What happened in 1971? 20+ stats on the end of the gold standard

In August 2021, Jack Dorsey, Twitter co-founder and ex-CEO, used an unusual hashtag: #WTFHappenedin1971. Shortly after Edward Snowden, a whistleblower, posted a similar observation. Since then,  the question “What happened in 1971?” has been trending on social media. 

As the hashtag implies, something big happened. Social media users link Nixon’s decision to end the gold standard in 1971 with the subsequent rise of inflation and inequality.  At Invezz.com we use research & statistics to investigate assumptions.  Here is what we found. 

What happened in 1971?

1971 was the year when President Richard Nixon suddenly ended the gold standard in a television announcement. This was a radical decision that changed the global monetary system and had lasting effects on America’s economy and society. 

About that time, some worrisome trends emerged. Among them, the dollar’s value has declined, prices have skyrocketed and wages stagnated. But it wasn’t just the immediate economic shock triggered by what happened in 1971. Ending the gold standard contributed to a greater division in American society, with the poor becoming poorer and the rich becoming richer.

What was the gold standard?

This was a monetary system in which the dollar was pegged to a specific amount of gold, to be more precise, $35 for one ounce. All other currencies were pegged to a fixed exchange rate with the dollar. The gold standard was used to bring some stability and order to global trade after WWII. 

Initially, Nixon’s decision to delink the dollar from gold was praised as a success.  Currencies began to float and there was some flexibility. More recently, the long-term impact is a matter of debate.  

Key takeaways

• $1 in 1971 is equivalent in buying power to $7.60 today.
• In the US inflation rates increased from 4.29% in 1971 to 13.55% by the end of the decade.
• Since 1971, the top earners’ share of total income has more than doubled.
• The minimum hourly wage has been ever-dropping since the $12.04 peak in 1970, reaching just $7.25 in 2023.
• Since 1971, productivity growth has outpaced compensation growth by over two times, fueling income inequality.
• Following 1971, the wage bill share fell from 21% to 11% in 2017 to increase the profits of shareholders. 
• Home mortgage debt of US households and nonprofits soared by 758% from 1970 to 1990.

WTF happened in 1971: statistics & comparisons

1. In the decade following 1970 US inflation rates grew from 5.84% to 13.55%. 

To explain what happened in 1971, we first need to understand the economic consequences. At first, inflation was not an issue. President Nixon practically halted it during a 3-month wage and price freeze, announced on television. Soon, however, it started to reappear. 

In 1980 inflation rates, as measured by the consumer price index, reached almost 14%, up from 5.84% in 1970. Although Nixon’s plan to cut the gold backed currency was partially designed to cure inflation, the new policy instead contributed to an increase in inflation.

Source: World Bank

2. $1 from 1971 is worth $7.60 today.  

Since the 1970s roaring inflation has greatly eroded the value of the US dollar. For example, if you started with a dollar back in 1971 you would need to end with $7.60 in 2023 to beat the inflation.  

Source: CPI Inflation Calculator

3. Items that cost $5 in 1971 would cost $37.98 in 2023. 

The purchasing power of the dollar has fallen sharply since 1971. Back then $5 paid for  significantly more items at the store, or the equivalent of about $38 today’s dollars, to be more precise. 

For example, in 1971 you could buy 85 oranges for $5. Today, you need to pay about $38 for the same amount. Or you could take a Crispy Chicken Sandwich at McDonald’s for $5  instead.

Source: CPI Inflation Calculator

4. The income share of the top 10% more than doubled between 1970 and 2012.

Since 1971 the average incomes of the richest Americans have skyrocketed. Statistics computed by economist Emmanuel Saez and his colleague Thomas Piketty show that in the early 1970s, the top percentile had 9-10% of market income, including capital gains. This share grew to 22% in 2012. 

The increase in income concentration that started in the 1970s marked a reversal of a long-term downward trend. After post-war decades of stability, inequality has dramatically increased since what happened in 1971.

