On August 15, 1971, Richard Nixon announced that the US dollar (USD) would no longer be redeemable in gold. This was supposed to be temporary. And yet, fifty-one years later, here we are. The gold standard was gradually destroyed in the twentieth century.

Now people are experiencing the consequences: less purchasing power, more economic cycles, and a weaker economy.

In the chapter 4 of his book What Has Government Done to Our Money?, Murray Rothbard goes over the steps the government took to end the gold standard over the twentieth century, from the end of the classical gold standard to the closing of the gold window in 1971.

The Classical Gold Standard (1815–1914)

The classical gold standard tended to prevent the government from running budget deficits and going into debt, as it could not easily create inflation. In 1913, the Federal Reserve (Fed) was born. When the US entered the World War I, US dollars were printed at an excess of the gold reserves. At this point, the US got off the classical gold standard and this money printing contributed to the depression of 1920–21.

The Gold Exchange Standard (1926–31)

In this regime, the USD and the pound sterling (GBP) were the two currencies of reference (“key currencies”). The US went back to the classical gold standard (converting USD into gold). GBP and other currencies were not convertible into gold (except for large bars). The Great Britain converted GBP to USD and the other European countries converted their currencies to GBP.

So, the Great Britain inflated GBP and the other European countries did the same with their respective currencies (a “pyramiding” of GBP on USD and of other European currencies on GBP).

As Rothbard stated:

Britain and Europe were permitted to inflate unchecked, and British deficits could pile up unrestrained by the market discipline of the gold standard…. Britain was able to induce the United States to inflate dollars so as not to lose many dollar reserves or gold to the United States.

As sterling balances piled up in France, the United States, and elsewhere, the slightest loss of confidence in the … inflationary structure was bound to lead to general collapse. This is precisely what happened in 1931; the failure of inflated banks throughout Europe, and the attempt of “hard money” France to cash in its sterling balances for gold, led Britain to go off the gold standard completely. Britain was soon followed by the other countries of Europe.

Fluctuating Fiat Currencies (1931–45)

In 1933–34 the US abandoned the classical gold standard once again. The USD was defined as 1/35 of an ounce of gold and only foreign governments and central banks could convert it into gold. So, there was a certain link to gold, but the US was in a floating exchange rate regime.

As Rothbard stated, by cutting the ties to gold, this regime:

leave[s] the absolute control of each national currency in the hands of its … government [which can] allow its currency to fluctuate freely with respect to all other fiat currencies … [The flaw] is to hand total control of the money supply to [the government], and then to … expect that it will refrain from using that power.

the disastrous experience of … the 1930s world of fiat paper and economic warfare, led the United States authorities to [aim] the restoration of a viable international monetary order

Bretton Woods and the New Gold Exchange Standard (1945–68)

Thus, enter Bretton Woods (conceived and implemented by the US at a conference in Bretton Woods, New Hampshire in 1944, and ratified by the US Congress in 1945). It was similar to the gold exchange standard, but with the USD being the only “key currency,” priced at $35 an ounce of gold and being redeemable in gold only by foreign governments and central banks.

However, this system eventually met its end. The US inflated the USD and other governments held USD as reserves. Throughout the 1960s, the US expanded the money supply due to the “War on Poverty,” the Vietnam War, and space programs.

To finance all this, the US ran large budget deficits, with the Fed monetizing the debt. European countries such as Germany, Switzerland, France, and Italy began redeeming dollars for gold, and the system collapsed in 1968, ending fully in 1971 when Nixon suspended redemption.

The Closing of the Gold Window and the Rise of Fiat (1971–?)

In order to keep the redemption of the USD in gold, the US government had two options:

1. Cut spending and taxes to reduce the budget deficit, allowing the dollar to appreciate and restore gold parity.

2. Devalue the dollar, raising the price of gold to match increased money supply and prices.

Both options were politically difficult. In February 1973, after two devaluations that raised gold to $42.22 per ounce, the gold window was permanently closed. The USD returned to a floating exchange rate regime.

As a result, the USD devalued and the 1970s were marked by stagflation. In 1980, gold reached $850 per ounce, oil rose from under $3 to nearly $40, and inflation exceeded 14 percent.

Only in the early 1980s did inflation begin to decline after Paul Volcker raised interest rates to nearly 20 percent.

Conclusion

The consequences of the end of the gold standard began to be felt in the 1970s. The devaluation of the USD substantially reduced Americans’ real wages.

Before 1970, one income was often enough to support a family. After the 1970s, dual incomes became necessary, and today even that is often insufficient without debt.

Despite technological progress, the standard of living is argued to be lower than in the 1950s and 1960s in real terms. If the USD had not been devalued since 1913, living standards would likely be significantly higher today.

