In 1900, United States President William McKinley signed the Gold Standard Act, legislation that made gold the only standard for redeeming paper money. The bill would fix the value of the U.S. dollar at 25 8⁄10 grains of gold at “nine-tenths fine”, equivalent to 1.5 grams of pure gold.
For many years during 1933, there were faults between the federal government and the Gold Standard. It was suspended twice during World War I, President Woodrow Wilson had banned gold exports and the government would later prohibit private ownership of gold.
Between 1946 and 1971, nations operated under the Bretton Woods System, which prompted most of the countries to settle their international balances in U.S. dollars. The federal government assured to redeem other central banks’ dollar holdings for gold at a fixed rate of $35 per ounce.
Due to the paucity of confidence in the U.S. to redeem its currency into gold because of balance-of-payments deficits diminishing the U.S. gold reserves, President Richard Nixon announced on Aug. 15, 1971 that the U.S. would become “all Keynesians now” and would be completely off of gold as he ordered the termination of U.S. dollars into gold. Known as the “Nixon Shock,” the president issued a number of measures, including spending cuts, tax cuts, price freezes, investments in jobs and others.
Although President Nixon had good intentions – cutting the rise in consumer prices, making sure wages rise and reducing the size and scope of the federal government – the opposite has transpired: wages are stagnant, consumer prices are soaring each day, the federal government has gotten bigger and the U.S. dollar is worthless.
Here are 10 frightening facts about America’s declining standard of living since the U.S. officially got off of the gold standard:
In 1971, the federal budget was $187 billion. Four decades later, that federal budget has ballooned to more than $3.5 trillion. Even back then the budget maintained a budget deficit of $23 billion.
Back then, President Nixon ordered a $4.7 billion cut in federal spending, a postponement of pay raises and a five percent reduction in government personnel. Also, he ordered a 10 percent cut in foreign economic aid – at the time of Nixon foreign economic aid was several billion dollars and has now climbed to more than $52 billion.
Since President Barack Obama took office, the number of federal government employees grew by 123,000, or 6.2 percent. In total, the federal government maintains a workforce of 1.77 million (11.8 million total government jobs). The numbers vary when it comes to federal employment in 1971, but today’s figures are much, much greater than they were four decades ago. The federal payroll has also been growing since President George W. Bush took office.
When the government grows so do taxes. In order to maintain big government, it has to be funded through various forms of taxation, user fees, inflation and even borrowing from other countries to keep the doors of Congress open. This hurts the average citizen’s standard of living.
The government has become so big and intrusive that more than 128 million Americans depend on Washington.
Checks & Balances
A Gold Standard kept indirect checks and balances in Washington. Presidents, Senators and Congressmen couldn’t just print money in order to fund a war, expenditures, pet projects and welfare programs. The increase in federal spending and the national debt are proof of this.
As Murray N. Rothbard wrote in his book “What Has Government Done to Our Money?”:
“Government paper now becomes the fiat standard money.” He added: “But whether Treasury or Central Bank, the effect of fiat issue is the same: the monetary standard is now at the mercy of the government, and bank deposits are redeemable simply in government paper.”
U.S. dollar vs. Gold
Let’s compare gold, the world’s oldest currency, and the dollar, a toxic piece of paper now: since 1975, gold has consistently surpassed the U.S. dollar index (except in the periods of 1979 to 1982 and 1999 to 2004).
Using the cost of living calculator by the American Institute for Economic Research (AIER), $100 in 1971 is equal to $566.90 in 2012. The cost of a loaf of bread in 1971 was a quarter and is now $2.20. Monthly rent on average was $150 and a studio apartment in New York City is $1,200.
Indeed, the cost of living has dramatically increased since the time of Nixon. Everything has gone up in price, but the only thing that hasn’t risen in value is the U.S. dollar. Through the Federal Reserve’s inflationary measures, Americans’ purchasing power has lessened.
Oil & Gas (Dow)
A gallon of gasoline in 1971 was 36 cents and now it has soared to as high as nearly $4. Right now, it takes less than one gram of gold to buy a barrel of crude oil. In terms of fiat currency, it takes $97 to purchase a barrel of crude oil. Or, looking at the Dow Jones, it’s worth eight ounces of gold.
Econbrowser.com published an interesting chart late last year that looked at how many ounces of gold a worker would earn from 100 hours worth of work. Due to the soaring cost of gold, the number of ounces has declined from close to six down to one.
In 2000, the average hourly wage was $13.75 and an ounce of gold was $238. If the average worker worked 100 hours, he or she would have received a $1,375 paycheck (forgetting about taxes for the moment), which would have purchased five ounces of gold.
The average U.S. hourly wage is $23.78 as of Jan. 2013. The price of gold is $1,672. Using the same calculations, he or she would earn $2,378 (again, forgetting about taxes at the moment), which would buy more than one ounce of gold.
Average hourly wages in 1971 was $3.56. Measuring this figure in today’s dollars, it would appear that it’s the equivalent to $20.18. This means average wages have actually changed very little since the U.S. got off of the gold standard.
This issue has been much debated in the U.S. Should it adopt a Canadian-style of system or should it lean towards a more free market approach. Either way, the numbers are quite interesting since the federal government got itself deeply involved in 1971.
President Nixon instituted the National Health Strategy, an initiative designed to improve the overall system, keep costs affordable and ensure access to all Americans. However, as the data suggests, medical care costs continue to rise.
In 1971, healthcare spending as a portion of GDP was at about seven percent. As of 2010, that number has climbed to 18 percent. Meanwhile, annual medical care costs for an average family of four is more than $20,000, up from $15,609 in 2008.
The shifting of the middle class has been a growing trend and a problem for citizens and even lawmakers, who get most of the blame, according to polls. In 1971, nearly two-thirds (61 percent) of Americans were middle-income earners. In 2011, that number has fallen to 51 percent.
Debt & Credit
Akin to low interest rates, having fiat money has led to tumultuous amounts of debt and credit. In 1971, the national debt was less than $400 billion ($16.5 trillion in 2013), while total consumer debt has grown 1,700 percent (2012).