How the Vietnam War Ended the Gold Cover of American Currency

In his January 1968 State of the Union address, President Lyndon Johnson asked Congress to abolish the last legal connection between the dollar and gold – a legal requirement that 25% of Federal Reserve notes be covered by gold. Johnson wanted the $10 billion in gold reserved for that purpose to be reallocated to support an international commitment of converting dollars brought by foreigners into gold. The Treasury barely had enough gold for that commitment because so many paper dollars were printed to fund the Vietnam War.

Although Democrats had large majorities in both chambers, the bill passed only by a majority of 51% in both chambers. In the Senate, a quarter of members dodged voting, while another quarter voted against the party line. Johnson’s biggest problem in passing the bill was the Tet Offensive that occurred during the deliberations. The shocking offensive signaled that the Vietnam War would not end soon and would require much larger military expenditures. Before the Senate vote in mid-March, Johnson nearly lost the first primary of that election year to antiwar candidate Senator Eugene McCarthy, and it was expected that antiwar candidate Senator Robert Kennedy would join the race. Kennedy did, and two weeks later Johnson quit the race. Democrats understood that Tet made Johnson a lame duck and that removal of the gold cover would enable unlimited money printing to finance the war. Therefore, most Democratic senators either voted against the bill or failed to vote. Support of defecting Republicans was essential in both chambers.

The legal end of gold in 1968 – motivated by the Vietnam War but barely approved because of the war – enabled the great inflation and economic stagnation of the 1970s.