Econ Duel: Fiat Money vs. the Gold Standard

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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[@MidNightStudiosFilms]

When was the last time you saw such a civil discussion.

[@enriquepadilla2542]

Seriously. This was great

[@matthewwynn3025]

Very refreshing to see

[@tayk-47usa41]

its because its scripted. How dumb can you be

[@bee_irl]

@@tayk-47usa41 Does that make a difference? It's still a civil discussion.

[@bookworm5464]

I watched the basics here. kzbin.info/www/bejne/f5KnpWyKbKd5aZo

[@UnchainedEruption]

"Have we had a well-run fiat money system you can point to?" Best line of the debate

[@shakkamannaka6618]

And Sumner's answer was: "Yeah, between the early 80s and the early 2000s in the US", and he would've been correct in saying that.

[@UnchainedEruption]

shakka mannaka 20 years out of 103. Not a very high track record.

[@shakkamannaka6618]

Karl Hiramanek That's true. However, institutions, like people, improve and learn over time. And a Federal Reserve with a Nominal GDP-target could have very positive effects on growth in income and prices. Furthermore, whilst there are no perfect monetary system, a lot more potential problems follow a gold standard, than do a fiat-currency system. For example, whilst it is true that inflation over very long periods of time under the gold standard, was more stable, inflation/deflation on a year-over-year basis was much more volatile.

[@UnchainedEruption]

shakka mannaka "The Fed also contributes to chaotic boom-and-bust cycles like the most recent crash of 2008. The Fed’s expansion of credit and bank reserves distorts the entire system of prices and production, creating a quick, but artificial, 'boom.' But when the inevitable credit expansion stops, the misallocation of production and capital become more obvious and the recession, or 'bust,' sets in. When the necessary readjustment and liquidation is needed, the Fed then steps in and pumps in more credit, masking the problem even further."

[@shakkamannaka6618]

Karl Hiramanek To your first point, there were massive booms and bust under the gold standard as well, such as The Depression of the 1870s and The Panic of 1907. Booms and busts is the bi-product of any financial system. To your second point, that is the Austrian theory of the business cycle argued by Von Mises and later Hayek, which was since been refuted by Milton Friedman.

[@gtlarson13]

You should do more of these head to head guest features. There are a lot of experts who could use a platform like this to plain-language communicate their ideas with context. Good series.

[@MarginalRevolutionUniversity]

Thanks Greg! Anyone come to mind that you'd like to see duke it out? -Roman

[@Brandon_letsgo]

@@MarginalRevolutionUniversity Hey guys, how about a video about Venezuelans doing barter? People down there is living like the cave man. I just saw a formed electrical engineer turned into baker trading bread for cleaning products. That's REALLY SAD. Hope you guys come up with a video on that.

[@combatfanatic812]

@@MarginalRevolutionUniversity Would this be exclusive to just GMU staff?

[@davidjoseph7185]

@@MarginalRevolutionUniversity no one I'd rather see 'duke it out' than Tyler Cowen and Richard Wolff.

[@tomjung4960]

near the end "so basically the government will do whatever it wants regardless if there's a gold standard or fiat" "yep"

[@pixelmasque]

2016 : "we could also do fiat money right.." 2022: except, we didnt.

[@iwrn33]

Best comment here

[@Jd-tu6oz]

Watching in 2024, oh boy

[@kylegene7359]

I honestly am still working on which side of the argument I side with more. But after watching this I am now more inclined to agree with the Gold Standard argument then I was before I watched this. Thanks Larry White!

[@bighands69]

Gold standard is simple. It means prices remain stable and inflation is low. During the gold standard inflation was at about 1% average high. Think about this during the gold standard in the 1950s and 60s an average American could buy a Buick for $3000 to $4000. And that car would have a high standard of build that would be on par with a Mercedes. American cars after the gold standard started to decline in quality were now a $50,000 American car will be full of cheap plastics.

[@2killnspray9]

@@bighands69 I don't know if there was even real inflation. Since with gold standard they could create deflation to lower prices and revalue money

[@bighands69]

@@2killnspray9 Governments are not as adept at playing with inflation as people think. Now my argument is not completely in favor of the gold standard but it has advantages. It has a better price stability on currency exchange which means trade is more stable.

[@2killnspray9]

@@bighands69 I agree on what you say about cars but also I think if nowadays car are made of plastic it's (not only because of oil lobby (plastic is made with petrol)) but also because iron cars didn't absorb shocks easily. Even though it looked good. Just look how the number of deaths was divided by 5 on roads while population was growing. It's not only airbags I'm sure. But anyway. What's the real advantages of not using gold standards?

[@bighands69]

@@2killnspray9 Death from auto accidents are a higher rate today than in the past. Not buying the safety argument.

[@maxduvall9055]

It sounds to me like the two points of view here are that a fiat system is really valuable when we(the government) can run it right and it hasn't been running right yet. And the other one being that it was already running right and if it hadn't been meddled with it would have worked perfectly.

[@toybokz]

Solution: no government

[@alpardo7022]

That seems like the same argument for socialism, i.e. it just hasn't been done right. But, like socialism, a fiat monetary system will never work in the long run. Like socialism, it never has, because the idiots we elect to run the system are corrupt and dishonest. They will always inflate the money supply so they don't have to tax the people. The Fed has failed miserably in it's stated reason for being, i e full employment, and stable prices, and it will always fail. The marketplace should always set these factors.

