1.7 The Gold Standard & Its End

For most of human history, money was backed by gold or silver. The gold standard meant that currency could be redeemed for a fixed amount of gold, constraining governments from printing unlimited money.

In 1913, the US created the Federal Reserve, centralizing control over money. In 1933, President Roosevelt banned private gold ownership. In 1971, President Nixon officially ended the convertibility of dollars to gold — the "Nixon Shock."

Since 1971, the US dollar has lost over 97% of its purchasing power. What $1 could buy in 1971 now requires over $7 to purchase. This hidden tax is called inflation, and it systematically transfers wealth from savers to those who print the money.

When money is no longer scarce, governments can fund wars, social programs, and bailouts by simply creating more currency. The cost is paid by everyone holding that currency through reduced purchasing power.

This historical context explains why Satoshi designed Bitcoin with an absolute, unchangeable supply cap. No government, institution, or individual can inflate Bitcoin beyond 21 million.