A 1930s Myth That Won't Die Gave Us Richard Nixon's Monumental August 15, 1971 Blunder

A 1930s Fed Myth That Won't Die

Gold last traded at $1,784 an ounce. Silver at $23.46 an ounce.

NEWS SUMMARY: Precious metal prices steadied Wednesday as traders awaited the latest Fedspeak. U.S. stocks fell as investors groped for insight into when the central bank may start removing stimulus.

FORBES--"A refuse-to-die myth lives...The obvious falsehood that an insufficiency of money caused the Great Depression...the laughable notion that a 'tight' Federal Reserve caused the 1930s slowdown....

It gave us August 15, 1971 when President Nixon chose to sever the dollar's tie to gold in 'temporary' fashion...Going forward the dollar would no longer have a definition. Which means fifty years ago Nixon et al mindlessly deprived the dollar of what made it so useful as a global medium of exchange: stability as a measure.

Money on its own serves no purpose. As this column regularly states, no one buys and sells with money, or lends and borrows with it. All exchange is barter. Products and services for products and services....

When Nixon floated the dollar in 1971, it was the restaurant-kitchen equivalent of chefs suddenly having to rely on degrees of heat, minutes and tablespoons that were constantly changing. Readers can imagine the chaos that would ensue if the amount of heat in a degree, the number of seconds in a minute, and the size of a tablespoon were changing all day and every day. Good food would soon enough be inedible....

When Nixon delinked the dollar from gold 50 years ago, he repelled wondrous productive talent from production. Put another way, Nixon's mindless decision logically decreased the very 'money supply' that mystical economists told him would increase by leaving gold....

Fifty years ago today President Nixon turned the broad misunderstanding of money among economists into policy. In so doing, he allowed a falsehood about what caused the 1930s to deprive the dollar of what made it the most 'money' of currencies. Economists cheered. What was and is false would give them perpetual employment in ways that free markets and stable money never would."