The Slow Confiscation: On Fiat Money and Its Cost
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On the night the anchor was cut, the fifty years of purchasing power that followed it into the water, and the family that was quietly dismantled to pay for the difference
In 1971 a man could support a wife, three children, and a mortgaged house on a factory wage. This is not nostalgia. It is arithmetic. And the arithmetic has a cause.
Voltaire wrote, in 1729, that paper money eventually returns to its intrinsic value: zero. He was describing John Law's Mississippi scheme, which had just destroyed the savings of a generation of French investors and left the country's financial system in ruins. The observation was taken, at the time, as a verdict on a specific and spectacular folly. What history has subsequently demonstrated is that it is something closer to a law: not a law of physics, which admits no exception, but a law of institutions, which admits only temporary ones. Every fiat currency ever issued has lost value against hard assets over any sufficiently long period. Most have lost it catastrophically. None has gained it. The question is never whether the confiscation will happen, but how quickly, and who will be left holding the paper when the rate of loss becomes impossible to ignore.1
The modern experiment began on a Sunday evening in August 1971, when Richard Nixon appeared on American television and announced that the United States would no longer honour its commitment to redeem dollars for gold at thirty-five dollars an ounce. The Bretton Woods system, the post-war architecture under which the dollar served as the world's reserve currency precisely because it was convertible to gold at a fixed rate, was over. Sterling, like every other major currency, was pegged to the dollar. The dollar had been pegged to gold. Now the dollar was pegged to nothing but the faith of those who held it. The pound, untethered from its own anchor by proxy, was left to find its own level in a world where every central bank had simultaneously been handed a printing press with no instruction manual and no institutional memory of what happened the last time one was used without restraint. The anchor was not merely lifted. It was cut from the chain and allowed to sink, and the ship has been drifting ever since, and the passengers have mostly been too busy bailing to notice the direction of the drift.2
What the anchor held, while it held, was the purchasing power of the wage.
This is the fact that the intervening half-century has done most to obscure, partly through the complexity of the economic arguments deployed around it and partly because the people who benefited most from the obscuring have been the ones with the largest platforms from which to speak. But the numbers are not complex. In 1971, the average UK house price, as recorded by the Nationwide Building Society's index, was approximately £5,600. Average male full-time earnings were approximately £1,750 per year, a ratio of roughly 3.2 to one. By 2024, the average UK house price had risen to approximately £265,000. Median full-time earnings, as recorded by the Office for National Statistics Annual Survey of Hours and Earnings, stood at approximately £37,000, a ratio of 7.2 to one, and still rising.3 What this means, translated out of statistics and into the life of a specific family, is that the house which required three years of a single wage to price in 1971 now requires more than seven, and that this is the national average, not the extreme, and that in London the ratio exceeds twelve to one, placing home ownership on a single median income beyond any arithmetic that conventional mortgage lending will currently entertain.
The standard explanation for this divergence is a failure of housing supply: not enough homes were built, planning restrictions prevented density, green belt protections calcified the stock, and successive governments promised reform and delivered inertia. This explanation is not wrong, exactly, but it is radically incomplete. Supply constraints existed before 1971 and have existed in all periods. What changed in 1971 was the monetary environment in which housing was priced. When money is anchored to a scarce physical commodity, the amount of money in circulation is constrained by the availability of that commodity. When money is unanchored, when a central bank can create it in whatever quantity the moment seems to require, the money supply expands, and the expansion flows preferentially into assets whose supply is genuinely constrained. Housing is the paradigm case. It sits on land, and land is not manufactured. The expanded money supply has been chasing a fixed stock of desirable locations for fifty years, and the price of those locations has reflected this chase with complete fidelity. The housing crisis is not a planning failure wearing a monetary mask. It is a monetary crisis wearing a planning mask.4
The purchasing power of the...