[@OverThink]

@@toybokz It would be chaos. Humans need rules. But less power to the government absolutely, they shouldn’t control the money.

[@toybokz]

@@OverThink just because you need a master does not mean everyone else does.

[@toomanymarys7355]

@@toybokz You need one.

[@josiahwillemse3514]

I think Larry White made a better case for the gold standard than Scott Sumner made for a fiat money system.

[@MichaelSzemethy]

sounds like banks and governments are the problem in our economic system... How do we eliminate their interference in our economy?

[@bighands69]

A gold standared would be one of those ways to stop interference.

[@emperoralvis6559]

Michael A) stop following police orders B) stop letting the IRS steal from you C) the banks will dissolve on their own into smaller branches because there’s no bailout for them

[@luvphilter]

Buy Bitcoin.

[@matth23e2]

welp unless you have cash for everything and never have to take out a mortgage, car loan, etc. you really can't.

[@kellohey8624]

Bitcoin

[@AlexWolfChannel]

It was “pretty well run” for 20 years?! A quarter of a lifetime??

[@matth23e2]

the gold standard was also temporarily removed during the great depression and other economic downturns, it helped the economy recover

[@pixelmasque]

a sliver of time. all fiat currencies have collapsed through history (ray dalio, changing world order).

[@toomanymarys7355]

@@matth23e2 The government interfered to prevent the deflation that would have rapidly ended the Great Depression almost immediately.

[@chrisbrowy929]

@@toomanymarys7355 how would deflation have ended the Great Depression? If the Fed kept money looser, it would’ve been less bad :)

[@chrisbrowy929]

@@pixelmasque let’s make a bet to when fiat currency is going to crash! what odds do you want?

[@shahub5]

Gold definitely won this debate

[@Cotswolds1913]

There is a difference between deflation as a result of the shock effect from a major recession, versus steady & sustained deflation as a part of the long-term economic climate. The former is not fun, but necessary to heal the economy in my view, whereas the latter is most definitely not something to be feared, quite the contrary.

[@TXLionHeart]

It is self-evident that the gold standard is the gold standard for money and monetary policy.

[@TXLionHeart]

@@jakesanders136 I don't; isn't that self evident?

[@jacke1862]

Great debate - very interesting and insightful - thanks for putting this up!

[@aminozuur]

I enjoyed this calm conversation. I hope to see more of such discussions!

[@yicancu56]

@marginal revolution university: is there a way to find an hour long + debate about this?

[@MarginalRevolutionUniversity]

I'm not aware of one. I wish it were a more popular topic of discussion! -Meg

[@peachyprotist]

I love the style of this delivery. Very good.

[@elmikatv]

So far best video on both topic! More videos like this would be awesome in youtube! Conclusion: The problem is government. Over time government have temptation to "slack off" whether it is fiat or gold, first they start bending the rules (gold and silver standard was written in our constitution) then they start over using their power (create money out of thin air) result is always disaster... So is this never ending cycle? When we will learn from our mistakes? How can we transform the true wisdom to other generations?

[@Cotswolds1913]

I love this style of debating, really quality video.

[@jonah11111]

This has aged like fine wine for the pro gold argument

[@conservativeguitarsingerjs7937]

This is so refreshing to see to people actually act like adults and have some level of mature civil debate. This is nearly unheard of. Two very intelligent people trying to not win an argument but have a discussion. They must both be conservative

[@nicholasbates1502]

my question for Mr. Sumner is, why work so hard on the prayer that an agency with the track record of the Federal Reserve might maybe possibly do it right in the future? Economic mirrors Public policy in the fact that, like government, the less central power the better. Our economy was, historically, vastly more stable with free banking and a gold standard. It was self regulating. Why trust that some people with power will do better when we know they can't?

[@PopStevo]

You should consider Sumner's idea of NGDP level targeting as a first step to rolling back government in general (and government intervention in banking in particular). The kind of monetary regime he proposes is just a tweak of the current regime so politically much more feasible than the much bigger undertaking of going back to the gold standard. Incrementalism is usually a good thing when it comes to any kind of policies. And it does seem very likely that just this small tweak would guarantee macroeconomic stability. This means no more Great Depressions nor Great Recessions and this in turn means no more public outcry for social safety nets, public spending etc. It also means much more political support for market based reforms and rolling back previous statist intervention. Once you have macroeconomic stability, you have financial stability and you can deregulate the financial industry etc. And after having peeled enough layers of regulation you end up with exactly what you want - free banking - only incrementally. I am a free banking supporter (even ancap xD) that started out with the Mises Institute's view of the gold standard being the best. Then I listened to Sumner's arguments in more depth. They made sense.

[@KennethDuda]

Nicholas, have you looked at NGDP level targeting? It would greatly reduce the Fed's ability to make mistakes.

[@nicholasbates1502]

It doesn't matter. A central bank and fiat system is fundamentally flawed. A centralization of power also means a central point of failure and exploitation. We've had more economic crises under this system than we ever had under a free market bank and gold standard.

