Executive Summary
A popular chart circulates in monetary policy debates: the purchasing power of the U.S. dollar, plotted from 1913 to the present, falling off a cliff after August 1971. The visual is arresting, and the inference feels obvious — Nixon closed the gold window, the anchor was cut, and the dollar has been sinking ever since.
The inference does not survive contact with the record. This paper argues five things:
The chronology is wrong. U.S. inflation accelerated before August 1971, under Bretton Woods, and decelerated sharply after 1982, under pure fiat.
The constraint had already stopped binding. By 1971, the gold cover was a legal fiction. Closing the window ratified a limit that had ceased to operate a decade earlier.
The Great Inflation has a specific, well-documented causal account — doctrinal error at the Federal Reserve, real-time output-gap mismeasurement, political accommodation, fiscal expansion, and two oil shocks — none of which requires the gold standard as an explanatory variable.
The Volcker disinflation is a near-experimental refutation. The same institution, the same monetary constitution, the same currency, no gold, and inflation fell from roughly 15% to under 4% in three years.
The gold era’s own record is far worse than nostalgia allows — not price stability, but price volatility: prolonged deflations, recurring banking panics, and, in the 1930s, an actively destructive transmission mechanism.
The operative variable in inflation outcomes is not what the currency is redeemable for. It is what the central bank does, and whether the public believes it.