Wednesday, June 15, 2011

Not Being on the Gold Standard Debases the Currency– Annals of Economic Idiocy, Part IV

Fighting Economic Illiteracy One Idea at a Time

[Editor’s Note:  Conventional Wisdom has it that as the population in general and Policy Makers in specific have become more educated and more experienced over time, they would have more intellectually consistent and accurate thoughts on economics and economic policy.  Alas, this has not proven to be the case. Hence this series of articles which will continue until The Dismal Political Economist runs out of idiotic economic ideas to correct, or runs out of Roman numerals. He expects to run out of Roman numerals first]

Every year an election approaches one of the economic issues that arises is putting the U. S. back on the gold standard.  This year is no exception.  The common refrain of supporters of the gold standard is that it will prevent “debasing the currency”. 

So what does debasing the currency mean?  The term originated when money consisted of gold and silver coins.  You could debase the currency in several ways.  One way was clipping small chips out of the coins.  This left the coins roughly the same, but if you clipped enough coins you could create a new coin.  Another way was to dilute the gold or silver in the coin with a base metal.

Now since we have moved on from money being metal coins to money being electrons, physical debasing is somewhat difficult, unless someone can come up with a way of debasing electrons.

The Dismal Economist will await that development, but in the meantime he will keep asking those “gold bugs” what they mean by debasing the currency.  The fact that they don’t know the answer should not keep them from providing an entertaining, if largely fictional conversation.

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