Throughout the 19th century and up until the Great Depression, the gold standard was used in the United States. It was largely abandoned in the 20th century. But
Throughout the 19th century and up until the Great Depression, the gold standard was used in the United States. It was largely abandoned in the 20th century.
But what is the gold standard? It’s a system for defining the value of a currency in terms of gold. In other words, you could exchange your $20 paper bill for actual gold at one point in history.
Under a fiat money system, such as the one we have in the U.S. today, that $20 paper bill is inconvertible. You can’t exchange it for a backing store of value because there isn’t one.
In this Econ Duel, economists Scott Sumner and Larry White, who both focus on monetary theory and policy, debate the positives and drawbacks to the gold standard vs. fiat money, and the role of central banks.
On the side of the gold standard, White argues that, when properly implemented without a central bank intervening, it provides a more predictable price level and lower average inflation.
Sumner, taking up the banner for fiat money, argues that the gold standard is simply a rule that worked well in the 19th century and that a good fiat money system is, for this day and age, a better alternative.
Who won this Duel? Do you feel like you walked away with a better sense of the complexities of monetary policy? We’d love to hear from you! Let us know what you thought about this Duel in the comments.
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Fiat money system requires more intellectual, intelligent, trustworthy and professional system to work in regulated central bank with adequate check and balance system.
Gold standard is a simple self regulating system.
Can we afford to go back to gold standard? Can we suck out the money created out of thin air? Can we just clean up the huge debt created by fiat money system? To go back to gold standard a single economy (country) cannot decide on its own. It has to be a unified decision worldwide at least by the big economies. What will have to countries with no gold mines, they are put at disadvantage though their human capital and industrial production might be very good?
Can the US afford it? Maybe as a first step. If other countries started to buy a lot of gold, that would bring the price level down in the US. With sticky wages, that would mean a small risk of unemployment, and a small effect per American good, with the US being so large. What would be the gains? Great point about debt. It would be a commitment device. The US government has also increased its debt because the option to monetize the debt (print money to pay it out) has been on the shelf. People fear deflation due to the Great Depression but they should also worry about a large debt to GDP ratio.