This audio is based on, 'Capitalism: The Unknown Ideal.' It is a collection of essays, mostly by Ayn Rand, with additional essays by her associates Nathaniel Branden, Alan Greenspan and Robert Hessen. The book focuses on the moral nature of laissez-faire capitalism and private property.

To understand what Ayn Rand is saying one must first understand that there is no free market economy in North America. What we have is a mixed economy, a system where govt intervention dictates which businesses get an unfair advantage and are allow to grow while others are stopped. Few economic ideas are repeated as often as the claim that free markets inevitably produce monopolies. It is presented in classrooms, political debates, and the media as though it were an established law of economics. According to this view, competition naturally destroys itself, leaving a handful of powerful corporations to dominate industries unless government steps in to regulate them.

Ayn Rand challenged this assumption directly. Drawing on both economic reasoning and historical observation, she argued that the exact opposite is true: monopolies capable of exploiting consumers do not arise from free markets but from government intervention that suppresses competition.

The question is not whether a company becomes large. The question is whether competitors remain free to challenge it.

The Common Fallacy

One of the most persistent misconceptions in economics is the belief that monopolies are the inevitable outcome of laissez-faire capitalism. This idea, popularized by Karl Marx and later adopted across much of the political spectrum, assumes that successful businesses will eventually eliminate all rivals and gain permanent control over entire industries.

Rand argued that this belief confuses economic success with coercive power. Growing large through voluntary exchange is fundamentally different from preventing others from entering the market. The existence of a dominant firm does not, by itself, constitute a monopoly in the harmful sense of the word.

In a genuinely free market, consumers remain free to buy from competitors, investors remain free to fund new businesses, and entrepreneurs remain free to challenge existing firms whenever profit opportunities exist.

Defining a True Monopoly

Before discussing monopolies, Rand insisted on defining the term precisely. A monopoly worthy of condemnation is not merely a company with a large market share. It is a coercive monopoly—an organization that possesses exclusive control over an industry because competition has been legally prohibited.

The defining characteristic of such a monopoly is not simply the absence of competitors. It is the impossibility of competition. New entrants are prevented from offering alternatives through legal barriers rather than market forces.

Without legal protection from competition, even the largest company remains accountable to consumers. It must continue innovating, improving quality, and controlling costs or risk losing business to firms willing to serve customers more effectively.

How Coercive Monopolies Are Created

Rand observed that throughout the history of capitalism, no business has successfully established a coercive monopoly simply by outperforming competitors in an open market. The only reliable method of preventing competition has been government intervention.

Exclusive licenses, government franchises, subsidies, regulatory barriers, and legislative privileges all have one thing in common: they restrict who may legally enter a particular industry. These protections allow favored organizations to operate without facing the competitive pressures that normally discipline businesses in a free economy.

From this perspective, coercive monopolies are not products of laissez-faire capitalism at all. They arise only after the principles of free competition have been replaced by government control over market entry.

Historical Examples

Rand pointed to numerous examples in American history where monopolies existed not because competitors failed, but because governments prohibited competition. Utility companies frequently received exclusive franchises granting them sole authority to provide electricity within designated territories. Telephone service operated under similar legal protections, with competitors barred from entering the market.

During the Second World War, the federal government even directed the merger of Western Union and Postal Telegraph into a single telegraph monopoly. In each case, the monopoly did not emerge through voluntary exchange or superior efficiency—it existed because the law prevented anyone else from offering competing services.

Competition cannot discipline a business if competitors are forbidden to exist.

These examples illustrate Rand's central point: the defining feature of a harmful monopoly is not size, but legal protection from competition.

The Free Market Defeats Attempts at Monopoly

Critics often assume that a sufficiently wealthy company could simply purchase every competitor until none remained. Rand argued that history demonstrates otherwise. During the late nineteenth and early twentieth centuries, numerous attempts were made to corner markets in commodities such as wheat and cotton.

Every attempt ultimately failed. Entrepreneurs continued entering the market whenever profits became unusually attractive, expanding supply and pushing prices back toward competitive levels. Rather than creating permanent monopolies, these efforts frequently resulted in enormous financial losses for those attempting to manipulate markets.

In a free economy, success attracts competition. High profits signal opportunity, encouraging new businesses and investors to enter the field. The very incentive that appears to create monopoly instead becomes the force that undermines it.

The Myth of Predatory Pricing

Another common concern is the idea of predatory pricing—the claim that a large corporation could temporarily sell products below cost, bankrupt its smaller competitors, and later raise prices once it controlled the market.

Rand argued that this strategy is economically self-defeating. Selling below cost requires absorbing substantial losses. If the company later raises prices high enough to recover those losses, those elevated prices immediately create profit opportunities for new competitors. Entrepreneurs and investors would enter the industry, restoring competition and forcing prices back toward market levels.

Historical experience supports this reasoning. While price wars have certainly occurred, they have consistently produced lower prices, greater efficiency, and improved products for consumers rather than permanent monopolistic control.