[@KennethDuda]

Commodity money is also fundamentally flawed because the monetary cannot respond to demand shocks to the medium of account. Again, I think it's worth at least looking at NGDP level targeting before concluding it can't be right because fiat money isn't perfect. Commodity money isn't perfect either.

[@KennethDuda]

The fed targets both inflation and unemployment, which complicates your statement about "that 2-percent inflation rule". But even ignoring that subtlety, I don't understand your comment. Do you feel the Fed has been failing to keep inflation under 2%? Is that because you don't believe the BLS? The data shows the Fed has kept PCEPI inflation near 2% for at least 20 years. fred.stlouisfed.org/series/PCETRIM12M159SFRBDAL

[@RiverSLV]

The simplest way to explain our monetary system is this: 1. The fed has a checking account with a balance of 0.00 2. The US treasury sells bonds (loans) to the federal reserve 3. The federal reserve writes a bad check (prints money) to pay for the bond 4. The fed just essentially created the ONLY dollars that exist and expects to be paid back WITH INTEREST. See a problem yet? 5. The US can not pay back those bonds because there doesn't exist enough currency to pay back anymore than the interest. 6. The US sells MORE BONDS to the fed, like a 16 year old girl with daddy's credit card. 7. Why does the fed allow this? Because it allows them to essentially own countries without ever accruing any assets. The assets simply come to them because they have been given power by the government. This isn't some conspiracy theory, it's not some crackpot story about lizard people and the moon being flat or whatever these hippies are on about these days. It's a simple ponzi scheme that has been going on for over a hundred years and accrued so much power and trust that it can not be dismantled easily. Ever heard of anyone that's written a bad check? Yeah? And they either got caught or got away with it right? Yeah? Well this is simply a case of somebody writing a very very large amount of bad checks and getting away with it, because everyday billions of people tell each other and believe that those checks are good! There are inherent flaws to this system, it will destroy itself the same way that every other fiat currency has, through the price discovery method (which basically means that people come to a realization of value based on scarcity and that dollar is as scarce as oxygen). Go read putting it simply, from the boston federal reserve. Straight from the horses mouth, they admit all of this stuff. They admit that a large amount of their transactions are not on their balance sheet, they just know that most people are too stupid to care or do anything about it.

[@matth23e2]

Mmmmmmm well when you get a loan from the bank they also create money, one side of the balance sheet they put a house, and the other side they put -$ the price of the loan, that $ is new money in the economy until the loan is paid back. the problem is stagnant wages despite people buying more and the government spending more money and having to take loans. if the government can grow their revenue faster than the debt payments we're good but if they dont itll be bad. also not 100% sure but doesnt the fed have to buy bonds at whatever interest rate? if so they'd have to buy them below inflation right

[@Floccini]

Great debate. My question: In a Government money system do people want to hold more cash and equivalents in fearful times because they have too much faith in Government where in a free banking system people would want to get rid of bank issued money, buying real assets, in fearful times?

[@jstock2317]

"It would be very difficult." "It's difficult to do nothing?"

[@itssteve6018]

Yea, this was an awful point. And regardless, just because something is difficult doesn't mean its not worth doing. Most meaningful things are difficult, but we do them because they are worth it. The only real question is what is the right thing to do.

[@bruceshowalter6046]

What is easier to create[or destroy]? Paper, a unique prime number, or a relatively rare natural element?

[@JayDeePLUS-BEATZ]

Fantastic debate

[@stephend.c.5048]

Does a nickel times a nickel equal twenty-five sense or a quarter of a penny or two nickels?

[@rudy8409]

All fiat currencies throughout history have failed whereas gold has maintained its prestige as a store of value.

[@OregonBacon]

Wow, I've been looking for something like this for a long time! Wish we could get a Republican and Democrat do post a logical conversation on their thoughts, even if a "Mediator" was injected to help them both find a common language as a foundation for a conversation.

[@davidreichert9392]

Looks like it was a good debate, but unfortunately it's been so chopped up and edited it's hard to know how it really went.

[@tacosalad1113]

Ricardian Equivalence would be great to have a video on.

[@gautamtaneja7823]

The last statement sums it all

[@taylorwickham]

I think it would have been interesting if they brought up the Petrodollar System and how it affects the dollar as a fiat currency.

[@pixelmasque]

yes that is what has sustained the dollars position, but that is falling apart and will continue to do so the next decade as countries like Inida, China are dealing in Yuan for oil now.

[@taylorwickham]

@@pixelmasque exactly. If only politicians actually had actual economic knowledge and took matters like this into consideration instead of just ignoring it until it's too late.

[@aaron159r2]

It seems like either gold or fiat system could work, as long as the rules were strictly adhered to and interest rates were allowed to free float without central bank intervention.

[@toomanymarys7355]

The only reason to do fiat is central bank interference.

[@bernardsanderson5891]

Yeaah they’re a very libertarian “university” but they still have some good educational content.

[@alanjavari4067]

I feel like this should have had Duel Of The Fates playing in the background

[@mikerobb6701]

Between 1980-2000, the price of gold fell from $450-260. The fiat system DID work great in this period, but that was because interest rates were positive. As of Mar 11, 2021, the fed funds rate is 0.07%, while inflation is 1.68%. Between 1980-2000, fed funds averaged about 7%, while inflation came in at about 3.5%. Negative real rates do nothing to create productivity gains, which is how living standards increase, but they do drive up asset prices, things like homes and stocks. I can't imagine all economists don't understand this, which leads me to believe they simply don't care.

