Happy 40th Anniversary of the End of the Gold Standard!

Forty years ago today, President Richard Nixon (R) gave a national speech announcing a "new economic policy." Among other things, the president imposed wage and price controls. Even more momentously, Nixon declared the end of the convertibility of the dollar into gold. At the time, about $35 would buy an ounce of gold. Nixon justified his decision by arguing:

The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year. Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them.

In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy – and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators.

I have directed Secretary Connally to suspend temporarily the convertibility of the American dollar except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action – which is very technical – what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.

Now, this action will not win us any friends among the international money traders. But our primary concern is with the American workers, and with fair competition around the world.

To our friends abroad, including the many responsible members of the international banking community who are dedicated to stability and the flow of trade, I give this assurance: The United States has always been, and will continue to be, a forward-looking and trustworthy trading partner. In full cooperation with the International Monetary Fund and those who trade with us, we will press for the necessary reforms to set up an urgently needed new international monetary system. Stability and equal treatment is in everybody’s best interest. I am determined that the American dollar must never again be a hostage in the hands of international speculators. 

I am taking one further step to protect the dollar, to improve our balance of payments, and to increase jobs for Americans. As a temporary measure, I am today imposing an additional tax of 10 percent on goods imported into the United States. This is a better solution for international trade than direct controls on the amount of imports.

This import tax is a temporary action. It isn’t directed against any other country. It is an action to make certain that American products will not be at a disadvantage because of unfair exchange rates. When the unfair treatment is ended, the import tax will end as well.

As a result of these actions, the product of American labor will be more competitive, and the unfair edge that some of our foreign competition has will be removed. This is a major reason why our trade balance has eroded over the past 15 years.

What happened to the price of gold? Below is an inflation-adjusted chart of gold prices since 1914. 

For next decade after Nixon's announcement, the United State would endure ever escalating inflation and interest rates, and a stagnant job market. Coincidence? Happy 40th, y'all! 

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Suki||

    $35/oz gold? So FDR picked the right price!

  • Suki||

    Oh, just a silly writer trick. That graph does not get near $35 even in 1971.

  • Suki||

  • ||

    Suki: Check out the nominal prices here. You'll see it was about $35 per ounce then.

  • Suki||

    Wasn't a dollar a lot of money then? Being just a little off is not like today, it is a big deal. Couldn't you buy a new car for a few hundred bucks and a new house for a few thousand way back then?

    Still, the graph only appears to dip down to the $200 range. I blame it on shills for Big Graph.

  • ||

    The graph is inflation adjusted. Inflation got out of hand due to fiat printing of money.

    As far as $35 vs $39. When I went to that link and clicked 1971, I made the assumption that the table was for 1971 and found that April looked to be about $35. Then I noticed that was for 1970.

  • Suki||

    Correct and it ran away from $39 as fast as a Nazi from Indiana Jones.

  • wef||

    This "inflation-adjusted" is really price-index-adjusted, probably the US consumer price index. One could make many such adjustments, say a petroleum-price adjustment, a Big-Mac-price adjustment, whatever. US-CPI-adjusting the dollar price of gold just shows whether or not dollar debasement is reflected faster or slower in a bundle of goods supposedly consumed by your average gringo. A better graph to demonstrate the effects of fiat-money inflation on the value of a dollar as an asset is the simple nominal price of gold in dollars, or - better - the nominal price of dollars per ounce of gold.

  • CrackertyAssCracker||

    +1.

    "inflation adjusted" price of gold is stupid. In the long run, 1/(price of gold) is a much better definition of inflation than any phony CPI crap.

  • Abner||

    In Nixon's era, a house went for about $20,000.

  • Suki||

    ROFL! You used the same site as me. Click on 1971 in your link.

  • Brett||

    In 1933 $35 an ounce was very high so a lot of gold flowed into the United States. in the 1960's/early 70's gold was always above $35 so gold flowed out of the US. The temporary suspension of money conversion opened the way to market covertability of US currency to gold and to other currencies like the Canadian Dollar and British Pound which has been in place since 1975.

  • Alan Vanneman||

    Much of the current increase in the price of gold is attributable to increased prosperity in India and China. The demand for gold bracelets, necklaces, etc. is increasing faster than the supply. I think that's called the free market.

  • Suki||

    +1
    Don't forget the Glenn Beck and G. Gordon Liddy commercials.

