Forty years ago yesterday, President Richard Nixon suspended gold convertibility, and the U.S. (and the world) went onto a “paper dollar standard.” Two pieces yesterday on the fortieth anniversary of Nixon’s announcement, by Lew Lehrman in the Wall Street Journal and Jeffrey Bell in the Washington Examiner, explore the consequences of that decision and make the case for considering a return to the gold standard.
They’re well worth reading (along with their recent pieces in TWS, and Judy Shelton’s, on the same broad topic). The current crisis is monetary as well as fiscal. It began, after all, with a housing bubble and a financial crash that were far more related to monetary than fiscal policy (the budget deficit was small and coming down in 2007). The way out may well end up requiring as thorough a rethinking, and as radical a reorientation, of monetary policy as of budget policy. But the monetary debate has lagged behind the fiscal debate. It’s time to begin to catch up. And the good news is that the solution rests on the same broad principles: the restoration of limits and standards for the federal government’s printing and spending of money.
Lehrman details Nixon’s 1971 decision, which, as he puts it, “sowed chaos for a decade.” Bell explains how the iron will of Reagan and Volcker saved us in the short term from the natural implications of fiat money. But “enlightened statesmen will not always be at the helm,” and, as Bell puts it, “those who succeeded Reagan and Volcker allowed the debt-driven paper system to inflate—and burst—a steadily worsening succession of financial bubbles.” Now the Fed desperately maintains zero-percent interest rates, punishing savers in the name of saving us from another recession, and world financial chaos seems to be the price for the “system”—fiat money and arbitrary governance by the Fed—we stumbled into forty years ago.