HYPOTHESIS
Scientific Verification Using Live Economic Data
The End of the Gold Standard Fundamentally Changed Economic Dynamics
On August 15, 1971, President Nixon ended the convertibility of the US dollar to gold, transitioning from a commodity-backed monetary system to a fiat currency system. We hypothesize that this structural change caused measurable shifts in key economic indicators.
H1
Productivity-Wage Decoupling: Worker productivity and real compensation, which tracked together before 1971, will show significant divergence after 1971.
Testing...
H2
Accelerated Inflation: The rate of inflation will increase significantly after 1971 compared to the period before, as money creation is no longer constrained.
Testing...
H3
Currency Devaluation: Gold price in dollars will increase dramatically, reflecting the loss of dollar purchasing power rather than gold "appreciation."
Testing...
H4
Debt Expansion: Federal debt as a percentage of GDP will grow substantially without the fiscal discipline imposed by the gold standard.
Testing...
Methodology: Data sourced from Federal Reserve Economic Data (FRED) API. We calculate pre-1971 vs post-1971 trends, growth rates, and structural break statistics. All values indexed to 1971 = 100 for comparison.
Shows how worker productivity and compensation tracked together until 1971, then diverged significantly after the end of the gold standard.
The Consumer Price Index has increased by over 717% since 1971, showing how the dollar has lost purchasing power after leaving the gold standard.
Real median household income growth slowed significantly after 1971, with families needing dual incomes to maintain similar standards of living.
Gold was fixed at $35/oz until Nixon closed the gold window. Since then, it has increased by over 13,217%, reflecting dollar devaluation.
Without the discipline of the gold standard, federal debt has exploded as governments can print money to finance deficits.
The Nixon Shock
On August 15, 1971, President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed rate, effectively ending the Bretton Woods system that had governed international monetary relations since 1944.
This decision fundamentally changed the nature of money. For the first time in history, no major world currency was backed by gold or any other commodity. All money became "fiat" currency - backed only by government decree.
1944
Bretton Woods Agreement - Dollar pegged to gold at $35/oz
1960s
Vietnam War spending creates inflation; gold reserves depleted
August 15, 1971
Nixon closes the "gold window" - dollar no longer convertible to gold
1973
Bretton Woods fully collapses; floating exchange rates begin
Present
Pure fiat monetary system; unprecedented debt and money creation
Exponential Growth Model: dY/dt = kY
Fitting Y(t) = Y₀e^(kt) to each series, comparing growth constants k before and after 1971.
Calculating growth rates...
Chow Structural Break Test
Testing H₀: No structural break vs H₁: Coefficients differ pre/post 1971. Significant if p < 0.05.
Coupled ODE System
Modeling: dP/dt = α₁P + β₁C and dC/dt = α₂P + β₂C
β₁ and α₂ measure cross-coupling between productivity and compensation.
Analyzing coupled system...
Phase Space Analysis
Plotting (Productivity, Compensation) trajectory. Perfect tracking = 45° diagonal. Divergence = slope < 1.
Differential Equations Verdict