The crypto community — but most of all, the Bitcoin (CRYPTO: BTC) community — is pointing out the disastrous consequences of the Richard Nixon administration’s decision to take the dollar off of the gold standard in 1971, exactly 50 years ago.
What Happened: The Bitcoin community caused the #wtfhappenedin1971 hashtag to go viral on Twitter Inc.(NYSE:TWTR) to attract public attention to the damage that fiat money has done to the world’s economy.
A website dedicated to sharing data of the event created by the United States cryptocurrency exchange River Financial illustrates how the economy changed with the transition to fiat.
Fiat money is a government-issued currency that is not backed by a physical commodity — just like the dollar was backed by gold until 1971 — deriving derives from the Latin word fiat, meaning “let it be done” — in the sense of an order, decree or resolution.
What It Means: In monetary economics, it is an intrinsically valueless object or record that is accepted widely as a means of payment.
Data released by the economic policy institute clearly shows that since 1971, the United States’ net productivity growth stopped causing hourly wages to grow as well.
Up until that point, the lines representing the two metrics followed each other so closely that they nearly perfectly overlap.
After the dollar was detached from the gold standard, productivity more than doubled, but it didn’t reflect on wages.
Real gross domestic product, real wages, and trade policies in the United States were also nearly as strictly intertwined until — you guessed it — Nixon decided to ruin it all in 1971.
Similarly, charts representing the income concentration at the top also show that income inequality grew immeasurably since the untethering of the dollar from gold.
Even the average black income versus the average white income chart shows that racial inequality grew — damaging United States’ Afro-American communities.
Lastly, a document illustrating the cost of living in 1971 shows that a new house used to cost $25,200, while the average income was $10,622 per year.
A new car used to cost $3,560, the average rent was $150, Harvard University’s tuition was $2,600 per year.
The astronomical increase in prices is caused largely by the astronomical inflation of 2,327% — up from 306% in 1970 — which immensely decreased the dollar’s purchasing power.
Bitcoin Fixes This
Bitcoin was created as a solution to the fiat-based financial system.
Bitcoin proponents firmly believe that government control of money is detrimental to both the economy and society.
Hardcoded into the first-ever Bitcoin network’s block was a headline of January third, 2009th issue of The London Times: “Chancellor on brink of second bailout for banks.”
This had the double purpose of proving that the block did not exist before this newspaper came out, but also to bring to attention Bitcoin’s value proposal — opting out of a financial system based on fractional reserve banking and fiat money.
There won’t ever be more than 21 million Bitcoins, but we cannot know how many dollars will ever be printed.
Why It Matters: You know exactly how much Bitcoin you hold in your wallet, but we cannot know how many of its customer’s deposits banks actually do hold in their reserves.
This last detail is why everybody is so afraid of bank runs: if everybody wanted to withdraw their money at once, then we’d find out that most of it are not even there — the wonders of fractional reserve banking.
For those reasons, Bitcoin proponents bring to everyone’s attention that the current financial system is broken, exploitative, and nothing more than an illusion.