“No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!”
― Ronald Reagan
(August 13-15, 1971, Camp David).
It was the mid summer in 1971 when President Richard M. Nixon gathered 15 of the nation’s leaders together to discuss the twin problems of high inflation and slow economic growth, what came to be known as “Stagflation.”
Before the 1970s, most economists believed that these two conditions could not exist side-by-side. They viewed inflation as primarily demand-driven; thus, high inflation was generally due to an overheating economy, the opposite of slow growth and lower prices.
What no one could know at this meeting was that Stagflation would become the chief enemy of economic growth throughout the decade. So, Nixon called a meeting of the “best and the brightest” to devise a strategy to fight this new foe. Among those at the meeting were Secretary of the Treasury John Connally, Federal Reserve Chairman Arthur Burns, and Undersecretary for International Monetary Affairs Paul Volcker (later Chairman of the Federal Reserve).
The result of the meeting was twofold: the first was a Presidential Executive Order #11615 aimed at curbing inflation. The gist of which was to institute wage and price controls. Most of the provisions of EO #1615 have long since expired and are largely forgotten by history.
Nonetheless, it is the second strategy that has proven to be so impactful. The country had begun to be a major importer, chiefly from Europe and Japan (this was a couple of years before Nixon would “open” China to American trade). With the US Dollar convertible to gold, these foreign trading partners were draining our reserves of the monetary metal.
According to the Federal Reserve History, Nixon directed Treasury Secretary Connally to close the gold window, ending dollar-gold convertibility that had been in effect since the Bretton Woods Agreement of 1944.
Presumably, Nixon just leaned across the coffee table (go to 8:40 on this link) and, in effect, said, “John, takes us off the gold standard.” A casual, unwritten instruction that has been in effect for 54 years, much to the chagrin of “hard money” advocates and gold-bugs everywhere.
Just like that, Nixon converted the US Dollar from a gold-backed to a fiat currency.
Later that evening, President Nixon informed the nation of his decision to remove the dollar from the Gold standard, thereby protecting it from “international currency speculators.”
Although this was meant to be a “temporary” measure, it is still in force today. Why? The answer is a simple one: no President or Congress has stepped forward to overrule Nixon’s directive. Closing the gold window will remain in effect until our leaders in Washington decide otherwise.
Today, we have a President who is at least as audacious as Nixon. President Trump has initiated some of the most sweeping policy changes that we’ve seen in the half-century since Nixon occupied the Oval Office. Almost all of these changes have been unilateral, avoiding the extended Congressional debates favored by other Presidents. Policies like DOGE, Tariffs, and now export taxes are impacting the nation’s trade and commerce like never before.
Yet, for those who believe that these new Trump Policies may expire when Trump leaves office on January 20, 2029, it would be wise to examine the story of the (formerly) gold-backed dollar. An especially audacious US President, through a Presidential Directive or executive order, can have an impact that lasts far beyond their term in office. Although Richard Nixon proved, in the end, to be one of the least popular Presidents of all time, we still live with his fiat dollar.
