This is the fifth essay in our series exploring what might have happened had Nixon reinforced rather than abandoned the gold standard in 1971.
The Connection Between Money and Military Power
Among the most profound yet often overlooked consequences of Nixon's 1971 decision to abandon the gold standard is its impact on warfare and military spending. In our roundtable, Bob Murphy estimated that reduced military spending alone might have contributed to a 30% higher global GDP had the gold standard remained intact.
The discussion between Murphy, Lyn Alden, and Troy Cross revealed a fundamental tension: while hard money constraints might prevent unnecessary military adventures, they could potentially handicap nations facing genuine existential threats. This essay explores this tension and considers how our world might differ had the gold standard remained intact.
The Case for Constraint: Less Military Spending and Fewer Wars
Murphy's point was straightforward but profound: "By having recourse to fiat money, money that's not tied to anything, that gives governments more leeway to print money and spend. And what's a big time crisis when governments tend to spend a lot when they don't have constraints? And that's wartime."
Using the Vietnam War as an example, Murphy noted: "If we had been stuck to the gold standard, we wouldn't have been able to engage in Vietnam. And I think most Americans would say, yeah, that would have been a good thing."
This argument rests on a crucial insight about democratic accountability. Under a gold standard, a government contemplating military action faces three options:
Raise taxes explicitly to fund the effort
Borrow money by issuing bonds repayable in gold-backed currency
Reduce other government spending to free up resources
None of these options allow the government to obscure the true cost of military action. In contrast, fiat currency allows creating new money, imposing costs through inflation that are diffuse, delayed, and difficult for citizens to connect to military decisions.
This effect is compounded for the United States by its reserve currency status, which allows borrowing with minimal immediate costs. The result is a military footprint spanning approximately 750 bases in 80 countries—far beyond what would be politically sustainable if directly funded through taxation.
The Case for Flexibility: National Security in Crisis
While the constraint argument is compelling, philosopher Troy Cross offered an important counterpoint:
"If I'm a nation and I've just been invaded and my very existence is at stake... I have one advisor telling me, don't abandon the gold standard. It'll make your currency worthless, it'll create moral hazard... And I've got an advisor on my other side that says, print or lose”… that’s an easy decision.
This highlights a fundamental tension: a monetary system that prevents unnecessary conflicts might also hamper necessary ones.
Bob Murphy responded “It's precisely in situations when a nation's literally being invaded that the government wouldn't need to trick people and take their purchasing power through inflation - people would go ahead and pay higher taxes or lend money for war bonds.” Murphy's point is that genuine existential threats would generate public support for conventional financing, while fiat allows governments to fund conflicts the public might otherwise reject, highlighting the different threshold for urgency that hard money dictates.
The Counterfactual: A Different Military Landscape
What might our world look like had Nixon reinforced rather than abandoned the gold standard in 1971? The roundtable discussion suggests some likely differences:
Smaller Standing Military: With hard budget constraints, major powers would likely maintain smaller peacetime military establishments focused on core defense rather than global power projection.
More Strategic Selectivity: Military interventions would require explicit fiscal support, forcing greater selectivity about which conflicts truly warrant national treasure and blood.
Emphasis on Efficiency: Military planners and defense contractors would face much stronger incentives to maximize efficiency, potentially leading to smaller but more effective forces.
Enhanced Diplomatic Focus: With reduced ability to project power through pure military means, nations would likely invest more in diplomatic capabilities and multilateral approaches.
Different Alliance Structures: The ability to provide security guarantees to dozens of nations might be reduced, potentially leading to more regionally balanced security arrangements.
Fewer "Forever Wars": Conflicts without clear objectives would face greater fiscal pressure to conclude, as their ongoing costs would be directly visible to taxpayers.
These changes wouldn't necessarily leave nations more vulnerable to genuine threats. Rather, they might create a world with more focused military establishments, greater public investment in determining which conflicts truly warrant resources, and fewer destructive military adventures.
Conclusion: Money and Military Power
As we look to the future, with global debt levels approaching historical extremes and geopolitical tensions rising, the question of how to balance these imperatives becomes increasingly urgent. Today's massive debt levels actually reduce flexibility and increase the costs of emergency defense spending - the opposite effect of what fiat money initially promised. The gold standard counterfactual illuminates the profound consequences of our monetary choices for peace, security, and the conduct of warfare in our world.
In our next installment, we'll explore the technological factors that strained the gold standard and examine how innovations like Bitcoin might address the historical limitations that Gold faced as a monetary standard. Following that final essay, we'll present a consolidated version that brings together all six explorations into a comprehensive examination of how our world might have differed had Nixon chosen a different path in 1971.
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