In 1913, you could walk into any branch of any bank in the United States and exchange a twenty-dollar bill for a one-ounce gold coin. The bill was a claim cheque. The gold was the money. By 1933, that exchange was a federal crime. By 1971, the bill no longer promised anything at all — it was just a piece of paper that the government insisted you accept as money, and that the government's central bank could print in any quantity it chose. The half-century that followed has been the largest monetary experiment in human history. The chart below is its receipt.
Sound money is money the issuing authority cannot easily debase. For most of human civilisation, that meant gold and silver — durable, divisible, fungible, and above all, hard to produce more of. Gold's above-ground stock grows by roughly 1.5% per year as new mining adds to the cumulative total. That's not zero — but it's slow, predictable, and capped by the laws of geology. Anyone trying to inflate the gold supply by even 10% in a year would have to dig up more in twelve months than humans have managed in any five-year period since the California Gold Rush.
Fiat currency has no such constraint. The United States M2 broad money stock — currency plus deposits, the working measure of dollars in circulation — was about $626 billion in 1970. By 2025 it stands above $22 trillion. That is a 35× expansion in 55 years. Gold's stock over the same period grew by less than 3×. The chart below puts both lines on the same canvas. The gold curve is a gentle slope. The M2 curve is a hockey stick that goes vertical after 2020. There is no economic theory needed to read it. Look.
This is what Austrians have warned about since Mises wrote The Theory of Money and Credit in 1912. When the issuer can create money at will, the holders of money are silently taxed by the loss of purchasing power. The chart's purple line is the same story told from the saver's perspective: $1 of 1913 dollars buys roughly three cents of 2025 goods. A century-long, gradient-of-painlessness expropriation. The grandparent who saved diligently in cash gave the bulk of that wealth to the bondholders, the asset-owners, and ultimately to the government that issued the dollar. Nobody robbed the savers. They were just left behind.
Bitcoin, plotted alongside, is the digital answer to a 5,000-year-old monetary question: can we have a money the issuing authority cannot debase, but without the storage, transport, and verification costs that made gold practical only at the institutional level? The asymptotic curve to 21 million coins is enforced by software that runs on tens of thousands of independent nodes. The halvings — visible as gentle inflection points every four years — are scheduled until ~2140. By 2025 over 95% of all bitcoin that will ever exist has already been mined. This is not an investment thesis. It is a monetary engineering specification. Module 6 returns to it.
INTERACTIVE · MARQUEE
Gold vs M2. Two lines. One conclusion.
Above-ground gold stock
World Gold Council · thousand tonnes
USD M2 broad money
Federal Reserve · USD billions
SITUATIONROOM.SPACE · THE VIENNA SCHOOL · DATA: FRED, WGC, BLS
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”
“The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion — policemen, soldiers, prisons, executions — are necessary to elect the inflationist.”
“The history of fiat money is, to put it kindly, one of failure. Every fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well.”
READING LADDER
Climb at your own pace.
FIELD TEST
Three questions. Two of three to pass.
1.Roughly how much has the US M2 money stock expanded since 1970?
2.What event in 1971 fundamentally changed the nature of the US dollar?
3.According to the Austrian view, what is the primary harm caused by sustained monetary inflation?