Bimetalism is better than Fiat Money

Defense Self-regulated currency vs government regulated currency Pro claims that government regulated currencies are subject to human error, and therefore they are bad. The thing is, self-regulated currencies are worse. Yes humans have the possibility for error, but humans are also sentient beings, that conceive and rationalize complex notions. A currency is not sentient, and can’t make rational decisions. This is tantamount to saying, “We should not farm agricultural goods, we should let the food supply self-regulate”. Yes we could forage for food, but it would not be enough to meet the demand. The apple trees won’t produce more apples, simply because there is a greater demand for apples. Gold and Silver are inelastic supplies, which means changes in price would not affect the supply of gold and silver. In other words, just because the demand for gold and silver increases does not mean the supply of gold and silver will also increase. This leaves the monetary supply completely vulnerable to the supply of gold and silver. Developing economies and bimetallism Pro claims that large economies will do better with fiat money, while smaller economies will do better with bimetallism. First off, this debate is not about what is better for smaller economies; it is about what is best in general. Furthermore, the assertion is completely false. While the monetary demand of larger economies requires a fiat supply of money, smaller economies would be hurt even worse by bimetallism. Take for example the American colonies, which I mentioned in earlier rounds. The reason the colonial script was implemented in the first place, was because there were no gold or silver mines in the colonies. When the Bank of North America switched us to the silver standard, Robert Morris had to acquire precious metals from France and the Netherlands, in order to back the currency. Developing countries don’t necessarily have the supply of precious metals to back bimetallism. This severely limits their monetary supply, and their potential for economic growth. Furthermore, developing countries would highly benefit from inflationary policies, and an excessive monetary supply. Inflation encourages imports, while deflation discourages imports. Imports bring capital into the country, which is required for economic growth. Aggregate Output is a function of labor and capital. Due to the law of diminishing returns, the potential Marginal Product of Labor is limited by the supply of capital, and the potential Marginal Product of capital is limited by the labor supply. In order to maximize the output of labor, developing countries need more capital. Because a monetary deficit causes deflation, and a monetary surplus causes inflation, developing countries would benefit from an inflated currency. Thus developing countries would highly benefit from fiat money, and would be crippled by the deflationary effects of bimetallism. Conclusion Bimetallism restricts the monetary supply, and cannot expand to the growing monetary demand. Fiat money is required to prevent deflation. Fiat money can adjust to the changes in monetary demand. Bimetallism hurts developing nations, by deterring the importation of capital, and restricting the efficiency of labor. Bimetallism can lead to deflation, which was the cause of the great depression. The deflationary effects of hard money led to the American Revolution, due to its negative economic impacts.