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Danielle Heugel
Nathan Wood
Mr. Gross
English 12 B (3)
12 May 2016
Restoring the Gold Standard
Limitations typically seem horrendous to people, especially in an economic system.
However, the economic fiat currency in the government right now currently does not totally
restrict the government's ability to print money at will. This causes higher inflation rates and
rising consumer prices. The United States trade deficit continues to increase and the
government's ability to increase the national debt is still implied. The money being used in the
United States is constantly losing its value this way. The fiat currency system can be deemed
good because there is no commodity backing up the worth of gold either. By reapplying the gold
standard in the United States again, these problems could be solved or brought under control
rather than the almost unpredictable future of the economy.
Not restricting the government's ability to print money at will is called a fiat currency.
This is currently the type of currency the United States of America is using. The fiat currency is
based off of confidence in the money being printed out and is not backed by any physical
commodity such as gold or silver, copper, which was used by the Romans for a short time, or
iron used by China for a brief time (Daily Reckoning 1). Richard Nixon completely cut the ties
between gold and currency in 1973 (Rapid Trends 1). However, gold has not been backing up the
United States money since 1971 (Griffin 93). The government can declare any type of money
legal tender (Encyclopedia 1). By using the fiat currency, inflation rates go up as well as

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consumer prices, which are basic goods and services that are purchased by a household
consumer. From 1880-1913, the average annual rate of inflation was 1.6%. After we transitioned
to the fiat system, the rate of inflation was at 3.3%, more than doubling the rate. Seven years
later, it had jumped to 13.3%. In a federal reserve study, nations on the gold standard average
1.75% compared to 9.17% for countries using a different standard. The growth of inflation rates
happens over time and decrease the time value of money. The time value of money describes
how the money in circulation now is worth more than the same money a year from now
(Investopedia 1). A low inflation rate would be great for the average consumer because it would
increase the purchasing power, and keep the price of goods and services down, while a higher
inflation rate does the opposite.
The chickens will come home to roost. But, when they do, it will not be because of the
trade deficit. It will be because we were able to finance the trade deficit with fiat money created
by the
Federal Reserve. If it were not for that, the trade deficit could not have happened. (Griffin 94).
Figure 1
US Balance of Trade

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Source: Foundation for the Advancement of Monetary Education

The money being printed, or sometimes more accurately, being electronically transferred from
Federal Reserves to other reserves or bank accounts, is spent uncontrollably because all the value
of the money is the piece of paper it is made out of. The government has nothing to back up the
currency, so more money can be spent than earned because the money has no real value. In
Figure 1, the chart shows how since the United States money has no tie to gold, the balance of
trade has gone down to negative eight-hundred billion at one point in 2006 (Sound Money 1).
The United States Federal Deficit is the total amount of money received by the Internal Revenue
Service minus the money spent by Congress, which is at about five-hundred and three billion
dollars according to the online live national debt clock. Meanwhile, the national debt is at about
nineteen trillion two-hundred sixty-one billion dollars (Debt Clock 1). The debt and trade deficit
continue to increase due to the lack of commodities backing the money that the government
spends, whether it is on needed things such as the military, or unneeded social programs that
were put into place decades ago.
The fiat currency system could be superior to the gold standard because of a few reasons.
One is simply that there is not enough gold in the world to serve as money. To use the gold it has
to be mined from the ground, cleaned, washed, refine, melted down, shaped, and other processes
which is an extremely time-consuming and expensive process (Financial Sense 1). All
currencies are fiat currencies, said a post on forbes.com (Forbes 1). The post goes to explain
how even currencies backed by commodities such as gold are still essentially worthless because
there is nothing backing the commodities. As shown below in Figure 2, since the ties were cut
between United States money and gold, inflation and deflation has not happened much except for
in the late 1970s and early 1980s due to an oil crisis and recession (Motley 1).

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Figure 2
Inflation Rates

Source: US Inflation Rates by YCharts

Having a fiat monetary system is not very democratic because it puts the power into an unelected
banking committee, the Federal Reserve. This type of money allows government spending
without raising taxes, which prevents from democratic accountability (Gold is Good 1).The gold
standard would only allow as much money as there is gold in United States Federal Reserve. If
the United States of America were to return to the gold standard, inflation rates would slow down
and it would be harder to rise. In turn, this slows insurance rates in the banks and lowers the
national consumer price index as well. The national debt could not increase above a certain

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amount or be in existence at all, and trade deficit would be reduced drastically. The United States
was using the gold standard before the 1970s, so it is possible to use in a big country.
The gold standard would only allow as much money as there is gold in United States
reserves. If America were to return to the gold standard, inflation rates would slow. Apply this
system would reduce the impact that the government has on people economically. Gold retains a
value throughout the world in history and Steve Forbes, Editor-in-Chief of Forbes magazine says
that gold "retains an intrinsic, stable value better than anything else." (Golden Rule 1). A fiat
currency or monetary system is not democratic or worth any physical commodity. Returning to
the gold standard is the best way to limit the government in an economical way as well as reduce
inflation rates, national debt, and the United States trade deficit.

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Works Cited
"All Money Is Fiat Money." Forbes. N.p., n.d. Web. 11 May 2016.
http://www.forbes.com/sites/pascalemmanuelgobry/2013/01/08/all-money-is-fiatmoney/#2a2a
8ff061e5
"Fiat Currency." Daily Reckoning. N.p., n.d. Web. 11 May 2016.
http://dailyreckoning.com/fiat-currency/
"Fiat Currency: What It Is and Why It's Better Than a Gold Standard." The Motley Fool. N.p.,
n.d.
Web. 11 May 2016.
http://www.fool.com/investing/general/2015/12/06/fiat-currency-what-it-is-and-why-itsbetter-than-a.aspx
"Gold Standard." ProCon. N.p., n.d. Web. 21 Mar. 2016.
http://gold-standard.procon.org/
"Gold Standard." : The Concise Encyclopedia of Economics. N.p., n.d. Web. 3 May 2016.
http://www.econlib.org/library/Enc/GoldStandard.html
Steve Forbes, "Golden Rule for Prosperity," www.forbes.com, June 6, 2012, 11 May 2016.
Griffin, G. Edward. The Creature from Jekyll Island: A Second Look at the Federal Reserve.
Westlake Village, CA: American Media, 2010. Print.
"How Unsound Money Fuels Unsound Government Spending." Sound Money. N.p., n.d. Web. 11
May 2016.
https://www.soundmoneydefense.org/news/2016/04/07/how-fiat-money-spending-isdestroying-our-nation-000029

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"Impact of Inflation." Investopedia. N.p., n.d. Web. 11 May 2016.
http://www.investopedia.com/ask/answers/042415/what-impact-does-inflation-have-timevalue-money.asp
Ron Paul, "Why Gold Is Good Money," goldnews.bullionvault.com, Oct. 2, 2012 11 May 2016.
"The History about the Fiat Currency in the US." Rapid Trends. N.p., n.d. Web. 11 May 2016.
http://www.rapidtrends.com/the-history-of-fiat-money-in-the-usa/
"Top Ten Reasons Why Fiat Currency Is Superior to Gold (or Silver) Money."Financial Sense.
N.p.,
n.d. Web. 11 May 2016.
http://www.financialsense.com/contributors/john-butler/top-ten-reasons-why-fiatcurrency-is-superior-to-gold
"Trade Deficits and Fiat Currency." Mises Institute. N.p., n.d. Web. 11 May 2016.
https://mises.org/library/trade-deficits-and-fiat-currencies-0
"US National Debt Clock." US National Debt Clock. United States Treasury, n.d. Web. 11 May
2016.
www.usdebtclock.org