Fifty years ago, on 15 August 1971, President Richard Nixon announced that the US government would cease honouring its pledge to pay gold to redeem the dollars held by foreign central banks. Nixon declared he was taking “action necessary to defend the dollar against the speculators.” But there was no way to defend the dollar against politicians. Nixon touted his default as therapy for his tormented fellow citizens, promising it would “help us snap out of the self-doubt, the self-disparagement that saps our energy and erodes our confidence in ourselves”. Nixon wrapped his decree with lofty political rhetoric, appealing to the nation’s “greatest ideals” and promising a “new prosperity” that “befits a great people”.
The dollar thus became a fiat currency – something which possessed value solely because politicians said so. Nixon spurred the Federal Reserve to create an artificial boom to boost his reelection campaign. To suppress the damage from a flood of new money, he imposed wage and price controls, making it a crime to raise prices without government permission.
At that time, I was working in a peach orchard in rural Virginia for 10 hours a day, reaping $1.40 an hour and all the peach fuzz I could take home on my arms and neck. Nixon’s wage controls doomed any chance of getting that raise to $1.45 an hour. But no loss – I was leaving that job soon to go back to high school. I was 15 at that time and an avid coin collector. I soaked up the rage at the reckless federal policies that permeated Coin News and other numismatic publications. ‘Government as scoundrel’ was the theme of many editorials and articles I read in those periodicals in the following months and years. I had no savvy on economics, but my gut sense told me something was profoundly amiss. Nixon’s decree spurred my reading and researching.