Voima Weekly #42 – What happened in 1971?

Photo generated with AI.

In 1971, the United States ended the convertibility of the dollar into gold. In practice, this led to the end of the Bretton Woods system¹: the value of the dollar was no longer tied to gold in the same way as before, and the global monetary system moved toward the fiat money era we live in today.

Behind the decision was not some isolated technical detail, but an old and recurring problem: the state had been living beyond its means. The Vietnam War, growing public spending and increasing debt had expanded the number of dollars in circulation relative to the United States’ gold reserves. When foreign governments began to question whether dollars could really be redeemed for gold — and started exchanging their dollars for gold — the system could no longer hold.

This has often been the basic pattern behind abandoning a gold standard: gold imposes limits. When a state wants to spend more than it can honestly finance, diluting the value of money is often politically easier than cutting spending, raising taxes or returning to discipline.

The website WTF Happened In 1971? brings together a long series of charts whose shared message is simple but broad: after the early 1970s, the world began to change in a way that ordinary people still feel in their daily lives. I recommend that readers take a look at the charts and statistics presented on the site.

This is not only about one economic indicator, nor merely about wages and productivity drifting apart. The site presents a broader picture: inflation accelerated, debt grew, the importance of asset ownership increased, saving in money became more difficult, financial pressure on families rose, and social problems began to expand. The amount of administration, regulation and bureaucracy also grew in a way that reflects a broader change: the system became heavier, more complex and harder for ordinary people to manage.

This does not mean that the 1971 decision alone explains everything. It does not, for example, explain technological development, which has been a key reason for the growth of output and productivity. But the point of the site is that after the early 1970s, the relationship between money, work, saving, ownership, the state and society began to change simultaneously on several different levels.

Before, ordinary work carried further in itself. Wages, housing, saving and building a family were closer to each other. The central point is that the ordinary wage earner now has to work more in order to preserve the same life.

This is especially visible in families. As living on one income becomes more difficult, the two-income household becomes the norm. As housing becomes more expensive relative to wages, owning a home becomes a long debt project for more and more people. As saving in money no longer preserves purchasing power, people are forced to become investors merely to protect what previous generations could preserve through ordinary saving.

That is why the question of 1971 is not only a matter of monetary history. It is a question of time, family and freedom. When money loses its value, a person does not lose only numbers on an account. He loses time. He has to work more for the same food, the same home, the same car, the same security and the same future.

Taxation also plays its own role here. Progressive income taxation makes it harder for ordinary workers to improve their position: the more a person tries to compensate for the weakening of purchasing power by working more and earning more, the larger the share of that additional work that is taxed away.

Here lies one of the great contradictions of our time. The person who saves in money is punished by inflation. The person who tries to improve his position through work is punished by progressive taxation. The person who owns assets, meanwhile, participates in the rise of the system. Thomas Sowell² once said: “I have never understood why it is ‘greed’ to want to keep the money you have earned, but not greed to want to take somebody else’s money.” That is the paradox of socialism: ownership is called greed, while demanding what belongs to someone else is called justice.

That is why 1971 serves as a powerful historical marker: after that point, the relationship between money, work, saving and ownership began to change in a way that ordinary people still feel in their daily lives today.

From our perspective, this is not about nostalgia. It is about how the fruits of work, savings and purchasing power can be protected in a world where money no longer carries the same responsibility as before. There is no point in endlessly lamenting this. The world has changed, and it is wiser to understand reality and adapt to it.

Gold is an excellent bedrock on which wealth can be built. It is not the whole answer, but it is a strong beginning: a physical, scarce and system-independent asset in a world where the value of money can be diluted by political decisions. On top of that, the securities market continues to offer excellent opportunities. Shares, companies and capital markets can be a powerful way to participate in growth, innovation and future value creation. This is not about longing for the old world, but about understanding the new one.

It is also clear that our indebted economies have not yet said their final word. There is likely to be more redistribution of wealth ahead than before — one way or another. That is why you, dear reader, still have a good opportunity to be on the benefiting side.

That is why we at Voima are building services and products around exactly this: protecting purchasing power, saving and real wealth — and building on top of them.

This work is only beginning. Stay tuned.

– Marko Viinikka
Founder, CEO
Voima Gold Oy

Disclaimer: Voima Weeklies are the personal writings of the undersigned. They do not necessarily represent the official view of Voima Gold Oy or any other company, nor do they constitute investment advice or a recommendation to purchase securities.