August 15th, 2021 was the 50th anniversary of President Richard M. Nixon’s worst act. Conservatives grudgingly love, and progressives stubbornly hate Nixon for his role in pursuing Soviet spy Alger Hiss.
Nixon’s venial sins, such as creating the Environmental Protection Agency (three cheers for environmental protection but I’m skeptical of Big Government agencies), are forgiven by the right and his achievements, such as opening diplomatic relations with Red China, mostly ignored by the left.
Nixon’s cardinal sin? Torpedoing the gold standard.
On August 15th, 1971 Nixon imposed a suite of terrible economic policies called the Nixon Shock. Most of these policy atrocities were short-lived and long forgotten.
However, the economic debilitation from ending rather than mending the international monetary system still haunts us.
Per the Office of the Historian of the US Department of State:
On August 15, 1971, President Richard M. Nixon announced his New Economic Policy, a program “to create a new prosperity without war.” Known colloquially as the “Nixon shock,” the initiative marked the beginning of the end for the Bretton Woods system of fixed exchange rates established at the end of World War II.
Under the Bretton Woods system, the external values of foreign currencies were fixed in relation to the U.S. dollar, whose value was in turn expressed in gold at the congressionally-set price of $35 per ounce. By the 1960s, a surplus of U.S. dollars caused by foreign aid, military spending, and foreign investment threatened this system, as the United States did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce; as a result, the dollar was overvalued. Presidents John F. Kennedy and Lyndon B. Johnson adopted a series of measures to support the dollar and sustain Bretton Woods: foreign investment disincentives; restrictions on foreign lending; efforts to stem the official outflow of dollars; international monetary reform; and cooperation with other countries. Nothing worked.
“Nothing worked” because these measures addressed symptoms, not the cause. The dollar was considered “as good as gold.” Other countries were allowed to hold it, instead of gold, as the reserve asset against which they could create their own currencies.
This put insidious pressure on the dollar, only resolvable by restoring the classical gold standard long advocated by Reagan Gold Commissioner, businessman-philanthropist Lewis E. Lehrman.
Properly, gold alone serves as the reserve against which the world’s currencies, including the dollar, can be created laying the foundation for equitable prosperity.
The true gold standard, with slight variants (such as bimetallism), was the system under which America prospered from its founding, under Treasury Secretary Alexander Hamilton, in 1789 until the early 20th century.
A dollar could buy as much in 1930 as it did in 1789, so marvelously did the gold standard work. America’s wealth, including that of workers, grew and grew!
Yes, there was a problem after the Civil War. Greenbacks had caused a wartime depreciation of the dollar.
This was rectified, after the war, by revaluing the dollar to pre-war value. That privileged creditors over debtors, hurting farmers and laborers, triggering the Prairie Populist movement, the Tea Party of its day.
William Jennings Bryan’s famous line, “You shall not crucify mankind upon a cross of gold,” referenced this. That speech propelled Bryan to the Democratic presidential nomination in 1896. He went down to defeat by William McKinley who, revaluation complete, enacted the Gold Standard Act of 1900.
Let’s note in passing that these events founded L. Frank Baum’s The Wonderful Wizard of Oz as a parable of populism. In the novel Dorothy, representing the American people, wore silver (not ruby) slippers on the yellow brick road, connoting bimetallism and alluding to Bryan’s crusade for the “free coinage of silver.”
Scarecrow represented the farmers, Tin Woodsman, the industrial workers. The Cowardly Lion was William Jennings Bryan himself, who opposed the Spanish-American War and American imperialism.
Fast forward. Richard Nixon, instead of fixing the broken Bretton Woods “grotesque caricature” of the gold standard, went from bad to worse, lured to perfidy by his arrogant Treasury Secretary John Connally.
Nixon boldly proclaimed:
“Now, what is this action — which is very technical — what does it mean for you?
“[I]f you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.
“The effect of this action, in other words, will be to stabilize the dollar.”
The effect was the opposite: destabilization. Inside the monetary house that Nixon built the dollar rapidly lost 85% of its buying power.
President Biden! Summon all your heart, brains and courage! Repeal this grotesque remnant of the Nixon shock. Put America back onto the yellow brick road and show yourself not merely a very good man but, also, a very good wizard!
Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply-Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $88T. Read Ralph Benko's reports — More Here.
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