(MIG Tournament) Conservative Showdown #2: Gold Standard

C1: The business cycle [1] His first empirical argument is that of Spain and their exploration of the new world. The problem with this is that Spain was within the deluded mindset of the time known as overstretch mercantilism. This is when, as noted by my opponent, a mother government tries to siphon as much wealth as possible from its colonies. As we know now the effect was disastrous. But now that we know that this would have terrible effects it would be obvious that the U.S. would not do such a thing. The U.S. is not an imperial power with colonies situated within gold-rich areas. Unlink Spain who controlled approximately 2/3 of the New World at the time, the U.S. is strategically constrained from a policy of overstretch mercantilism. As such, the degree and magnitude of my opponent’s empiric would not apply to the U.S. His second argument is that of sea exploration, but as indicated by my opponent’s source: “No commercially viable procedure for extracting gold from sea water has been identified as yet and doesn’t have much hope in the future. …There is one milligram of gold in a ton of sea water which implies that in order to get one gram of gold a million pounds of water has to be processed, which means to get an ounce you have to process 30 million pounds!” His thiird argument is space exploration, again a highly speculative and improbable feat. However, my following analysis should suffice as a response: Gold Mining as Self-Correcting “The general rise of prices in the economy (due to inflation) includes the prices of goods in whose production gold enters as an input (essentially all main industries and GDP producing industries). The result is that a unit of gold employed in industrial processes now yields a net return in terms of monetary goll... and this encourages entrepreneurs to allocate additional quantities of the metal to the production of various consumer and capital goods. The resulting increase in the supplies of these gold products eventually drives their prices down and eliminates the discrepancy between the value of gold in monetary and nonmonetary uses.” Increased Gold Mining “The first criticism is that the supply of gold...depends on such fortuitous factors as discoveries of new mines and technological improvements in the methods of extraction. …oil, copper, wheat, and, for that matter, of all goods produced on the market are influenced by changes in the availability of the natural resources required in their production as well as by advances in technology. Moreover, in the specific case of gold, purely fortuitous discoveries of new gold deposits and of improved methods of extraction have long ceased to have a significant effect on the annual output of gold. The regularization of gold production has resulted from the operation of the market itself.” Essentially, just as other commodities are determined by market forces, such as the fact that companies do not wish to oversupply the market as to decrease the overall value of the commodity, a system under the gold standard would operate according to the same market forces. And, as indicated by the evidence, gold mining is induced not accidental as was the case in the 1500s, like Spain. C2: Threat of deflation [2] [3] My opponent makes the argument that the economy grew despite inflation, and I will not argue that. However, my argument is that comparatively and based on analytic reasoning the economic probability of economic harm is higher with inflation and lower with deflation. The analytic is simple: inflation causes a rapid increase of capital at the top without an immediate trickle-down effect in order to compensate for the rise of prices. Thus, on a whole the bottom is hit worst with inflation. But moreover, my opponent already agreed that inflation and expansion of credit is the culprit of business cycles in the first place. My opponent tries to argue that empirically deflation has been a bad thing, like the great depression. The problem with this analysis is that the deflation leading to the great depression was not true deflation, but rather an economic misrepresentation. The analysis provided by my opponent indicates just that, that deflation was measured only within the decrease of price rather than with a decrease in the money supply. Whereas the Fed tried to inflate, uncontrollable factors such as no multiplier effect (caused by reduction of saved capital) is the reason the money supply shrunk after the fact. In other words, the decrease of overall capital was not the cause, but rather an effect. Finally, he argues that gold might not keep up with growth. Blumen writes, “Economic growth, defined as an increase in the quantity of goods produced per capita, requires the capital to labor ratio increases in favor of more capital per unit of labor. Capital accumulation must be funded by real investment. However, while nominal investment depends on the quantity of money, real investment does not. Any amount of real investment can take place with any amount of money because prices adjust not only to the quantity of goods but the quantity of money. Economic history also suggests the contrary:...the economy grew faster than the rate of gold mining.” But moreover, Salerno’s study indicates that 90% of the time deflation does not correlate to a depression, while on the other hand inflation is statistically much more likely to be linked with a following depression. C3: The chance of war His first argument is that war would be impossible. This is just not the case – the U.S. in dire circumstances like the Civil War could suspend the gold standard temporarily and with massive government approval. My argument is that unnecessary wars and overstretch expansion wouldn’t be possible. Afghanistan could have simply been a counter-terror operation with Northern Alliance and Pakistani assistance, without the need to nation build. His argument nowhere responds to the empirics provided by my argument where empirically the wars under the Gold Standard have been shorter and rarer. Even his examples (War of 1812, etc) are much less in magnitude and timeframe than those waged under a fiat system. N1: Using a formula is superior to the gold standard My opponent offers an interesting alternative, however vague and with no really implementation mechanism except with that of changing the Fed with a computer. The problem with this is that it is as open to political manipulation as the Fed is now. Some group of elite economists and government officials must come up with this formal and must also operate the computer. The advantage of TGS is that it is determined by the market itself, not a group of elites. But, his alternative is much to vague and speculative to be a viable counter-plan in this debate. N2: Transitioning to gold is impractical [4] Essentially, my opponent is arguing that due to the abysmal failure of the fiat system to incorrectly expand economies into bubbles is a reason why we cannot transition. The numbers my opponent uses are all overly inflated numbers in the first place which does not translate to real capital. A return to the gold standard would actually normalize those numbers and have society work within a monetary system not inflated at the baseline. Second, the objection of my opponent assumes a radical and not gradual shift of fiat to gold. As advocated by Mises, a Conversion Agency can be implemented to ensure protection of intrusion by forces such as the Fed. This agency would be independent and work with other agencies to implement TGS in the future. Third, this resolution is only applicable to the U.S. and since other nations are not returning to the gold standard it is possible for the U.S. to increase its gold supply without having other nations race to buy up more gold. [1] Gold Standard: True or False. Basic Characteristics [2] http://mises.org... [3] http://archive.mises.org... [4] http://mises.org...