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Originally posted at FreedomWorks.org. The anniversary was yesterday August 15th, this post is a day late.

On this day 40 years ago, former President Richard Nixon suspended the convertibility of the U.S. dollar into gold. The decision, which radically changed the global monetary system, still holds enormous ramifications for every single American today. The money in our pockets would be worth more if Nixon hadn’t cut the link between U.S. dollars and gold.

The correct history of the gold standard is generally avoided in the typical history classroom. It’s important to note that we never had a free market gold standard in the nineteenth or early twentieth century. As economist Gary North notes, “what Nixon destroyed was called the gold-exchange standard.” A free market gold standard, which I personally advocate, would mean a separation of money from state. While the gold-exchange standard was far from that, it is still preferable to our current fiat monetary system.

During the aftermath of WWII, the Bretton Woods system was established, tying international finance to the gold-backed U.S. dollar. The unconstitutional International Monetary Fund (IMF) was then created as a source of funds for countries having a balance of payments problem. By the early 1970s, the United States was running a balance-of-payments deficit due to a massive surge in government spending. The U.S. government couldn’t afford to pay for the costly Vietnam War and President Johnson’s Great Society Programs. The gold in Fort Knox was quickly disappearing as government spending rose to then unprecedented levels.

It’s clear why politicians are no fan of the gold standard. As The Telegraph’s Edmund Conway writes “the main difference with fiat money is that whereas under the gold standard it was all too obvious when politicians were spending beyond their means (they would simply run out of gold reserves).” Richard Nixon who should have made an effort to dramatically cut government spending decided to make a colossal monetary error. When he cut the link between the U.S. dollar and gold on August 15, 1971, the Bretton Woods System officially ended and the U.S. dollar became a fully fiat currency backed by absolutely nothing. With the Bretton Woods System dead, there was no justification for the IMF to continue but it did. Today, it is merely an international bailout fund that should the United States should immediately withdraw from.

Our economy has been remarkably instable for the past 40 years. We’ve since experienced periods of stagflation and recessions. Jordi Franch writes at Mises.org that, “with the burial of the last vestiges of the gold — that “barbarous relic” of the past, in Keynes’s words — the annoying limitation on the creation of money and credit was broken.” Pegging the U.S. dollar to gold put a restraint on the government’s ability to create an infinite supply of money.

Just as our Founding Fathers understood, it’s dangerous to give government unchecked power. Detlev Schlichter writes in the Wall Street Journal Europe that “U.S. President Richard Nixon closed the gold window and ushered in the first time in human history, a global system of unconstrained paper money under full control of the state.” Unfortunately, unelected bureaucrats at the Federal Reserve now have the power to create as much money as they want out of thin air.

It’s surprising that we have managed to survive four decades with a currency backed by only the government’s promise. History has proved that all fiat currencies eventually fail, with an average life expectancy of just 27 years. As Detlev Schlichter explains, “complete paper money systems are always creations of the state, never the outcome of private initiative or the free market. All paper money systems in history have, after some time, experienced growing financial instabilities, economic volatility, and an accelerating decline in money’s purchasing power. All of them ultimately failed.”

It’s difficult to predict how much longer the dollar will survive but things aren’t looking too promising. The price of gold, which is essentially a reflection of the dollar’s weakness, has risen to all-time highs. It has risen from below $40 per ounce in the 1970s to a whopping $1,740 today. Today, the dollar is worth less than 20 cents compared to the stronger pre-Nixon dollar.

Our monetary policy is deeply flawed. The fiat dollar is what lies at the heart of our economic woes. The Federal Reserve is essentially the institution that makes all of the recent bailouts possible. It’s quite simple for them to print more money to bail out their friends. If history is any indication, our fiat money system will ultimately collapse. With inflation running rampant—it’s anyone’s guess how much longer it will last. We must return to sound money before it’s too late.