August 15, 1971: A Date Which Has Lived In Infamy

Brian Domitrovic

In their impossibly good book Money, Markets, and Sovereignty (2009), Benn Steil and Manuel Hinds make the point that over the last four thousand years, the only period in which humanity has not consistently based its currency in metal, specifically gold, is the last forty. That’s right. Ever since President Richard M. Nixon announced forty years ago today, on August 15, 1971, that the U.S. would no longer officially trade dollars for gold, we have been enjoying a new era of human history.

Enjoying not being the mot juste. Out of the gate, we got the 1970s, what with their stagflation, a real stock market performance worse than that of the 1930s, and a crisis of confidence such had never bedeviled the American people before. There were go-go years in the 1980s and 1990s, to be sure, when stocks increased 15-fold and the tech revolution changed the world. But now we have our woebegotten 2000s, where stocks lose ground against the price level year after year, 9% unemployment is the new normal, and explosive government spending and Federal Reserve blowouts can’t create a job.

Since 1971, that is, we’ve had two completely unacceptable periods of economic performance bounding one highly salient one…

…Nixon, for one, thought gold-price stability was bogus. It’s clear as a bell why he went off gold. We have the White House tape recordings from the previous week to let us know. (These culminate, as they must, on Friday the 13th, 1971, as choppers take the administration economic crew to a secret location…Camp David.) Nixon thought that gold would go through the roof on being de-linked, in that the Federal Reserve would print money like crazy now that the currency was not collateralized, and this overprinting would effect jobs, jobs, jobs.

Unemployment, you see, had just gone from 4% to 6% – quaint numbers, no? – and Nixon was “not about to be a hero” (his words) on inflation at the expense of unemployment. Money must be printed, and if gold was a bar to this, gold must go. At any rate, Nixon was confident he could take care of any resultant inflation by outlawing it…

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