Nixon, Gold, and Inflation

If you’re someone who studied economics [like me!], then chances are, you’ve probably taken at least a class or two about the monetary crises of the ’70s.

For the rest of you … did you know?

Richard Nixon was responsible for the first major inflationary event of the ’70s? ‘Tis true. He took us off the gold standard, and that led to a chain of events which resulted in tremendously high oil prices and massive inflation.

In educating myself prior to responding to Bruno’s post about Bush’s stimulous (heh heh) package, I dug up this little gem of wisdom.

… on August 15 [1971], Nixon and his advisors met at Camp David and agreed on a plan … It included a 13% devaluation against gold and a total closing of the gold window … the dollar was still as good as gold, but at $40 an ounce instead of $35. Germany was aghast, as it had trusted the United States when it bought the bonds the French would not trust. Now, instantly, they had a 13% capital loss on the bonds.

Economists among you must appreciate the extraordinarily ideological positions this guy takes … worth a read for a laugh, too:

Richard Nixon was elected in 1968 saying he would end the Vietnam War and also pledging elimination of the 10% surtax. Upon his election, he took the advice of his conservative Keynesian advisors — Herbert Stein and Paul McCracken (Stein is the father of tv personality Ben Stein) — deciding to maintain the surtax in order to balance the budget, and also to increase the tax on capital gains. Stein has been a lifelong proponent of high capital gains tax rates. This combination caused a further decline in the stock market as it anticipated the weak economy of 1970.

TRANSLATION: Nixon fell under the sway of Communists (with Hollywood connections!), who thwarted his efforts to bring peace to the world and single handedly brought America to its knees by subjecting the hardworking wealthy to life-threatening levels of taxation.

That aside, it’s good history. Just keep in mind that this guy’s opinion of Keynes, Laffer, and others is extremely biased and largely unqualified.