1971: Inflation Led Nixon to Abandon the Gold Standard

From 1944 to 1971, the Bretton Woods system of monetary management established the rules for commercial relationships among 44 nations with fixed exchange rates. US dollars could be converted to gold bullion at US$35 per troy ounce of fine gold. But in the late sixties and early 1970s, the dollar inflated and lost value. Fearing that the US Treasury would run out of gold, President Richard Nixon took the U.S. off the gold standard and thereby killed the Breton Woods agreement.

This change led cornerstone American companies like U.S. Steel to declare that they were no longer in the business of making a specific product, ie steel, but in the business of making money through foreign investment. This new system mainly benefited financiers, especially in real estate and insurance, and educated professionals. It also led to losses in domestic investment in manufacturing.

This book is on Amazon.com. The author, “Jeffrey E. Garten argues that many of the roots of America’s dramatic retrenchment in world affairs began with that momentous event that was an admission that America could no longer afford to uphold the global monetary system. It opened the way for massive market instability and speculation that has plagued the world economy ever since, but at the same time it made possible the gigantic expansion of trade and investment across borders which created our modern era of once unimaginable progress.”

Excerpt from Nixon’s speech:

On August 15, 1971, President Nixon announced on TV 3 dramatic changes in economic policy. He imposed a wage-price freeze.