I was debating my economics teacher in class the other day (he actually asked me to stop asking questions in class because I try to counter his "matter of fact" teaching style!). We were talking about the quantity theory of money and how under the gold standard the money supply wasn't increasing as fast as GDP. He claimed that this led to farmers who took out loans to go settle out west not being able to pay back their loans because the real amount owed was increasing and their incomes were falling. I countered with saying the farmers should not have taken out the loans in the first place, and the fact that food prices continued dropping and thus their incomes with it essentially proves that there were too many farmers. These people should have been employed elsewhere as they would have had they not taken out these loans. He essentially said that the loans were good loans when they were made, and had the real value not increased because of deflation then the farmers would have been able to repay them. He argued that for this reason we should have a growing money supply as long as GDP is growing.
I know in economics there is often not a definitive "he's right, you're wrong", but who is more right in this case?
In the likely case that my argument was weak, what is the better argument for commodity money against a fiat money?
I understand that Ron Paul is not necessarily for a gold standard, but I would like to argue mainly against monetary inflation, not for a gold standard.
Thank you for your responses!
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