[@michaeldavis243]

Larry White is the man!

[@abhilashkhajuria]

Sir please a detailed video on Demonetization

[@noontimespender]

Not quite a duel, this would be more fun if they fenced.

[@acdchennn]

Watching this in 2022 hits different

[@montanaprime]

I am with Professor Lawrence on this one, Gold is predictable, because you have to actually have Gold in reserve not speculation

[@cs_timberwulf4576]

If only politicians could debate with one anther like this.

[@jasonmcphee]

Sumner mentions deflation as a bad thing. I guess this draws on the argument of sticky wages. But why does this have to be the case? It seems that economics should be used to enlighten us, not trick us. Why don't we make the push to educate the masses that it is normal for wages to float in response to supply and demand and not simply to always be going up nominally? It seems that clear signals should be what we are after, not rigging the game to trick the masses to move toward our ends.

[@bighands69]

Under a gold standard wages would remain the same as they would not devalue and purchasing power would increase. one of the few things we have seen in the last 40 years to follow this trend is computers. They have got cheaper and cheaper.

[@douglascarlson9006]

Yes, this was pretty good. But as things now look, we will have no choice but to reinstate the gold standard. The only question that lingers is this: when the SHTF, will the govt act swiftly to maintain order or will they let us languish for weeks or months before taking action?

[@bountypicker]

They need to redo this in 2022.

[@BipinRamachandran]

I think the argument that 'gold staandard brings predictability in prices' will be true only at the expense of growth. In order to have fixed prices (0% inflation) or a desired level of inflation; the amount of additional goods and services created should be proportional to the amount of additional monetary base created. With gold standard, we're limited to the rate at which new gold is created; if an economy is able to outperform that, there will be deflation since monetary base can not catch up with actual requirement of money. This will be a disincentive for further growth and economy will correct itself to a lower growth path to match monetary expansion.

[@Sergio4Economics]

Under fractional reserve, banks would be able to adjust their reserve requirements in order to respond to a higher demand of money through aditional bank notes and deposits. And since productivity growth is usually slow, deflation would be gradual.

[@JosefFurg1611]

There can be a lot of growth over the amount of gold in circulation without massive deflation, see what happened during the 1800’s when there was very high real output growth and low deflation.

[@AJRodriguezChannel]

@@JosefFurg1611 That was the 1800s. World population has exploded since then. The growth of the population alone necessitates more currency. That’s just one variable. But gold? It’s a very finite material. The longer you stay on a gold standard the less desirable it becomes because we’re tying an ever growing civilization to an asset that will run out eventually. In order to make this standard last, each dollar will be worth less in gold over time. Eventually we reach a point where it won’t be worth basing our currency on gold. Not to mention gold is used in other commodities, especially in electronics. This would further deplete the amount of gold. And if we’re really being technical about it, we only value gold because we think there’s an intrinsic value to it. When there are plenty of better metals out there. So, in a sense, gold itself is a fiat system with extra steps.

[@pixelmasque]

@@AJRodriguezChannel rubbish. total crap. Gold is extremely valuable and sought after in all industries, its finite nature also leads to a maintenance of value versus the fiat constant increase in supply watering down its value and creating huge inflation surges leading to the bullshit cycle we are in now. The fiat system is one of greed and avarice. The gold simply stabilizes price growth and leads to smaller peaks and valleys in inflation.

[@toomanymarys7355]

The British Empire thrived during a deflationary period. Your phone and computer and TV have all deflated in price. Does it mean you buy fewer phones with worse features? Stay with a CRT because the LCD will be cheaper next year?

[@TheGeneralThings]

What about panics from bank runs? Wasn't that a major reason why the Federal Reserve was created? To mitigate those kinds of situations? What would happen if there was such a panic while under the gold standard in today's economy?

[@tonidepoli]

That's a difficult counterfactual. But you should know that the crises you refer to were not experienced in other gold standard countries. They were results of peculiar U.S. banking laws. The Fed was also a rather poor solution. See object.cato.org/sites/cato.org/files/pubs/pdf/pa-793.pdf

[@bighands69]

The crisis were only crisis for the banks and politicians who wanted to try and control the market place. The average citizen could still use their gold to buy products over long periods of time with a good understanding of price. The gold standard does not stop recessions of bubbles from occurring and if the Fiat currency was introduced to stop these panics then it has failed miserably. In the fiat system there has been several high profile panics most notably the crisis of 2008.

[@miguelon1995]

Sound Money > Fiat currency #Gold & #Silver to the 🌕 baby

[@Jackintheboxandmary]

Would Bitcoin change anything?

[@emperoralvis6559]

My problem with bitcoin is that it seems very possible for Satoshi Nakimoto (I hope that’s how you spell his name) to increase the supply of Bitcoin past the promised limit which is 21 million. That would affect its value greatly

[@fakeapplestore4710]

smooth Hawley act

[@andrewyork3869]

My question regarding a new gold standard is how would digital money work? Namely debt cards....

