Argumentative Essay About Fiat Money
“Hey, what your mom pack you for lunch?” asked the inquisitive 5th grader Brady to his classmate Luke. “Same as always – an apple, apple juice, apple sauce and an apple butter sandwich,” said Luke sulkily. “I don 't know why my mom loves apples so much,” he exclaimed. “What about your mom?” Brady grinned a little grin and said , “A Hershey Bar, chocolate milk, and chocolate chip cookies!!” Luke gazed into the abyss in disbelief. “I wish my mom was that cool,” he said. He thought for a few seconds and asked “Wanna trade my apple sauce for your Hershey Bar?” Brady sat and pondered on it. “Sure,” he said, “why not. Never hurt to mix things up a little.” The relieved Luke closed his eyes and began day dreaming of lunchtime. Trade and barter have been around since man figured out
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he didn 't have to kill someone to get what that person has. He can simply give that person something of value in exchange for what he deems valuable. They are known as “mediums of exchange.” Scott Freeman 's article “Fiat Money as a Medium of Exchange” and Lawrence H. White 's article “Making the Transition to a New Gold Standard” are both about mediums of exchange, although by two different means (or mediums). The article “Fiat Money as a Medium of Exchange” by Scott Freeman deals with using fiat money as a means of trade.
Fiat money can best be described as money given value by government, which in any other case would have no value at all. According to Freeman, anyone who desires a good can simply acquire fiat money, by work or other means, and exchange it for what they want. He believes fiat money to be easy to deal with and easily valued amongst both consumers and producers. He goes on to say “Fiat money can be a useful medium of exchange in this economy because the government has the ability to print pieces of paper that are noncounterfeitable and costless to hold, count, or transfer” (144). Freeman describes a scenario between different islands and the different costs and efforts that each island must expend in order to communicate with the other. He makes the case that because fiat money holds no transfer cost, it is easily traded between islands instead of other means of trade in which one island may demand more of something they want than what the other island wants (139-140). This method seems to be the preferred method between Nations (islands) in today 's
world. The article “Making the Transition to a New Gold Standard” by Lawrence H. White is about the best way for the United States to most cost effectively transition back into a Gold Standard monetary policy which it left behind in 1973. By being on a Gold Standard, a country fixes the value of its currency in terms of how much gold it has in reserve. According to White, there shouldn 't be a spontaneous switchover to the gold standard but a gradual ease back into it. If consumers wish to pay in gold coins, for instance, they should be allowed to until gradually every store accepts them as mediums of exchange. For instance, he goes on to say “The willingness to accept gold-denominated money in a fiat dollar economy increases with the incumbent currency 's inflation rate and its uncertainty” (413). White creates a scenario stating that if you were the first person on your block to use a form of gold currency you won 't find many stores which accept them but once people realize how much their fiat money devaluates then they, as well as the stores, will be more ready to accept gold as currency (413). One not need do much research to find out, though, that many nations have long forgotten the gold standard as the U.S. Dollar has become the world reserve currency. While both of these articles deal with mediums of exchange, it 's easy to see that Freeman and White are on completely different sides of the monetary spectrum. Freeman believes in the power of fiat currency while White believes in the power of gold currency. Freeman points out that “fiat money may be valued and held even though there exist other possible stores of value with rates of return no less than that of fiat money” (137). In layman 's terms, Freeman is saying that even though there may be other sources of exchange, the fact that fiat money is easy to hold and attain make it attractive. White, on the other hand, states “a gold standard means a monetary system in which a standard mass […] of pure gold defines the unit of account, and standardized pieces of gold serve as the ultimate media of redemption” (411). So, instead of paper money which is easily attainable, gold could be melted into coins and used instead. Although Freeman and White are different they agree on one thing when it comes to monetary policy. White concurs with Freeman in that “The greater the number of people who are plugged into the dollar network […] the more useful using dollars is to you” (413). The comparison can be made accurately when Freeman says “The costs of search are high if one must search for a “double coincidence” of wants” (137). What Freeman and White say boils down to the fact that most people don 't want to carry around heavy gold coins, nor do they want to search for a person who is willing to trade with them on the coincidence that they both have something the other wants. The Federal Reserve has been printing money since 1913, and stopped exchanging notes for gold in 1933. Why would anyone want to go back to those days when having paper money or electronic funds are so easy and readily available to us? That might be the only thing they seem to agree on, though. When it comes to purchasing power of each form of currency, each believes his own way to be the best way. Freeman holds on to the idea that people prefer paper dollars which can available at a moments notice. He does concede, though, that the use of fiat money as a medium of exchange makes the exchange of goods less costly (137). White staunchly defends that gold is best due to the limited amount and lack of inflation that comes with it. Little to no inflation means that prices stay the same, as well as wages, which can translate into a stress free society where prices are dependable. He states “The option to use an alternative to the fiat dollar is naturally most valuable in an environment of high dollar inflation” (413). This basically means that when prices start to go up to due to a large increase in money supply, people look for a different medium of exchange to lower the cost of the goods they want. For example “In Ecuador in 1998-2000, a parallel unofficial U.S. Dollar system emerged as the annual inflation rate in the local currency rose from low to high double digits, then to triple digits” (412). The two articles “Fiat Money as a Medium of Exchange” and “Making the Transition to a New Gold Standard” are very different and quite complex in their definitions of what money should be and how it should be used. On one hand there is the ready on demand fiat money that is easy yet susceptible to high inflation and cost increases. On the other hand, a currency backed by gold and the exchange of it for common goods, little inflation due to scarcity keeping costs low. Freeman believes that the government has the power to control the market. White believes in the power of precious metals to control market prices and this is why I side with White on the issue of monetary policy because markets are unpredictable and because of that not easy to control, even by government.
