AZnomicsThe Day Money Became Faith
Nixon ends the gold standard — and changes the nature of money forever
On a Sunday evening in August 1971, President Nixon interrupted a popular TV show to announce that the United States would no longer exchange dollars for gold. Most Americans didn't understand what it meant. It was arguably the most consequential economic decision of the 20th century.
The US had been printing dollars to pay for the Vietnam War and Johnson's Great Society programs. Foreign governments — especially France — suspected the US had more dollars in circulation than it had gold to back them. They started sending dollars back to Fort Knox demanding gold. The US was running out. Nixon's choice: default on gold, or default on everything.
Before 1971, every dollar was a claim on a fixed amount of gold. After 1971, a dollar was worth whatever people believed it was worth — backed by the "full faith and credit" of the US government. All other countries followed. Suddenly, governments could print as much money as they needed, constrained only by inflation. This enabled everything from modern debt markets to quantitative easing to crypto as a reaction.
The 1970s brought the first test: stagflation. Without the gold anchor, inflation ran to 14% by 1980. Fed Chair Paul Volcker raised interest rates to 20% to kill it — triggering a brutal recession but restoring credibility. That playbook — raise rates to fight inflation — is still the Fed's primary tool today.
Every financial crisis since 1971 — the 1980s debt crises, 2008, COVID stimulus, the inflation of 2022 — is downstream of this decision. When you hear debates about inflation, central banks, and cryptocurrency, you're hearing echoes of August 15, 1971.