[@adrianmunoz4514]

The same, it’s like the concept of checks, the money you use on your debt card if it was on a gold standard would be somewhere at a bank, when you swipe your card and buy something the ownership of that money transfer over to the new owner.

[@gustavop5706]

I think the austrian were always right, excellent video, World economy will be massive again only when governments keep aside money issue and individual liberty in general. LONG LIVE TO GOLD STANDARD

[@jhoanrivero7885]

THERE ARE A LOT OF GOLD IN OUR SOLAR SISTEM

[@FreddieBroodman]

What I understand from both gentlemen is that both systems have pros and cons, but the real problem with both systems is mismanagement by governments. I like to add that banks are also responsible for some of the economic problems we ran into. What we really need is a gold standard of morality and good governance among politicians and bankers. But history teaches us that money and power will always corrupt the hearts of men/women, so we have to punish/penalize willful corruption much more sternly. Now people in banking and government make decisions that ruin the lives of many, even causing the deaths of many, but they still walk away in many instances without any punishment and in some instances even holding on to their bonuses and severance packages! That is obviously totally insane. When someone makes a deliberate decision risking the lives of many for personal gain, such a person should even be eligible for the death penalty when they cause the deaths of many with their corrupt decisions. I’m a novice to this entire topic, but as I understand it, the reintroduction of the gold standard would be very unfair to poor nations that have little gold reserves. When money is automatically tied to gold, they are basically condemned to a perpetual state of poverty. Then past colonialism permanently stole the wealth of the West from their past colonies by stealing their gold. Then the inhabitants of those nations would be justified to all move over to the West and completely destabilize the economies of the West. I have many questions about all of this, but my first impression is that a return to the gold standard would be a very bad decision.

[@kloc072386]

Watching this in the era of covid January 2022. Lol

[@TheSilverSmitih]

+1 for gold standard

[@jackculler1489]

I wish we return to the Gold standard

[@jessecox8486]

I would like to interject that gold has also developed other uses in modern times. There's more demand for it as it goes into our electronics, medical supplies, and even food. Going back to the gold standard would be disastrous, as its price would be a constant rollercoaster.

[@8redDEATH2]

Yes finally someone else pointed it out. I've been trying to find someone to explain to me how going back to a gold standard with work now that we use gold in so many things. I have yet to find someone.

[@bernardsanderson5891]

@@8redDEATH2 am I dumb for questioning if there is even enough gold available currently to back currency on?

[@Bjswac]

So the best years of the fiat money were the Reagan/Bush years were most people wanted to return to gold standard? interesting.

[@bighands69]

Your point makes no sense at all.

[@IAMACollectivist]

When the US was under the gold standard without a central bank the economy was absolute dogshit.

[@Grioki]

@4.28 @6.34 @7.41 @8.09

[@pmannino5]

I wish Scott had been more specific about the fiat regime he was advocating for. Larry was defending one specific commodity standard that existed for a short time in the 19th century, while Scott seemed to be defending all fiat regimes. If Scott had focused on his market driven fiat regime proposals, Larry wouldn't have had a point about central bank screw ups since Scott's regime would have had monetary policy set by the market and not by the central bank. Then he could have made other points about how fiat regimes can more effectively stabilize nominal output than the gold standard, and how gold standards require high degrees of international cooperation, while fiat systems do not.

[@mattfaith5277]

IMO it depends on the real resources available in a fiat regime (or a gold standard for that matter). Do you have the people, land, resources to provide what a society needs, how much of that demand needs to be imported etc.... IMO Fiat gives one the greatest flexibility assuming there are ample resources, and those resources are well organized that you can get needed output. Gold standards were often dumped because of the need to fully mobilize real resources to fight wars, and fiat gave the most flexibility to do so. Gold standards are like currency pegs, it works until it doesn't - and it often doesn't in the long run.

[@KennethDuda]

Amen. There are lots of bad ways to run a fiat currency regime. Of course the central banks of 1933 proved there are also lots of bad ways to run a gold standard.

[@mr.laqueash169]

we almost went back to gold a few times

[@Parallax5x5]

Spot on balanced discussion. 21st century, yet human psychology has not evolved much from 4,800 years. Human history means current GLOBAL tensions, does NOT augur well. "I am NOT you, so why do unto others, someone has to be the slave" now economic slavery is the highest in recorded human history, on laws to free slaves. Ahhh human psychology and extreme ignorance. The world is unfolding exactly as it must since we learn from experience not taking without the wisdom of experience.

[@patrickt873]

We are very close to the breaking point to the faith in FIAT which is all base on faith. The 80s, you had Volker and Reagan. Who is brave enough to raise rates to even 3%?.

[@eatafox]

Fiat money has alwase just sounded like the government saying "I can run the economy better then the economy can run itself" and that level of hubris is babylonian.

[@denmark955]

I guess I'm late here, but a quick comment. By "well functioning fiat money system", I am referring to one that leads to low and stable NGDP growth. By that criterion, I believe that the period from 1984 to 2016 in the US is superior to the period from 1879-1914. However I cannot be certain of that, as the NGDP data from the earlier period is not all that reliable. I also believe that a badly functioning fiat money system, such as 1966-82, is better than a badly functioning gold standard, such as 1918-33.

