What if President Nixon had strengthened the gold standard in 1971 instead of abandoning it? This question—seemingly academic at first glance—holds significant implications for understanding our current economic challenges and future possibilities.
Recently, I hosted a roundtable discussion with three remarkable thinkers to explore this alternative history: Lyn Alden, financial analyst and author of "Broken Money"; Bob Murphy, a leading Austrian economist; and Troy Cross, a philosopher bringing unique insights into how monetary systems shape societies.
A Pivotal Moment
August 15, 1971, marked a fundamental transformation in global economics. On that day, President Nixon suspended dollar convertibility to gold, effectively ending the Bretton Woods monetary system and ushering in a pure fiat currency era worldwide. This "Nixon Shock" severed the last connection between currencies globally and any physical constraint, transforming not just the U.S. dollar but the entire international monetary system.
Fifty-three years later, while the U.S. economy appears strong on the surface—representing 25% of global GDP with just 4% of the population (actually lower than our share in 1971)—troubling indicators lurk beneath. Our stock market capitalization is 60% of the global total, and we're home to 30% of the world's billionaires. Yet our federal government consumes about 24% of GDP, our national debt approaches $37 trillion, and unfunded liabilities exceed $100 trillion. Perhaps most tellingly, the ratio of sovereign debt to above-ground gold has skyrocketed from 1.6 in 1970 to 6.4 in 2023—making repayment in real terms virtually impossible.
Three Perspectives on an Alternative Path
Our roundtable explored what might have happened had Nixon doubled down on gold instead. The insights were both surprising and clarifying:
Bob Murphy made the provocative case that global GDP could be 70% higher today under a gold standard. He arrived at this estimate by identifying how fiat money enables government spending in sectors that contribute little to economic productivity—meaning activities that don't create goods or services that people voluntarily purchase or that enhance living standards. A significant portion of this "lost GDP" comes from excessive military spending that gold-constrained budgets would have prevented. Murphy explained that these resources, instead of being consumed by government, would have been directed toward innovation, business formation, and capital improvements that increase society's productive capacity and genuine wealth creation.
Lyn Alden provided crucial technological context, explaining how the telegraph created an unprecedented gap between transaction speeds and settlement capabilities that put immense pressure on the gold standard. She argued that the shift away from gold-backed money was almost unavoidable—if we "ran this period of human history like a hundred times," we would likely see the same outcome in nearly all scenarios once communication technology outpaced physical gold settlement. Alden distinguished between beneficial wealth concentration from genuine innovation versus today's more problematic concentration from financial arbitrage. Her analysis connected how many dual-income households today feel economically left behind despite working more than previous generations, directly linking this widespread economic anxiety to our post-1971 monetary system. Importantly, she suggested that emerging technologies like Bitcoin might finally close the gap between transaction and settlement speeds, potentially enabling a return to sound money principles without gold's physical limitations.
Troy Cross emphasized that "price signals are a public epistemic good" that communicate what people truly need and want. Monetary distortions corrupt this vital information system, making wise economic decisions impossible. Yet he also provided thoughtful challenges to the gold standard narrative, questioning whether strict monetary constraints might prevent necessary flexibility during existential crises like invasion or war. Cross raised important questions about whether some forms of "malinvestment" enabled by easier money might occasionally yield unexpected innovations, citing how speculative funding sometimes backs transformative technologies that more disciplined capital allocation might have overlooked. Throughout the discussion, he pushed Murphy and Alden to address the practical trade-offs between monetary discipline and the flexibility needed to address unexpected challenges, enriching the conversation with philosophical depth.
What Lies Ahead
This conversation revealed that our monetary system isn't merely a technical arrangement but a fundamental social institution that shapes incentives, power relationships, and information flows throughout society. The abandonment of gold has influenced everything from wealth distribution to government size, from financial market behavior to warfare capabilities.
Over the coming weeks, I'll explore these implications in depth through a series of essays:
The Economic Impact: How has abandoning gold affected growth and prosperity?
Government Size and Spending: Examining how monetary systems influence government's role in the economy
Wealth Distribution: Why fiat currency systems distort the distribution of wealth compared to hard money economies
Financial Markets: How monetary uncertainty transformed investment into speculation
War and Crisis Management: The tension between discipline and necessary flexibility
The Technological Challenge: Can Bitcoin solve what gold couldn't?
Understanding this counterfactual isn't merely an intellectual exercise. As we face unprecedented debt levels, growing wealth inequality, and monetary interventions of increasing extremity, the path not taken in 1971 may offer vital insights for navigating our economic future.
Watch for my next essay as I examine the evidence for Murphy's striking claim that our economy could be 70% larger under a gold standard, and what that means for prosperity today.
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