  • Abner||

    I see them as being no different that all those "Get Rich Investing in Real Estate with no Money Down commercials that used to bombard the airwaves back in the late 90's.

  • ||

    I wouldn't underestimate the massive purchases being made by central banks as contributing to the run-up, either.

  • Suki||

    Don't forget the Masons and Illuminati. I must be forgetting someone there.

  • Military-Industrial Alchemist||

    Don't forget turning gold into lead.

  • Suki||

    That sounds more like a Maobama solution.

  • Chupacabra||

    What about the Birchers?

    I'm just filling in for Max now.

  • Birchers||

    We like gold, too.

  • Michael||

    I must be forgetting someone there.

    The International Jew?

  • Suki||

    Are the Domestics staying out of this one?

  • Michael||

    God damn. That Nixon speech is some absolute top-shelf conspiracy paranoia.

  • Dylan||

    Its simple really, speculators buy assets at low prices (increasing demand and thus preventing prices from falling further) and then sell them at higher prices later (increasing supply and thus preventing prices from rising further). In this way they smooth out some of the volatility in prices. This obviously causes chaos and must be stopped.

  • Abner||

    Better a paranoid president than a dangerous idiot president.

  • ||

    Actually, the $35 an ounce price was only the price at which the US treasury guaranteed to redeem US dollars with foreign governments. The price of gold to private users (jewllers, electronics manufacturers etc) was considerably over that.

    A similar had happened a decade before when the market price of silver started to exceed the value of the silver content in US coins. At that point the treasury started having copper-nickel alloy coins and stopped redeeming Silver Certificates.

  • Suki||

    Did tulip bulbs ever get into that battle?

  • Scruffy Nerfherder||

    Shorter Nixon - I want to buy the next election through increased federal spending, and I can't do it unless I dump the gold standard. So fuck all you hard money assholes.

  • ||

    Some of it was a reaction to an increase in claims at the so-called "gold window", ie the place at the Treasury wher foreign governments could redeem their dollars.

    DeGaulle had made specific dstatements that France was not going to hold US dollars anymore.

    The value of the US dolar was plummetting thanks to the spending policies of LBJ and the great "conservative" Nixon.

    It really was change spending policies or close the "gold window" or else sell the countries gold reserves at bargain basement prices.

    It was more of a revaluation of the dollar a la New Deal, except unlike FDR who just raised the price of gold (from a fixed price of $20 to $35 in relation to the dollar), RNM just let the dollar float wherever it wanted to go. And that's just what it's done.

  • ||

    Sorry, "revaluation" should read "devaluation"

  • Scruffy Nerfherder||

    My point was that Nixon's motivations for dumping the gold standard had more to do with politics than economics. He didn't want to rein in federal spending because he was buying into the Keynesian fallacy of the government as economic savior. He didn't understand what he was doing, it just sounded good to him. Dropping the gold window bought him some breathing room in the near term and screwed our financial long-term future.

  • ||

    True, I was not disagreeing with you so much as trying to supplement your point.

    As I said, the choice was change spending policies or face selling off gold at below the market price.

    Nixon chose closing the "gold window", since spending was too important to him politically.

    However, if he had not chosen to close the "gold window" and continued to spend the result would have been the draining of the treasuries gold holdings at below market prices. Nixon wanted to have the gold and spend it to.

  • ||

    Where was Ron Paul when we REALLY needed him?

    CB

  • Ned||

    Let me lay to rest the bugaboo of what is called devaluation.

    RACIST!!

  • Suki||

    +100

  • ||

    We must protect the position of the American dollar as a pillar of monetary stability around the world.

    MISSION ACCOMPLISHED

  • ||

    I remember watching that speech with my dad; I was a freshman in high school, I think, and it was completely incomprehensible to me.

    At the end of the speech, my dad said, "Huh. He just devalued the dollar."

  • sarcasmic||

    Temporary.

    That's funny.

  • The Thinking Man's NASCAR||

    It's kind of comforting to think that all US fiscal and monetary policy for the last 40 years has been one long emergency action, eh? This crisis is going to end any decade, now...

  • H Mubarak||

    Worked for me

    for a while....

  • Rich||

    Some folks are beginning to figure out what "crisis management" really means.

  • T||

    Nixon truly was the gift that keeps on giving. I'd like to thank the Silent Majority for that screwing.

