose. But other commodities, such as seashells, fur, fish, corn, rice, and tobacco, have also worked as currencies. Tobacco notes were used as money during colonial trimes. Prisoners of war used cigarettes as money during World War II, as did Germans for several years after the war." [1]Regarding the inflation problem, Rolnick and Weber write:"The average inflation rate for the fiat standard observations is 9.17 percent per year; the average inflation rate for the commodity standard observations is 1.75 percent per year. And, once again, every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard." [2]It is clear the that the gold standard offers less inflation, especially the classical one. Salaries might go up, but the value of money changes and income inequality increases:"Monetary inflation clearly leads to a coercive redistribution of wealth. That this redistribution tends to penalize lower-income individuals is even more outrageous from a social welfare point of view. The limitations of effecting an egalitarian social order through manipulation of the money supply should be apparent." [3]Forbes writes:"If you had $100,000 in cash in 2000 and did abseloutely nothing, it would only have been worth only worth $74,000 in 2013." [1]Even with salary increases, the value of money goes down unless linked to a commodity like gold.White says on regarding governments and gold:"Leaving money issue in the hands of private banks rather than a government institution, as the United States did before 1913, removes the option to use surprise monetary expansion one step further. It remains true that government can suspend the gold standard in an emergency, as both sides did during the Civil War, but the spirit of the gold standard calls for returning to the parity afterward, as did the United States." [4]Even if the government changes the price of the gold stock, the point remains that the dollar is more stable when backed to gold. The gold standard also doesn't exactly mean a price fix:"The gold standard doesn’t fix a price between dollars and gold any more than the traditional British measurement system fixes a price between pints and quarts. The fixed relationship is a matter of definition. A gold standard defines the dollar (or whatever the name of the monetary unit) as a specified mass of gold. Dollars are not separate goods from gold." [4]From 1960 to 2005, a study found that when inflation rates were higher then crime was higher. This happens over time as inflation slowly reduces the value of money and purchasing power. The study found that supply-side economics tackles the problem best since it means to seek lower inflation, or deflation, in which criminals are less likely to cause crime. Under the fiat system, inflation has been higher and remained higher. During the gold standard eras, times of deflation would lead to less crime because prices were lower. Therefore, the gold standard is better since, on average, there is low inflation. [5]C2: HistoryI disagree that the gold standard isn't what primary started the huge surge of economic growth after 1717 because it recognized the value of a commodity currency. The East India Company was create over a century before in 1600, yet with all its institutions and trade (and no doubt as good as it was), the economy really did take off with gold. A monetary crisis was on the way if Britain didn't do what it had to do in monetary policy (the result of a debased currency), regardless of whatever actions were occuring in the rule of law and trade. Britain, as Forbes writes, ended up going the right thing:"It was decided that, to avert a monetary crisis, Britain would melt down and remint the damaged money. Traditionally such an occasion was an opportunity for a devaluation...Parliament's eventual decision not to devalue was a victory for advocates of sound money. [Isaac] Newton, as Master of the Mint, formally fixed the pound to gold in 1717." [1]The result of holding gold at the fixed value and not debasing brought Britain into its golden age. Trade couldn't have been as useful with a weak pound, but with gold the pound remained strong during the high times of the British Empire.Let's look at GDP growth and CPI during the time of the classical gold standard: Before the Civil War, U.S. GDP growth grew at an average of 4.3% annually and after it 4.7% annually. Those are times of great growth as the economy is growing above inflation (and yes I had to take this picture from a book, which I will cite below). [6]The dollar in the classical gold standard era is completely stable because it is supposed to on average. Gold will adjust to what is better for the economy in different years, so it's flexible. With an economic and wage growth above those price changes (as they were at the time), there was no problem. Regarding the panics and the Great Depression:"Other countries on the gold standard—Canada, for example—had no banking panic in 1929–33 (nor did Canada have panics in the late 19th century), so the gold standard couldn’t have been responsible for the panics. Rather the panics were due to completely avoidable legal restrictions (namely the ban on branch banking and compulsory bond collateral requirements that make the supply of banknotes “inelastic”) that weakened the U.S. banking system." [4]It should be noted that tight money and deflation actually saved the U.S. economy in the 1920 depression, which largely cured itself. This depression proves deflation actually helps and does not cause recessions. Deflation during the 1920 Depression was by 15%, yet there was major economic growth at the time.The Bretton Woods system is obviously gold standard. There is no denying that. There are, in total, four different kinds of gold standards:1. Classical Gold Standard - Countries peg currencies to a particulary weight of gold, which was what Britain started. Anyone could take gold to a bank and exchange for currency at a fixed rate, or they could swap money for gold.2. Gold Exchange Standard - The U.S. dollar and British pound would be directly fixed to gold while other countries like their currencies to either the dollar or the pound. This system clearly revolves around gold since the rest of the world pegs to two nations that are linked to gold.3. 100% Gold Standard - Only a % of the money stock was covered under the classical standard, but this system has the entire currency backe by gold. In a 100% gold system, gold would support the entire stock.4. Gold Price System - Uses gold a measure of value and the dollar would be pegged at a price.My RefutationsR1: DeflationThe computer industry isn't the only example, but my case holds that deflation encourages savings which helps businesses expand. If we take cars for example in which one costs $20,000, but the dealership bought too much and the customer expects prices to fall by $1,000, then the customer can take time to put that money into CDs yielding return to come out with more money.R2: PracticalityGold doesn't have to be 100% backing and that is not what happened during classical times. STAND FOR THE GOLD STANDARD! Sources1. Forbes, Steve, and Elizabeth Ames. Money: How the Destruction of the Dollar Threatens the Global Economy--and What We Can Do about It. N.p.: McGraw-Hill Education, 2014. Print. 2. Arthur J. Rolnick and Warren E. Weber, “Money, Inflation, and Output under Fiat and Commodity Standards,” Journal of Political Economy 105 (December 1997): 1308–1321.3. Balac, Zoran. "Monetary Inflation’s Effect on Wealth Inequality: An Austrian Analysis." The Quarterly Journal of Austrian Economics 11.1 (2008): 1-17. Mises. Ludwig Von Mises Institute, 06 Aug. 2008. Web. 18 Feb. 2015. 4. White, Lawrence H. Recent Arguments against the Gold Standard. Washington, D.C.: Cato Institute, 2013. Cato. The Cato Institute, 20 June 2013. Web. 16 Feb. 2015. 5. https://www.ncjrs.gov...6. Cain, Herman, and Rich Lowrie. 9-9-9: An Army of Davids. Herndon, VA: Velocity ; Mascot, 2012. Print.