[@ManuelLopez-ep5jd]

This fiat vs gold debate seems very 20th century. What are your thoughts on bitcoin?

[@bighands69]

+Scott Summer You are making a classical mistake in your assumptions. You are taking productivity levels of 1879-1914 and comparing them to 1984 to 2016. It is like saying that the computers of of 2018 are more successful than 1965 because of the fiat currency that is in place. Food in the 1980s was far more plentiful than it was in the 1880s and it had nothing to do with currency. Currency prices during the last gold standard remained at $35 for nearly 30 years but once the gold standard was ended prices went from $35 to $185.

[@richardsalsman2769]

Wow. You (Sumner) herald 1984-2016 as the paragon of the U.S. fiat paper money regime over 1879-1914 (classical gold standard, no Fed), even though the U.S. federal deficit averaged -3.1% (and occurred 88% of the time) in 1986-2016 versus an average SURPLUS of 0.2% (and deficits only 31% of the time) in 1879-1914. A regime of central banking and fiat paper money exists not because the gold standard or free markets failed but because its purpose is to finance profligate government.

[@gabbar51ngh]

@@ManuelLopez-ep5jd Bitcoin isn't stable enough to be used as Currency. Also you can't really pay taxes in Bitcoins. It's a hedge against inflation. That's it. Central Banks don't really accept Bitcoin so it's better to go back to gold vs fiat. Bitcoin is attempt to create digital gold when in reality it's just a limited digital fiat. There's no guarantee other cryptos won't takeover. Gold has outlasted longer and fiat can already be used digitally. So Bitcoin is quite irrelevant here.

[@MrDANGitall]

OK,I guess I should run my household budget on a debt-based fiat system......

[@jamesprouty8711]

Freinds, there are three things finite in ou lives. Time is the most valuable.

[@spaceball1380]

Ultimately what you are saying, is in order to have a functional fiat or gold system you have to trust the government to manage it probably…In that lies your/our problem. All government employees are bought and paid for and are only out for their best interest. So how do you deploy a monitory system when the management can’t be trusted. Either system will fail given our current government.

[@markstaddon4993]

Its trend has.changed now

[@cyberjunk2002]

Something interesting here is how it started teasing apart fiat money from central banks, when I think most people think of them together. What I don't understand about the gold standard is how does it differ from a fiat currency but with a) no central bank, and b) strict controls on government creation of money. A gold standard is odd in that it's basing the global amount of currency on how much gold can be mined out of the ground, which can vary significantly over time (and seems pretty arbitrary). Also, gold's "inherit" value primarily comes from people's desire for gold-made jewelry, which can also change over time.

[@BaremetalBaron]

The answer is quite simple: we can't print as much gold as we want whenever we want. The sheets of linen/paper that fiat money are printed on are worth a fraction of a penny, and can be produced in huge quantities whenever we want, devaluing the currency. In fact, we don't even *need* the paper since we can "create" fiat money by just changing a few numbers in a database or spreadsheet somewhere. But this produces no actual value. It's functionally stealing from the people. You could try and limit the government's power to do this on the honor system, or you could make it something they physically can't do. While the supply of gold can vary over time, there is a physical limit to how much gold we can mine in a given period. Also, we're running out of gold to mine, so we may soon reach a point where the supply peaks. And gold is an actual commodity that people want for other reasons than money (such as in electronics/printed circuits), so mining it actually increases our wealth in real terms (more jewelry, electronics, gold for scientific applications, etc.) Second, with a classical gold standard, you don't need the government involved in money at *all*, people simply trade the money metal like they would in any other barter situation (I'll give you a TV for one kilo of gold), and people shape them into bars or coins for convenience/weighing purposes, with paper money being reduced to simply a convenient IOU to avoid having to lug a bunch of gold around.

[@fridgeometer]

Needed to be louder. Full volume on iPad while exercising is marginal,

[@bonkers420]

I never heard anyone discuss bit coin or block chain currency could you talk about that in future episodes?

[@bighands69]

They are just the same as fiat currencies only far more central in design.

[@cfroi08]

Guys I know you think inflation is bad, but without fiat how can we have an awesome loan system?

[@KennethDuda]

I know what Sumner means by a well-run fiat-money system. I understand NGDP level targeting, using market forecasts to guide central bank monetary actions so as to maintain a socially desirable level-path of NGDP. But, I do not understand what White is talking about when he talks about a well-run gold standard. Historical gold standards have had all sorts of problems, from debasements to bank runs to the great depression. White is probably right that central bank gold hoarding led to the great depression. But that still begs the question, what does a well-run gold standard actually look like? Is he referring to Selgin-style free banking? Or something else?

[@MarginalRevolutionUniversity]

Yes, White and Selgin are both in favor of free banking. -Meg

[@KennethDuda]

I've tried to read about free banking, but I keep getting stuck on the argument that the incentives around private money creation would actually result in a socially desirable path of NGDP. I see the incentives for each bank to cover its hide, but not for the overall monetary stability. In a crisis, I'd think there'd be simultaneous hoarding of the underlying commodity and also a sudden reduction in the multiplier, both exacerbating the crisis. Can anyone explain the counter to me? How would free banking do better than the disastrous Fed policy of say March 2008 to March 2009? Or is there a coherent argument that you would never have a liquidity crisis under free banking? If so what is that argument, other than that Scotland never had one in the 1830's or something. Meaning, I'm looking for a systems or logical approach, not one based on claims of historical performance from before the age of the steam engine let alone high-frequency trading.

[@KennethDuda]

William Luther Is there a Cliff Notes version? A discussion of this subject on Sumner's blog has me convinced that not even free banking advocates believe that free banking leads to short-run nominal stability; instead, they view the Fed as an infinite source of horrible policy errors ("the market can't be any worse than the Fed we actually have"), and/or prefer emergent market behavior over government tyranny for ideological reasons, and/or believe the guarantee of long-run nominal stability (that you get with free banking due to the physical base money supply limitation) is worth whatever short-term pain you might get from the lack of a monetary authority to absorb money demand shocks.

[@KennethDuda]

Thanks, William. You described free banking concisely (which I already understood) but not why it would lead to nominal income stability (which is what I was trying to ask about.) At this point, I don't believe its advocates think free banking would provide nominal income stability. I think free banking advocates believe free banking would do better than our current monetary policy regime, because of fewer policy errors, better predictability, and/or a hard guarantee of long-term price level stability. I am concerned about money demand shocks, and feel NGDPLT would significantly outperform free banking during a money demand shock, and would perform similarly otherwise. But George Selgin is on this thread; maybe he can help set me straight :-)

[@KennethDuda]

Thanks William. George just made a similar argument to me in email. I'll make another attempt to digest how free banking leads to spending stability (PY or PT). Can I ask --- why PT? PY seems like a better target. Suppose that today, my company builds Ethernet switches. Tomorrow, my company divides in two, one that produces switch software and another that produces the final product. In between the (now) two companies are lots of transactions (trading software for money). The real activity is the same either way, PY is the same either way, but PT becomes larger as businesses subdivide. A PT target would force monetary contraction in response, which does not appear desirable.

[@3cialo141]

Crypto Assets baby!

[@emperoralvis6559]

Which are powered by silver.

[@rogueraven1333]

Definitely need to return to gold not as just a standard but physical coinage the constitution of the united states even says only Congress shall have the power to coin money and it shall be of silver and gold

[@johnfortes2171]

It seems to me that if the value of gold goes up - those who hold gold would have more to spend. More spent would raise GDP being better for all with more jobs. We just need to keep the Fed AND the banks OUT of the picture.

[@gb-dt3vk]

The guy with the beard said " the genius of the gold standard is that it doesn't require a Central Bank. " Does anyone think that big government could ever get on board with this free market idea?

[@crsmith6226]

I know this is old now but something that we see that can truly wreck a gold standard economy is a large influx of gold into the economy: the classic example is Spain after the conquest of Central America and Peru. We also saw that with Mansa Musa during his pilgrimage. In the future we could see a similar influx with space born mining.

[@99slayer99]

I wish these guys could see 8 years into the future. Perhaps they would both be debating for the gold standard

[@brianf7087]

Gold will take out the Fed

[@1080lights]

Targeting of currency supply to actual production seems, imperfect as it can be, seems to be more valuable than tying it to a supply of an arbitrary shiny metal.

[@pedroneves5864]

theres more stars in the universe then gold in our planet. so i vote for a Star standard

[@user-zz3cm5bf7f]

Omg omg omg sooo call cool!!!

[@jasb1441]

let's see I don't like the way Larry White discusses. A duel is not about interrupt the other side and avoid it express its ideas. Second gold standars CAN create economical crisis too. I'm pretty sure, as economist, he has lernt about the panic of 1873, the long depression 1873-79 which destroyed the 33% of USA economy, he surely know about 1882-85, 1890-91, and specially the 1907 panic which led the congress to create the Federal Reserve. So basicly he's lying.

[@jacobwhitus3715]

So much for targeting inflation. 😂

[@WilhelmFreidrich]

I like the gold standard because gold is shiny. I have never seen a shiny fiat, so checkmate.

[@vaibhavgupta20]

I could not understand half of the things they were talking about.

[@bighands69]

I would recommend that you start with Austrian economics. It is a way of thinking that you can understand without having to get your head around the whole national economy. Austrian economics is a philosophy that you can understand on its own.

[@gabbar51ngh]

The guy defending fiat is a monetarist, think of Milton Friedman while guy defending gold Seems to be Austrian economist.

[@PoliticalEconomy101]

Hello Economists, I have some questions about the gender pay gap: 1) When economists state that occupation accounts for ~30% of the gender wage gap and industry accounts for another ~20% of the wage gap, what exactly are they measuring: differences between men’s and women’s occupations or differences between men and women within occupations? 2) Would you please explain the logic behind the occupational and industry estimates with a concrete example? 3) Since occupations are subsets of industries, is there double counting? How do you parse occupations and industry? 4) How do economists estimate the impact of occupation and industry variables on the wage gap? Thank you very much for your reply, Charles

[@bighands69]

The gender wage gap is nonsense. It is like saying there is a wage gap between male Brain surgeons and male bus drivers. If you said that to anybody they would just laugh at you but guess what it is like saying the same about women. I would recommend that you study statistics and start from there. 20% means nothing you have to understand the base figure such as dollar amount first of all. But how does the price of apples and oranges compare. Your question is like asking is there such a thing as god. How could anybody qualify such an answer to you.