  • creech||

    And most of the voters since then.
    Nixon's speech so incensed David Nolan that he called for the formation of an explicitly Libertarian party. Ran it up the flagpole, enough saluted, but 99% of the voters keep electing a new boss same as the old boss.

  • ||

    You just watch: in the next few years we'll start hearing about how gold is a barbaric relic that should have no place in the modern world economy. This will be followed by legislation requiring that all gold held by individuals should be turned in to the government, at a fair price (determined by the government . . .)

  • Rich||

    Such a scenario would probably be quite unamusing.

  • ||

    ...legislation requiring that all gold held by individuals should be turned in to the government,...

    That was the status of gold at the time of Nixon's devaluation. Gold could only be owned by individals in the form of jewelery or art work or as coins of numismatic value only.

    That had been the law of the land since 1933 and it was not changed until the Ford Administration.

  • ||

    Well, yes. What has been done before can be done again.

  • Obama||

    I'm trying to be FDR in all other respects

    http://www.the-privateer.com/1.....ation.html

  • ||

    Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators.

    Where hsve I heard this before?

  • ||

    Yeah, the internaytional money speculators have really had a tough time ever since Nixon ended convertibility.

  • George Soros||

    Tell me about it!

  • international money speculator||

    Not from me!

  • Ted S.||

    Did Nixon really call it a New Economic Policy?

  • Richard Nixon||

    Only I could get away with that.

  • Bradley||

    A gold standard post and a circumcision post. Bailey be trollin'.

  • juris imprudent||

    Nah, he's appealing to the fetish demographic.

  • Abner||

    My foreskin has a jewel encusted, gold grill.

  • IceTrey||

    "No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts"

  • GSL||

    Can we all now dispense with the conservative mantra that Nixon was an profoundly intelligent man and not just a paranoid political hack?

  • ||

    What, he couldn't be both?

  • AlmightyJB||

    Conservatives disowned Nixon a long time ago. It was pretty tough going after Clinton for being too far left, while you're defending Nixon who was way further left (at least in terms of economic policy) than Clinton ever was.

  • GSYSDTL||

    Does it violate the lib creed if I think all the gold bugs and hysterical inflation hawks in the coalition are, in that regard, faith-based whackadoos?

  • T||

    No, it's perfectly acceptable to think that every other libertarian is wrong on some, if not all, important issues.

  • Draco||

    I've got a great idea for you gold bug libertarians. (I am a non-gold bug libertarian.)

    How about we start a new government program paying people to dig gold out of the ground, purify it and melt it into gold bars, and then bury it back in the ground (in a vault at Ft. Knox)?

    Then we can claim that "the US is once again backed by gold!" and proudly show our gold reserves to the rest of the world.

    Doesn't that sound like a fantastic plan?

    I wonder if China thinks it can build an aircraft carrier out of gold?

    Silly, silly gold bugs. Both Chinese and American.

  • Colin||

    Is you last name Zakaria?

  • ||

    It's funny how people always think that the monetary arrangement they live under is the only reasonable way of doing things, and anything else would be sheer folly. On the eve of the Federal Reserve's creation most of the country believed fervently in the gold standard and thought the dollar would always be backed by metal.

    The only thing stupider than the gold standard is a fiat currency, backed by nothing and with zero constraints on its issue, run by a pack of overconfident PhDs and Wall Street lackeys.

  • ||

    The only thing stupider than the gold standard is a fiat currency

    Word.

  • Straw Man||

    Oof! You really knocked me down. Great job Draco, you're a brave man!

  • Colin||

    "[N]ew economic policy"

    Isn't that was the Soviets called it?

    And to think, some people still believe Nixon was a conservative.

  • Juice||

    Why would you show a chart of inflation-adjusted gold "prices."

    Why not just show the dollar to ounce ratio?

  • ||

    That chart is seriously out of date, seeing as it stops at $1040/oz, and we are up in the $1750/oz range now.

  • ||

    How did I miss this comment? Apologies.

  • ||

    That graph is almost two years old. Gold's been hovering between $1750 and $1800 an ounce during the past week...right now it's at the highest inflation adjusted price since the Hunt Bros spike in Jan 1980.

  • Alan Kellogg||

    From 2300 to 316 in 2011 dollars. That should say a lot to those touting gold today. Wait for it and you could soon see the collapse of the gold bubble.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement