Commodity money (i.e. a gold standard) is beneficial to long-term, sustainable free trade

Money predates governments. In fact, there is actually no such thing as a "barter system," because in any unregulated system of trade, "money" naturally arises in the marketplace. "Money," under this definition, is "the most commonly accepted means of exchange." For example, millennia ago when a shoemaker wanted meat, he may have tried to trade some shoes to the butcher. But if the butcher didn't want shoes, then the shoemaker would have to resort to another means of exchange. Perhaps the butcher had all of the things he needed at the moment, but had a surplus of beef. Thus he would accept gold in exchange for several steaks, because he would know that he could trade the gold to someone else for something he needed later.

This is how gold and silver became money. It was not via force, but through voluntary exchange. Later, gold and silver were reinforced by governments, but the governments did not "make them money" by fiat or decree -- they were already widely accepted as money.

Once one develops this understanding of monetary history, it is easy to see how commodity money (i.e. free-market money) is an aid to long-term, sustainable free trade. In fact, from a technical standpoint, "free trade" is impossible under a regime of fiat money and legal-tender laws, since no legal transaction is truly "free" (we are forced to accepted Federal Reserve Notes for all debts public and private, and thus, our consent is made for us).

But from a more pragmatic standpoint, commodity money -- which is typically gold or silver -- supports free trade by minimizing the trade imbalances that often lead to protectionist legislation. Under a gold standard, for example, a country must produce goods or services in order to trade them to another country. But under the Federal Reserve System, it is much easier to simply print money to buy foreign goods -- which has led to a massive redistribution of wealth from the U.S. to foreign nations, and led to the widely held popular misconception that free trade is "bad."

Commodity money is superior to fiat money for a wide variety of reasons that have nothing to do with international trade. And yes, I will concede that in the short run, a widely accepted U.S. dollar unbacked by gold facilitates imports -- but this is in no way sustainable. This is artificial manipulation of trade, not "free trade."

But in order to truly understand free trade, one must not think of it in terms of countries trading with one another, but instead, as individuals trading across borders. "We" don't trade with China -- YOU buy goods produced in China. There is a major distinction. A gold standard only enforces the laws of economic reality -- that you cannot create wealth by firing up a printing press -- and that leads to much greater stability and long-term growth.

Hey Clsmooth,
When you refer to "firing up the printing press" as a means to create money, I assume that means you are commenting on the issue of "inflation" in the economy. Historically, commodities of all types were made into money, gold, silver, bronze, copper, etc. This occurred mostly due to the face that at the time, they were durable. However, that does not mean that linking money to a commodity is a good idea. Rather, in today's economy when the market determines the price of the commodity, moving back into the gold standard would be a terrible idea.

To begin, when you argue that the country would be better off using gold as a standard to back our currency, you forget that the country already tried that, and failed miserably. The system was called the Bretton Woods system, and it was killed 30 years after it's inception. The reason was because the government tried to control it's monetary policy while supporting free capital movement. This is referred to as the impossible trinity by economists. The US government would need to dramatically restrict financial market trade in order to make a gold standard work again... or the government would have to sacrifice all control of it's own monetary policy.

Both of these scenarios hold very dire consequences to our economy. The Financial market is currently the very device that is driving our economy into recession today. The Financial market is also what helps push a market out of recession by providing loans to people who are on the verge of bankruptcy. If the government sacrifices either of the above powers that it has today, than the coming recession would be longer lasting, and deeper because the financial market would be unable to keep money flowing within the economy. This would cause more pain in the economy and would be worse for the people.

Since moving off of the gold standard, recessions have been shorter and resulted in less damage to the economy than ever before. It is true that under a perfectly maintained fixed exchange rate (often backed by a commodity), inflation in an economy would be lower (but not nonexistent). However, certain levels of inflation have shown to be beneficial to the economy. Small to moderate changes in inflation have shown to increase employment in an economy and lead to other forms of internal growth. Because inflation is not even, it also allows for more expensive technologies to become naturally cheaper than other competitors. A fixed exchange rate regime could slow this economic growth down, and result in less jobs being created in the future.