Works Cited
White, Lawrence H. “Making The Transition To A New Gold Standard.” Cato Journal 32.2 (2012): 411-421. EconLit with Full Text. Web. 19 Mar. 2013.
Freeman, Scott. “Fiat Money as a Medium of Exchange.” International Economic Review 30.1 (1989): 137-151. Economics Department of the University of Pennsylvania and Institute of Social and Economic Research. Web. 19 Mar. 2013.
he didn 't have to kill someone to get what that person has. He can simply give that person something of value in exchange for what he deems valuable. They are known as “mediums of exchange.” Scott Freeman 's article “Fiat Money as a Medium of Exchange” and Lawrence H. White 's article “Making the Transition to a New Gold Standard” are both about mediums of exchange, although by two different means (or mediums). The article “Fiat Money as a Medium of Exchange” by Scott Freeman deals with using fiat money as a means of trade.
Fiat money can best be described as money given value by government, which in any other case would have no value at all. According to Freeman, anyone who desires a good can simply acquire fiat money, by work or other means, and exchange it for what they want. He believes fiat money to be easy to deal with and easily valued amongst both consumers and producers. He goes on to say “Fiat money can be a useful medium of exchange in this economy because the government has the ability to print pieces of paper that are noncounterfeitable and costless to hold, count, or transfer” (144). Freeman describes a scenario between different islands and the different costs and efforts that each island must expend in order to communicate with the other. He makes the case that because fiat money holds no transfer cost, it is easily traded between islands instead of other means of trade in which one island may demand more of something they want than what the other island wants (139-140). This method seems to be the preferred method between Nations (islands) in today 's
world. The article “Making the Transition to a New Gold Standard” by Lawrence H. White is about the best way for the United States to most cost effectively transition back into a Gold Standard monetary policy which it left behind in 1973. By being on a Gold Standard, a country fixes the value of its currency in terms of how much gold it has in reserve. According to White, there shouldn 't be a spontaneous switchover to the gold standard but a gradual ease back into it. If consumers wish to pay in gold coins, for instance, they should be allowed to until gradually every store accepts them as mediums of exchange. For instance, he goes on to say “The willingness to accept gold-denominated money in a fiat dollar economy increases with the incumbent currency 's inflation rate and its uncertainty” (413). White creates a scenario stating that if you were the first person on your block to use a form of gold currency you won 't find many stores which accept them but once people realize how much their fiat money devaluates then they, as well as the stores, will be more ready to accept gold as currency (413). One not need do much research to find out, though, that many nations have long forgotten the gold standard as the U.S. Dollar has become the world reserve currency. While both of these articles deal with mediums of exchange, it 's easy to see that Freeman and White are on completely different sides of the monetary spectrum. Freeman believes in the power of fiat currency while White believes in the power of gold currency. Freeman points out that “fiat money may be valued and held even though there exist other possible stores of value with rates of return no less than that of fiat money” (137). In layman 's terms, Freeman is saying that even though there may be other sources of exchange, the fact that fiat money is easy to hold and attain make it attractive. White, on the other hand, states “a gold standard means a monetary system in which a standard mass […] of pure gold defines the unit of account, and standardized pieces of gold serve as the ultimate media of redemption” (411). So, instead of paper money which is easily attainable, gold could be melted into coins and used instead. Although Freeman and White are different they agree on one thing when it comes to monetary policy. White concurs with Freeman in that “The greater the number of people who are plugged into the dollar network […] the more useful using dollars is to you” (413). The comparison can be made accurately when Freeman says “The costs of search are high if one must search for a “double coincidence” of wants” (137). What Freeman and White say boils down to the fact that most people don 't want to carry around heavy gold coins, nor do they want to search for a person who is willing to trade with them on the coincidence that they both have something the other wants. The Federal Reserve has been printing money since 1913, and stopped exchanging notes for gold in 1933. Why would anyone want to go back to those days when having paper money or electronic funds are so easy and readily available to us? That might be the only thing they seem to agree on, though. When it comes to purchasing power of each form of currency, each believes his own way to be the best way. Freeman holds on to the idea that people prefer paper dollars which can available at a moments notice. He does concede, though, that the use of fiat money as a medium of exchange makes the exchange of goods less costly (137). White staunchly defends that gold is best due to the limited amount and lack of inflation that comes with it. Little to no inflation means that prices stay the same, as well as wages, which can translate into a stress free society where prices are dependable. He states “The option to use an alternative to the fiat dollar is naturally most valuable in an environment of high dollar inflation” (413). This basically means that when prices start to go up to due to a large increase in money supply, people look for a different medium of exchange to lower the cost of the goods they want. For example “In Ecuador in 1998-2000, a parallel unofficial U.S. Dollar system emerged as the annual inflation rate in the local currency rose from low to high double digits, then to triple digits” (412). The two articles “Fiat Money as a Medium of Exchange” and “Making the Transition to a New Gold Standard” are very different and quite complex in their definitions of what money should be and how it should be used. On one hand there is the ready on demand fiat money that is easy yet susceptible to high inflation and cost increases. On the other hand, a currency backed by gold and the exchange of it for common goods, little inflation due to scarcity keeping costs low. Freeman believes that the government has the power to control the market. White believes in the power of precious metals to control market prices and this is why I side with White on the issue of monetary policy because markets are unpredictable and because of that not easy to control, even by government.
Works Cited
White, Lawrence H. “Making The Transition To A New Gold Standard.” Cato Journal 32.2 (2012): 411-421. EconLit with Full Text. Web. 19 Mar. 2013.
Freeman, Scott. “Fiat Money as a Medium of Exchange.” International Economic Review 30.1 (1989): 137-151. Economics Department of the University of Pennsylvania and Institute of Social and Economic Research. Web. 19 Mar. 2013.