A Dollar as Good as Gold

A fiat currency is a currency that gets its value from the government and the confidence consumers put in it. It can be printed in limitless quantities. As more of the currency is put into circulation, it can cause inflation. Our current monetary policy, the Federal Reserve System, is the cause of this. An economic collapse can happen if consumers lose confidence in the currency. In today’s economy, most business transactions are done with paper, electronic, or other fiat currencies instead of precious metals or other commodity currencies. Historically, precious metal or other commodity based monetary policy return when a fiat currency leads to an economic collapse. With a precious metal or other commodity based monetary policy, the currency never loses its value because the metals and/or commodities come in limited amounts and this reduces or eliminates inflation. Historically, the most common commodity based monetary policy has been the gold standard. With a gold standard monetary policy, all currency in circulation is made completely or partially of gold, or backed by it. The gold standard has many opponents, mainly due to the fact that it ties the amount of currency in circulation to the amount of gold reserves. The opponents say that a limited currency supply slows economic growth. Despite this opposition, the United States of America should return to the monetary policy of a gold standard because the Federal Reserve System is unconstitutional, the current policy causes inflation which steals wealth from the middle and lower classes, the gold standard stabilizes and promotes economic growth, and it would stop the dollars’ value from falling and causing a financial collapse here on our shores.

Though our monetary policy isn’t specifically addressed in the United States Constitution, the Federal Reserve System is prohibited by the Constitution.
Article I, Section 8 of the US Constitution says that only Congress has the power to coin money, and regulate the value thereof. The Federal Reserve isn’t a part of Congress; almost all decisions taken by the Federal Reserve don’t need Congressional approval. Article I, Section 8 of the US Constitution also states that Congress must provide punishment for counterfeiting American money. That is exactly what the Federal Reserve does; it prints money in limitless quantities. The Federal government isn’t the only one not following the Constitution; the individual states are as well. Article I, Section 10 of the US Constitution states that a power prohibited to states is making anything but gold and silver coin a tender in payment of debts. The states are breaking the law set out by the constitution by allowing currency that is not made of or backed by gold or silver to circulate in their economies. This counterfeiting is not only illegal but causing inflation in our economy.

Inflation is the when currency loses its overall value. With lower value money buys less and the prices of goods go up. “The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years” (Kadlec, Fed’s Goal). The Federal Reserve is supposed to control and print the money our nation needs in a helpful way, but instead it is doing so in a way that harms the economy by purposely causing inflation. The Fed does this believing that inflation helps maintain maximum employment and price stability. “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency… -- John Maynard Keynes” (Allison and Chapman 18). This intentional inflation could slowly lead to the fall of our capitalist economy. “In effect, the Fed has announced a course of action that will steal – there is no better word for it – nearly 10 percent of the value of American’s hard earned savings over the next 4 years” (Kadlec 1). Stealing anything is illegal anywhere in the world, but this is exactly what the Federal Reserve is doing. The intentional inflation destroys the value of savings accounts. The middle and lower class citizens are the ones who will feel the effects of this robbery the most. In an interview, Ron Paul, an ex-Republican Senator who has been an advocate of a return to a gold standard, stated that the falling value of the currency eventually destroys the middle class. A strong middle class is a characteristic of a strong economy, without a middle class you only have a poor majority and rich minority.

An economy under a gold standard or commodity based monetary policy would be more successful and prosperous than an economy under a fiat currency. The current economic state of the world is thanks to the Federal Reserve’s limitless printing. “Because the dollar was the de facto reserve currency of the globe post-Nixon (replacing gold itself), any U.S. inflation would encourage other nations’ monetary expansions and competitive devaluations in tandem” (Allison and Chapman 20).
The US dollar was officially taken off the gold standard in two steps. First President Roosevelt stopped banks from being able to take in dollars in exchange for gold, second, Nixon completely removed any link to gold in 1971 (FDR). At the time only the governments or central banks of other nations could exchange US dollars for gold. Nixon’s decision closed the gold window, as it was called. This allowed the Federal Reserve to begin printing currency limitlessly. Nixon’s decision also made the US Dollar take the place of gold in world monetary policy. Whenever inflation happened in the USA, it happened all over the world, causing economic problems. The economy here in the USA good one since 1971 as we have experienced the three worst recessions since World War II (Kadlec, Nixon’s Error). As stated by John A. Allison and John L. Chapman in A Return to Gold?, gold was a common and dependable medium of exchange in the century leading up to 1914, this helped promote international trade, and this period was the most productive and peaceful than any other period in human history. Money with dependable value helps encourage trade simply because it never loses value.

Gold has been used throughout history as a currency and the present era isn’t the first time in history that a fiat currency has been used either. As stated by Mike Maloney in Silver & Gold – Hidden Secrets of Money Episode 2, 7 Stages of Empire, the city- state of Athens was one of the first examples in recorded history that a nation collapsed financially because a fiat currency lost all its value. Gold was taken in taxes and mixed with copper to make more currency. Eventually most coins contained little or no gold in them and they could be made almost limitlessly since copper is such a common element. Consumers began losing faith in the currency because it didn’t have enough value to buy them their necessities and this led to a financial collapse for Athens. Rome is another example of a nation that has had disastrous financial troubles thanks to a fiat currency. In 54 A.D. the Denarius, Rome’s coin at the time, was made of 94% silver and by 218 A.D., it was only made of .02 silver (Jones). Since the currency had so little value in comparison to its value before, it was not accepted as a medium of exchange. People weren't able to get their needs and this caused a financial panic in Rome. In the 1900’s, Mexico, Yugoslavia, Argentina, and many other nations, had failed fiat currencies. Every time a fiat currency has been used, it has failed and leads to the fall or a very rough financial period for the nation that uses it. “A dollar today, is worth only 5% of a dollar’s value from the early 20th century” (Phoenix). The currency of the USA is near worthless in comparison of it’s worth 100 years ago when the Federal Reserve System was introduced. It will eventually lose all of its value just like every other fiat currency that has ever been used, and when it does, a period of major crisis will follow.

Some states in the USA are taking measures to protect against the unreliability of fiat currencies. The Utah Legal Tender Act makes gold and silver coins a legal tender in Utah. The main sponsor of the new law in Utah, Brad Galvez states “This is a step in preparedness; a step in security that allows us to be able to help hold up our economy as the dollar continues to shrink” (Newman). The only way to ensure our economy and the world economy don’t continue to go down is to return to a gold standard or other commodity based currency. Fiat currencies have always failed due to the fact that consumers don’t place permanent confidence in them. The Federal Reserve System shouldn’t exist; the US Constitution only gives congress the power to coin money. The states too aren’t following the law placed by the constitution. The limitless printing done by the Federal Reserve has been causing inflation for a long time and it will continue to do so. All this inflation is stealing the value of the hard work people have done to save money. With soaring prices, investments in important parts of the economy like real estate and stocks will drop, slowing economic growth, and causing more economic crises in the near future. Many opponents of a gold standard claim that the constitution doesn’t call for a gold standard. Though a gold standard isn’t specifically called for, a system like the Federal Reserve is outlawed. Opponents also state that increasing the money supply is necessary for economic growth. That is false, a stable and dependable money supply is vital for a stable and growing economy. Monetary policy needs to be changed from the Federal Reserve System back to the Gold Standard in order to stop the unconstitutional Federal Reserve, to make sure that people’s savings don’t lose value, to stabilize our economy, and prevent a financial collapse caused by the devaluation of our currency.