Why We Left the Gold Standard

Key Takeaways

1. 1The gold standard fixed every currency to gold at a stated price — the U.S. dollar at $35 an ounce — and anyone holding dollars could in principle redeem them for the metal
2. 2The promise of redemption is what gave gold-backed money its credibility — but it's also what tied governments' hands
3. 3Gold supply grows with geology, not with the economy — when productivity outpaces mining, the system runs out of money exactly when it needs more of it
4. 4The constraint that protected against inflation also amplified recessions — countries that abandoned gold faster during the Great Depression recovered faster too
5. 5Bretton Woods (1944–1971) softened the pure gold standard by pegging the dollar to gold and other currencies to the dollar — keeping the anchor while easing the rigidity
6. 6Nixon closed the gold window on August 15, 1971, when U.S. gold reserves could no longer cover the dollars in circulation worldwide
7. 7Fiat money — backed by trust, not metal — turned out to be more flexible, letting central banks adjust the money supply to the real size of the economy
8. 8Modern economies are stronger under fiat than gold, provided the issuing institutions stay credible — the discipline now lives in policy, not in the vault