In American movies, we can see families owning homes in the suburbs. At that time, almost every American started out by buying a house, like playing Sims. Although the welfare level in the rest of the world was not equal, it was possible to see that people were able to meet their basic needs.
There was a very simple explainable reason for this: Coins were stored as gold and precious metals. In other words, 1 lira in your pocket was equivalent to 1 gold. As a matter of fact, the whole system depended on a balance, and this balance was based on gold. In 1971, gold, the cornerstone of the monetary system, which can be compared to an inverted pyramid, was removed from the system.
Let’s get to know the man who started it all: Richard Nixon
A president who started US-China relations, got the country out of Vietnam, and made some needed reforms in the country would normally be hailed in the US. Nixon, on the other hand, is mentioned among the worst presidents of the USA in many lists. He is a president who was involved in many scandals and resigned after the famous Watergate scandal. The biggest crime of his time – when we look at the effect on the world – is that he ended the gold standard in his head.
During the Nixon era, all money was held in gold, and gold meant the US treasury. The gold of the countries that wanted to recover during and after the Second World War belonged to the USA. 2 grams of every 3 grams of gold in the world was in the USA. While European countries were getting up, they were using their new wealth to strengthen their own currency by buying back their gold from the USA. This situation, of course, began to disturb the USA, which does not want a rival to the dollar. As a solution to this situation, Richard Nixon took a decision that would collapse the Bretton Woods system and declared that the USA no longer needed to hold gold in exchange for the dollars it printed. This brought the end of the gold standard.
What is Bretton Woods?
In 1944, the United Nations Monetary and Financial Conference was held in the small town of Bretton Woods. In these negotiations, the famous economist Keynes came up with the idea of a money called Bankor. In the system called the International Monetary System (UPS), an international structure would produce a currency called Bankor in exchange for gold. International trade would be carried out on this currency, and the bankor value would be determined according to gold. White, on the other hand, accepted the system, but on one condition, that US dollars printed by the US Federal Reserve would be used instead of Bankor. This was called the White Plan. Before the end of the war, 44 countries were included in the White Plan. Basically, this system only used dollars instead of bankors. However, the price of the dollar used by the USA, which increased its capital exports after the war, increased continuously.
Wars are expensive things. The Vietnam War was also not cheap for the United States. As a result, the United States has resorted to printing money at the expense of reducing its capital power. As the value of the dollar fell, currencies indexed to the dollar began to fluctuate.
While some people attribute the economic crisis that started in 1971 to Bretton Woods, some people may have different approaches to the issue. The reason why the gold standard was abandoned in this article is because, in a sense, the coins are now tied to the US dollar without any equivalent. In a sense, non-material money began to appear.
Returning to 1971, “Money without material?” why?
Are you one of those who say “Money goes as it comes, we don’t see anything in our wallet”? Technically, having money in your pocket is a much rarer possibility than not. Because the money you can find in cash in the world is slightly more than 10% of the total money in the markets. Let’s break it down, because from here on out of the story, we’ll see what money has done to us.
Another important point is that the graphics that we will see shortly belong to the USA. The situation is worse for us. The situation is more dramatic because we see what happens in the meantime, whether it’s a memorandum, a coup, a coup attempt, an economic crisis.
Let’s take a look at the breaks created by the changes in 1971:
Increasing day by day: Inequality
Let me first explain what the graph above is telling. While all lines proceeded more or less the same way until 1971, after 1971 the per capita income (Real GDP per capita) has been increasing. Isn’t it beautiful? It’s fine, of course, but there’s that red line at the bottom, huh, that’s the median salary of salaried employees. In other words, when all salaries are written from top to bottom, the median salary becomes whatever the middle value is. The per capita salary has always increased, but the median value has remained the same.
“Inflation” formerly portrayed as a monster
For a while, the number one subject of every newspaper and every news broadcast in our country was the inflation monster. Cumulative inflation, which was steady before 1971, has increased tenfold in just 50 years. The price of anything worth 10 cents came to $1 over time.
This is the CPI, also known as the consumer price index graph. It is possible to see how prices move after the line that says 1971. After 1971, price increases are much more.
Let’s take a look at the “real estate” wing.
This is my favorite chart. Here we can see the time it takes for a person with an average income to buy an average house. This period, which was 2.4 years before 1971, has increased to 7 years in time. There is a similar situation in the prices of house rents, house rents increased 6 times in this process. When we remember that the salaries are more or less at the same level, the money we can allocate to buy a house from the salary also decreases.
Could giving up gold cause that much change?
The growth can be very rapid in a system based on papers that can be printed for free, or fiat money, which has no physical equivalent. As a result, central banks have the right to freely print money. Governments can use as much money as they want. When we look at this in a global sense, we see that especially countries with strong money create crazy debt and grow with this debt.
As the value of money decreased, inflation began to be more effective. The rich continued to increase their wealth. Inflation began to melt people’s purchasing power. While salaries have increased, the number of things salaries can receive has decreased.
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