Finally, a note on exchange rate regimes and international trade. You asserted that an unbacked currency facilitates imports, which isn't true. An over valued dollar (which, on it's own, is completely independent of what our currency is backed by) facilitates imports. By having an overvalued dollar, the US products and services cost far too much for other countries to invest in, and allows for a high Balance of Payment deficit to which our country witnesses today. This is being corrected by the dollar being devalued significantly over the next year. As the value of the dollar declines, the exports in our country will become more competitive in the world market, and the economy will continue to grow. Having a fixed exchange rate wouldn't have allowed for that shift.

I look forward to your response, but be sure not to confuse your economic terminology in your linkages. This topic is complicated, and unfortunately conspiracy theorists like Ron Paul tend to mix up the actual facts regarding exchange rate regimes as a means to misinform people on what is actually best for the economy.

"Firing up the printing presses" means creating more money. The federal government and its central bank are entirely unrestrained in their ability to inflate. When they inflate, they expropriate wealth from savers and wage earners and put it into the hands of (1) the government itself, (2) the central bank and its subsidiaries, (3) the various "industrial complexes" that government funds, and (4) the wealthy, who have easier access to credit. This is morally wrong an economically unfeasible in the long run.

You misunderstand my premise, though. I'm not talking about money "backed" by gold; I'm talking about commodities AS money. There is a difference. A dollar backed by gold is still subject to manipulation. I'm interested in commodity money in which private banks may issue notes for specified weights of specie, and under which no one would ever be forced to accept any bills. This would be truly "free trade" domestically.

The Bretton Woods system was NOT a real gold standard. It was a pseudo-gold standard and all free-market economists predicted its demise well in advance of it actually happening. Bretton Woods was a proto-Keynesian scheme, not free-market oriented.

Fiat-money central banking is what causes booms and busts, recessions and depressions to begin with. Fiat-money central banking leads to malivestment and misallocation of capital. Under a commodity-money regime, capital comes from REAL SAVINGS, not from thin air. And as far as "bailing people out so they don't go bankrupt," you say that as if it's a good thing! In reality, people NEED to go bankrupt in order for markets to maintain integrity. Otherwise, you're socializing the risk and privatizing profit -- this leads to moral hazard. Moral hazard, of course, is a primary "benefit" of fiat-money central banking; at least in the minds of the looter central bankers and others who benefit from this larcenous regime.

BUT ALMOST NONE OF THIS PERTAINS TO INTERNATIONAL TRADE, WHICH IS SUPPOSED TO BE THE SUBJECT OF THIS DEBATE. This debate is not specifically about a commodity money vs. fiat money, but about how they relate to free international trade. Finally, at the end of the argument, you touch on the subject, but you do it through fallacy.

Yes, a "weak dollar" is supposedly good for exports and bad for imports. That is true of most other currency regimes. But the fact is that the U.S. dollar IS the "gold standard" of the world (see Greenspan), for now at least, and thus it is widely accepted even as it depreciates. Our central bankers fire up the printing presses and we extract credit to buy foreign goods, rather than producing goods and services domestically and trading them for foreign goods and services, as would be the case under a free-market, commodity-money system.

Final note: There are many anti-Fed conspiracy theorists who don't know what they're talking about. Many of them want the government to have MORE control over the money, whereas I say the best thing about the Fed is its limited degree of independence -- it is a government-sanctioned cartel, though, and that is antithetical to the free market. Ron Paul, however, is in no way a "conspiracy theorist." His monetary views are 100% in line with the Austrian tradition, which is a widely respected school of free-market economic theory.

I need to remind you, however, that this debate is supposed to be about commodity money's affect on free global trade.

My opponent failed to post a response.

His Round 1 response did not address the topic at hand.

This is not a debate about a "gold standard" vs. fiat money. It is about whether or not COMMODITY MONEY is beneficial to long-term, sustainable free trade.

Hopefully, my opponent will return for Round 3 and actually address the topic at hand.