Is Nixon to Blame for Closing the Gold Window?

About a year before World War II ended, delegates from 44 nations met in Bretton Woods, New Hamphsire.  Out of this came the Bretton Woods system, which refers to the agreed upon monetary system.  It essentially was the beginning of the U.S. dollar becoming the world’s reserve currency.  While the Federal Reserve had been established in 1913 and Roosevelt outlawed most gold holdings in 1933, the Bretton Woods system still maintained an international gold standard.  Foreign governments could redeem U.S. dollars into gold.

In 1971, Richard Nixon formally terminated the U.S. dollar’s convertibility.  He officially closed the gold window.  This was the final nail in the coffin of the gold standard.  So amongst the libertarian and hard-money groups, Nixon takes most of the blame for ending the last vestiges of the gold standard.

While Nixon was certainly president at the time, and while he was the one who made the announcement, is it really Nixon who should take the blame?  I see Nixon as just another politician.  I am not sure that it would have mattered who had been president during that time.  You could have taken any statist president from the 20th century (which was most or all of them) and they probably would have done the exact same thing as Nixon.  It was inevitable that the system would fail.

The U.S. government and central bank were presiding over a fiat currency, while at the same time promising to redeem it for gold (at least for foreign governments).  In the 1960’s, the president of France, Charles de Gaulle, called the U.S. government’s bluff and began exchanging dollars for gold.  There was no possible way for this to last, unless the Fed had been willing to withdraw huge sums of money from the economy.  This would have meant massive deflation and massive cuts in government spending, something that was not going to happen.

By 1971, Nixon had no choice but to default.  If the U.S. had kept paying out gold, the vaults would have been emptied out.  There had simply been too much prior monetary inflation to redeem at the fixed price of $35 per ounce.  The whole Bretton Woods system was destined to fail from the start.

So while Nixon was the person who presided over the final closing of the gold window, it is hard to put the full blame on him.  Nixon was a statist and a crook to be sure.  But the system would have come to an end under almost any president, unless the president was willing to take a radical system of deflating the money supply and drastically cutting the budget.  Of course, even if that had been the case, then Bretton Woods still likely would have come to an end for different reasons.

This is really what happens with many things in politics.  One president gets the blame (or credit) for something that was inevitable anyway.  I suppose that the upcoming president (probably the next one) who has to make deep cuts to Social Security and Medicare will take a huge hit in popularity and will be blamed for pulling the rug out from under senior citizens.  But it is already baked into the cake.  The programs are simply unsustainable in their current form.  Something will have to change.  There is going to be some kind of a default.  This will probably start off as means testing (not giving Social Security payments to the rich) and raising the government’s retirement age.  Again, this is inevitable because of the system that was set up and because of the reckless politicians of the past who spent all of the surplus money.

It is always easy to make one guy out to be a villain.  He or she probably is a villain, just like Nixon was.  But it doesn’t solve anything when it is the whole system that is bad.  It wouldn’t have mattered who was president in 1971.  The Bretton Woods system was going to fail.  It won’t matter who the next president is.  The so-called entitlement programs are going to be cut.