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Fall 2011

ISSN 0890-913X

Volume 27, Number 1

Categories: Education | Fall 2011

The Dollar Quiz: A Hands-On Approach to Monetary Debasement and Inflation

Tyler Watts, Ball State University

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TheJournalofPrivateEnterprise27(1),2011,145–158TheDollarQuiz:AHands-OnApproachtoMonetaryDebasementandInflationTylerWattsBallStateUniversityAbstractThedollarquizisahands-onteachingtooldesignedtocreateanawarenessofandcuriosityaboutmonetarydebasement,andthesubsequentinflationitenables,bylookingatthehistoricalevolutionoftheU.S.Dollar.Studentsarechallengedtorankthecurrentvaluesofhistoricalandmodernonedollarpieces.Theclasslectureanddiscussionfollowingthequizrevealsthecurrentvalueofeachdollar,alongwithanaccountofsomebasiceconomicsofmonetarydebasementandinflation.InstructorscanemploythisexercisesimplyasameansofdemonstratingmonetarydebasementandtheextentofU.S.dollarinflation,orasanintroductiontoamoredetailedsectiononU.S.monetaryhistory.JELCodes:A20,E31,E42Keywords:UnitedStatesmonetaryhistory;Debasement;Inflation;Goldstandard;SilverstandardI.IntroductionArecurrentthemeinmonetaryhistoryisthedebasementofcurrencybythemonetaryauthority.Debasementistypicallysoughtasameansofinflationaryfinance—asurreptitiousmeansofraisingrevenuewithoutdirectlytaxingthecitizensorexpandinggovernmentdeficits.Debasementcanresultindirectseignioragerevenueforthesovereign,whore-mintsthecoinageatalighterweight,1aswellasan1Akingorprincewithamonopolyonthemintageofhisownlocalcoincan,byperiodicre-minting,secretlyreducetheactualgoldorsilvercontentofthecoin,allowinghimtoincreasethemoneysupplywithagivenstockofmetal.Aslongascoinsarevaluedby"tale"orcount,ratherthanbyweightofmetal—whichcancomeabouteitherbycustomorbylegaltenderlaws—thesovereignwillbeable,bydintofbeingthefirstspenderofthedebasedcoins,torealizeanincreaseinhisownrealpurchasingpowerattheexpenseoflaterrecipientsofthecoins.Thisprocesswilleventuallydrivenominalprices(intermsofthedevaluedcoin)up,asmerchantsdiscoverthetrickandreactaccordingly.Thus,whilethelong-runeffectofdebasementistypicallyahighernominalpricelevel(inproportiontothedegree145

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Title	The Dollar Quiz: A Hands-On Approach to Monetary Debasement and Inflation
Authors/Creators:	Tyler Watts, Ball State University
Year:	2011
Volume:	27
Number:	1
Pages:	145 - 158
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Educational Notes
Keywords:	Economic education, United States, Debasement, Inflation, Gold standard, Silver standard, Monetary history, Monetary Policy

Citation:
Watts, Tyler / 2011. "The Dollar Quiz: A Hands-On Approach to Monetary Debasement and Inflation." The Journal of Private Enterprise, 27(1): 145-158.