August 15, 1971, is a historic date, because for the first time in the world, a currency—the U.S. dollar—was no longer defined in terms of gold or any other more or less valuable commodity.
In fact, a national currency is backed by the wealth created within a nation by its citizens—something any farmer selling his produce at his village market has known for millennia!
For example, for centuries, Böhm-Bawerk’s farmer sold his cheese for thalers, which allowed him to buy bread to eat with his cheese and all the other goods he wanted and could afford with that currency.
President Richard Nixon was quite right to declare on August 15, 1971, that the dollar would no longer be convertible into gold!
As a reminder, as of August 15, 1971, U.S. gold reserves accounted for only 1.4% of the dollars in circulation, which means that the dollar was never backed by gold, contrary to what all those useless idiots have been harping on for decades…
In fact, as of August 18, 1971, the gold holdings held by the Fed on behalf of the United States amounted to 9.875 billion dollars (current)…
Document 1:
… compared to a total M3 money supply of 685,500 billion dollars,
Document 2:
9.875 billion dollars (current) in gold for…685,500 billion dollars in M3 money supply!
Gold thus represented only… 1.44% of the U.S. money supply as of August 15, 1971!
This is a far cry from the free convertibility of the dollar into gold and thus from that so-called golden age of the gold standard.
The U.S. dollar has therefore never been truly convertible into gold, as a whole bunch of useless idiots keep repeating!
However, U.S. dollars must be convertible into gold (or another tangible asset): these are the only claims in those dollars held by foreigners.
The most serious issue, therefore, is that for over 50 years, all these useless idiots have continued to repeat that a currency must be backed by gold and freely convertible into gold to be reliable.
As I have said and repeated time and again, the backing for a national currency consists of the creation of wealth within that nation, and to be sound, any currency must adhere to well-defined ratios—see all my articles on this subject…
It’s all simple, as Milton Friedman used to say, and a sound currency is the first pillar of Reaganomics, according to Arthur Laffer.
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Click here to access the FRED database page of the St. Louis Federal Reserve Bank, which publishes the amounts of U.S. gold reserves.
Click here to access the FRED page publishing the amounts of the U.S. M3 money supply.
Click here to read my previous article on this subject on my French-language website.
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