[@emperoralvis6559]

There is no “wage gap” it’s an earnings gap. With zero other factors in play, yes women make on average 23% less than men. However when you account for longer hours, position, vacation time, etc. You see the reasoning behind it is because men are usually more involved with their work, they don’t take time off to have kids, they don’t go on vacation for as long, etc. It’s clearly just a difference in average earnings. If it was legal to pay women 23% less in any given position I don’t see for any reason why any employer would hire men.

[@BackHalfAdventures]

I vote for a fiat monetary system. The most seductive argument for the gold standard is that it is free from political manipulation, but as Scott mentions (and confirmed by my own readings), the gold standard has a history of being manipulated too. So accepting that either system could be manipulated, I'll take the one that has the better chance of matching the money supply with actual economic demand. Additionally, the gold standard fosters a belief that there can be and should be a stable "store of value". I've come to the conclusion that there is no such thing, and a fiat monetary system is less likely to perpetuate that idea.

[@econ4every1]

Bitcoin is proving that stores of value do not necessarily make good currency, so I'd agree. I'd also argue that one of the least appreciated and most important aspects of money is as a unit of account. Imagine how difficult things might be if there were a dozen currencies and all the time and money wasted changing between them.

[@bighands69]

Gold is very very difficult to manipulate. Of course a currency can be manipulated such as not following the rules and principles that were established but guess what that can happen to fiat currencies as well.

[@rrketc2]

The fiat system represents slavery and the destruction of capital through inflation and taxation of productivity. The fiat system creates war because countries can borrow against the future to blow up the present. An honest gold standard would slow money velocity and limit damage from the boom bust cycle. We would have healthy recessions.

[@baroud247]

I agree with a caveat, store of value function interchanges with being a medium of exchange, if accepting fiat money can be inverted overnight because a political event, it's very unlikely that confidence in gold will suffer the same fate. At least not in the same economic medium.

[@emperoralvis6559]

Every fiat currency ever has always failed because people always stop having faith in it. Without faith fiat currency returns to its real value which is 0.

[@jimragan9432]

ok, the debate is over. dim the lights and cut the feed. now then, here we are, nothing we think matters, nothing those men think matters. the instant this insane idea was forwarded that man simply cannot govern himself, the party was over.

[@johnsmith-tn3yx]

Gold standard = smaller government since it takes away government power. Easy choice.

[@bighands69]

Since coming of the gold standard government has increase about 400% in size and purchasing power has decreased by about 20 times. So that means about an 8000% increase in the cost liability of government on consumers.

[@emperoralvis6559]

We literally built this country from a nation of farms to a nation of factories on a gold standard.

[@joefromzohra]

My question to the experts: assume a gold standard, what if we then discover there are trillions of tons of gold in the Asteroid band that we can easily ship back to earth - what happens to the standard gold and the prices of all other goods?

[@raulthepig5821]

Ooh! That's would be just like the fed printing fiat money.

[@brianfrommars]

We are very far off from a scenario such as that happening, but such a case would only be a problem if a central bank exist. Without one, issuing banks would still be constrained by demand for currency (coming from increased economic output) and competition from other banks. Unlike a central bank which can devalue its currency for the government’s benefit, private banks must compete for customers (whom would be looking for stable purchasing power). So devaluation would lead to loss of customers and profit.

[@stevefitt9538]

The guy on the left said that in the 1800s there was moderate inflation and moderate deflation. This is not correct. Recently I saw a graph of value of dollars from very early 1800s until 2010. The source was the Fed.Res.Bank. It showed a Bank Panic =deflationary year every 2.5 years for the time from 1810 to 1913 and the creation of the Fed. Res. Bank. That was 39 deflationary years over the 103 year period. And they were not moderate, the deflation was often over 5% and sometimes 10%. And often they were 2 years in a row and thus added to each other. . . . Besides how can the US get back onto a gold standard? It has like $5T in gold and has issued $3T is cash and $21T in outstanding bonds. It can't default on the bonds without a terrible mess, and it can't tax $21T from the economy without creating a very deep Depression. Look at Europe now and imagine it with every nation doubling all taxes and not increasing any spending. Going bck onto a gold standard is IMPOSSIBLE.

[@wernerrou]

There simply is not enough gold. Gold mining could not keep up with rate of growth. Also gold has exactly the same value as fiat currency in that it only has value because people believe it should. I personally believe in the apple currency or water currency would be more sensible than gold. You believe in gold if you believe withdrawing from economic activity And saving yourself is rich a sustainable economic system. You believe in fiat if your currency value should be linked to the ability of your nation to produce value. Peoples abilty to invent, create and produce vale from inatimate revources are infinite, gold is not.

[@timothybuchanan5373]

The bigger point is we have been lied to all of our lives we have been stolen from all of our lives that is the point.

[@dont_trust_any1_even_ur_waifu]

80s was not a good financial period, it was just kicking the can down the road. On the outside it looked fine, on the inside the great financial crisis was brewing