The United States Should Return to the Gold Standard

R1) Stability and growth Pro suggests the current fiat system has failed. This is irrelevant, because as to whether or not the fiat system works has no bearing as to whether or not the country should go on a gold standard. My opponent throws around the terms ‘real money’, but that doesn’t even make sense. Whether or not a dollar is backed by gold does not make something worth anything. As noted, by the rules of the gold standard, the government has to set a price to gold which is often not the same as the market price [1. http://tinyurl.com...]. This type of price fix causes a lot of problems. Our money is worth what we say gold is--but isn’t that the same as saying a dollar is worth a dollar because we say it is? So this talk about real money really doesn’t make sense. His quote talks about ‘sound’ money as if gold has the same price and never changes, but this is incorrect. Gold prices fluctuate a lot, from $37 in 1970 to $1410 in 2010 [2. http://tinyurl.com...]. Gold really does not have some magical fixed value. Like all commodities, it changes through market forces. Under a fiat system, the change in the worth is very predictable. Under a gold standard, you are controlled by random market factors. Backing your money behind a commodity with prices which change to much--or to a government price fix--does not sound like a solid money system. And, I will post the graph I posted last round. That is not what stability looks like… My opponent again claims the government would be accountable if held to a monetary system. But he seems to ignore the fact the government has ignored the gold standard many times, showing us it is a non-binding contract and does not promote a stable currency. In 1933, FDR ordered all citizens to turn in gold in amounts worth more than $100--the cost was about $20 per oz. The government then arbitrarily increased the price of the gold stock to $35 an oz, effectively increasing the worth of the gold stock and the Fed increased the monetary supply. This means, no matter what monetary system you are on, the government can produce money out of thin air. As the St. Louis Federal Reserve notes, “the gold standard is no guarantee of price stability … price inflation in the U.S. has remained low and stable over the past 30 years demonstrates that the gold standard is not necessary for price stability.” [3.http://tinyurl.com...] In other words, the current system actually seems to provide less of a chance in creating money out of thin air. The gold standard is just as promising as the current system. The government promises to keep the dollar the same worth as gold. Sadly, as seen in the 1930’s, the government can and has ignored their agreements. The gold standard does not require any accountability from the government. So far, the current system is better at doing this. My opponent suggests inflation increases crime. A lot of the research in the area notes how the studies only observed two variables (joblessness and inflation), and cannot “fully capture the criminal behavior” [4. http://tinyurl.com...]. The study also suggests there is no reverse correlation--in other words, reducing inflation seems to not decrease the crime rate. Thus, the relationship between inflation and crime is exploratory and does not lead to any definitive conclusions. The reason inflation led to crime was because, as the authors suggest, it made the lives of people worse to they turned to crime to supplement their income. But this flies in the face of most evidence that a low inflation rate may benefit the economy, and the fact that inflation changes fairly slowly [5. http://tinyurl.com...]. My opponent argues inflation is occurring today. I never said it wasn’t. You should note, however, if prices rise due to inflation so do salaries, mitigating many of the harms. Further, deflation is just as bad if not worse. In Japan, for example, deflation led to two decades of economic stagnation [6. http://tinyurl.com...]. And as noted, some inflation is related to economic growth [5]. R2) History My opponent states English economic growth in the inter-period is likely due to the gold standard. Again, this analysis is totally simplistic and ignores a lot of factors. He ignored that I suggested England was a rising power. It must also be noted England had many inclusive institutions which led to it’s growth [7. Daron Acemoglu and James Robinson. Why Nations Fail (2012)]. Trade with India also became a factor in the 16 and 1700s [8. http://tinyurl.com...]. Again, growth occurred in spite of the gold standard, not because of it. Pro also suggests Spain did not fall because of inflation. I never said it did, this is a red herring. There were many factors in the fall of Spain--all I said was that hyperinflation occurred due to a gold standard, which is a fact. My opponent again shows the growth rates under different periods of time. This analysis ignores other factors. Indeed, growth could have been higher if we were on a fiat system--his statistics do not have a control variable. Studies controlling for this have found the deflationary aspects of the gold standard actually have found that deflation causes recession [9. http://www.coba.unr.edu...]. As his statistics have no control variable, they do not meet scientific standards of proof. When these factors are controlled for, it seems as though growth may have been higher had there been no deflationary gold standard. His statistics prove nothing. Using numbers 8 years after the civil war is a weak refutation. The fact that the US was a growing superpower, that the workforce was increasing, etc. still is unchanged. When extractive institutions (e.g. slavery) end, growth is long term. So growth could have occurred in spite of the gold standard, not because of it. And my opponent states there was a stable dollar, which is totally untrue. In the graphic above you can see throughout the 1800s the dollar was not stable and entered various deflationary and inflationary periods. Stability did not occur in that period--how did it cause growth? Suggesting the panic of 1873 was not due to the gold standard is revisionism at it’s finest. The 1873 panic occurred because we went back onto the gold standard and a deflationary spiral hit the US economy [10. http://nationalinterest.org...]. The rest of the arguments do not mention the recessions and say “over a few years there was growth”. Duh! If you average good years with a few bad years, you will have a positive trend. And it seems as though your historian does not know history, as in 1890 the recession his other gold nations, not necessarily the US [11. http://en.wikipedia.org...]. So the crisis DID occur and BECAUSE of the gold standard, but other factors shielded us from the damage. To argue the gold standard didn’t have some effect on the depression is odd. I never said it was the only factor, only one of them. The most recent peer-reviewed research suggests the gold standard led to a deflationary spiral which lengthened the great depression [12. http://tinyurl.com...]. The Wood’s system was not a ‘true’ gold standard. Many factors existed--such as no other country using the gold standard and everyone else basing their currency off of ours--allowed us to increase the gold stock and the money supply in the post-war economic boom. In the current economy, as conservative economist John Makin argues, this would not work well. In the 1970s, many factors caused this system to produce inflation at undesirable levels which constrained economic growth [13. https://www.aei.org...]. C1) Deflation My opponent takes my advice and tries to argue deflation is a good thing--or at least not bad. As I noted Japan has had 20 years of economic stagnation in part because of deflation. I have also cited research providing a link between deflation and recessions and reduced economic growth in the gold standard period. The evidence suggests it is bad. Deflation in the computer industry is not applicable to the economy. Prices fell because of technological progress causing prices to drop due to market pressures. Deflation occurs because demand is falling and the money supply is contracting. The tech industry does not compare well to the economy as the cause of the price decreases are totally different. C2) Practicality No, this is not how the gold standard works. The money supply must cover the entire money supply [13]. So the government pegs the gold at a certain price either above or below the market price. My argument still stands. Also note the M1 is not as comprehensive as the M2 as it includes far fewer variables. The M2 includes bank deposits and other important parts of the money supply which the M1 does not include [14. http://www.federalreserve.gov...]. Thus my calculations are actually better picture what the money supply is whereas my opponent’s cherry pick a desired non comprehensive dataset and claim victory. And, again, Pro’s calculation assumes we set our currency to the market price, something which did not occur. The government set it to cover the whole currency at rates often different from the market--in this case, it would have to be $40,000. Libertarian Milton Friedman calculates the costs of maintaining a gold standard would be 2.5% of GNP [15. http://www.econlib.org...]. Thus, estimates corroborate my argument and not my opponent’s. Every country had 100% backing. I am not saying you literally have gold at the market price for every dollar as my opponent’s pundit sources suggest. But you would set the price of gold at a rate which covers the entire gold stock. So we could have a gold standard with the current gold reserves--but it would not be practical.