50 Years After Going Off Gold, the Dollar Must Go for Crypto: Niall Ferguson

It was Sunday night on Aug. 15, 1971, and many Americans were watching television — the most popular show that evening being the Western series “Bonanza.” (Older readers will recall that it chronicled the adventures of the Cartwright family — Ben, his three sons and their Chinese cook — on their Ponderosa Ranch in Nevada.) At 9 p.m. Eastern time, the Cartwrights and their rivals on the other two networks were interrupted by the somewhat less popular figure of President Richard Nixon.

The word “bonanza,” according to the Oxford English Dictionary, was introduced into American English in the 1880s to describe a highly productive or profitable mine, such as the silver mines of the Comstock Lode in Cartwright country. Ironically, Nixon was disrupting Sunday evening to tell Americans that the days of precious metal were over. The link between the U.S. dollar and gold — a link that dated back to the country’s adoption of the gold standard nearly a century before — was to be severed. The age of fiat money — that is, of currency backed by nothing more than the credibility of the U.S. Treasury — had dawned.

Not that Nixon put it like that. It’s worth watching a clip of his address to remind yourself just how terrible the production values of U.S. politics used to be. Nixon looks as if he is addressing the nation from a passport photo booth, a nasty blue curtain all but matching his equally nasty blue suit and tie. There were no teleprompters then, so he constantly looks down at his script. You would not know from his flat delivery how many hours he and his advisers and speechwriters had devoted to this historic text.

Americans by now were used to presidential addresses about Vietnam. It was less usual to have a lecture on the economy on a Sunday night. However, as Jeffrey E. Garten explains in his gripping account of the speech’s origins and consequences, “Three Days at Camp David,” the announcement had to go out before financial markets opened on Monday. In his own charmless way, Nixon was dropping a bombshell.

“The time has come,” Nixon declared, “for a new economic policy for the United States. Its targets are unemployment, inflation and international speculation.” There followed a succession of presidential pledges, in ascending order of radicalism: to introduce tax breaks to encourage investment; to repeal the excise tax on automobiles (but only U.S.-made ones); to bring forward planned income tax deductions (though with offsetting spending cuts); to impose a 90-day “freeze” on all prices and wages; and — the bombshell — “to suspend temporarily the convertibility of the dollar into gold.” Finally, Nixon announced a 10% tax on all imports — in a word, a tariff.

For foreign leaders, finance ministers and central bankers, this was stunning. Not only would the U.S. dollar cease to be convertible into gold; the U.S. was apparently turning away from the free trade it had embraced at the end of World War II and reverting to protectionism — though this proved to be just a threat to get the Europeans and Japanese to accept the dollar devaluation. In the words of Henry Brandon, the chief Washington correspondent of the London Sunday Times, this was the “moment of the formal dethronement of the Almighty Dollar.”