5. Since 1970, the incomes of the top 20% have increased faster than the incomes of other families.

Likewise, the top 20% of earners have increased their share of total household income in the US. While in 1970 the highest quintile generated approximately 43% of income, the figure increased to 51% in 2022. 

The rise of the well-off class has been at the expense of lower-income households. The distribution between quantiles suggests a growing level of income inequality in the US since what happened in 1971. 

Source: United States Census Bureau

6. In 1970, the US minimum wage peaked at $12.61 in current dollars, declining to $7.25 since.

Over the past 50 years minimum wages have relentlessly declined. When adjusted to inflation, the minimum wage reached historical heights in 1970, when it was $12.61 in current dollars. This is 74% higher than the federal minimum wage of $7.25 in 2023. 

Source: Bureau of Labor Statistics

7. From less than 1% in 1970, the proportion of countries facing banking crises grew to about 10% in 1976.

What’s more, the consequences of the Nixon shock were global. The period between the 1950s and 1970s was relatively calm, explained by an economically booming world after the Great Depression. 1971 set off a global wave of banking crises globally.

This has a lot to do with the breakup of the gold standard with its fixed exchange rates. A number of advanced economies faced financial sector difficulties, posing challenges to small economies. 

Source: Reinhart & Rogoff p. 205

8. The global median currency depreciation rate increased from under 1% in 1971 to around 7% in the 1980s

Since 1971 currency crashes have started to grow globally. After the gold backed currency was abandoned, the world entered into a new era of floating exchange rates. 

As a result, currency crashes became more pronounced. This is reflected in the increase of the median currency depreciation rates across global markets.

Source: Reinhart & Rogoff p. 190

9. Compared to the 1960s GDP growth in the US shrank by 30% in the 1970s.

The decades following WWII are called “the Golden Age of Capitalism” for a reason. In the 1960s the US economy was among the most prosperous in the world with an average annual real GDP growth of 4.1%. 

This period came to an end in the 1970s. During that decade, the average GDP growth rate fell to 2.9%. What happened in 1971 was intended to stimulate economic growth but hindered it instead.

Source: Derek H. Aldcroft, p.197

10. Between 1971 and 1980, the price of gold ran from $41 per troy ounce to as high as $612

The sharp increase in gold prices was more a result of the decline in the value of the dollar than an increase in the value of gold. Investors flocked to gold as a hedge against strong inflation. As demand was high, gold prices also increased.

Source: Kitco

11. In the decade following 1971 gasoline prices increased by 231% in current dollars.

Up until 1971, the price of gasoline in the US was overall flat. Following the dollar’s devaluation, prices of oil went up, as did many other goods and services. 

Along with inflation, the 1970s oil shocks contributed to disruptions of oil supplies and rallying prices to end customers. In 1973, Arab countries cut oil exports to the US as a punishment for the country’s support for Israel during the Yom Kippur War.

Source: Office of Energy Efficiency & Renewable Efficiency, Financial Times

12. The price of a metric ton of wheat more than tripled from early 1971 to early 1974.

It wasn’t just the oil prices that soared. Nixon’s shock literally made it harder to earn the bread and butter. Wheat prices saw a dramatic increase in the 1970s. From $64 per metric ton in January 1971 the prices soared to $214 in January 1974. 

The surge in wheat prices was influenced by various economic factors like the rise in oil prices and Nixon’s decision to abandon the gold backed currency. Rapid changes in the established monetary system triggered a more dynamic global marketplace. Volatility, in turn, had a ripple effect on commodity prices.

Source: World Bank

13. Compared to 1970, in 1974 the number of births in US hospitals was 14% lower.

Sudden inflation and price rises had an impact on the number of babies born. In 1970, the year before Nixon’s shock, 3,537,000 babies were born in US hospitals. Over the next four years, the number has consistently declined, reaching 3,043,386 in 1974.

Following what happened in 1971 many parents may have chosen to limit childbirth due to financial troubles during these challenging times.

Source: Statista

14. Since 1971, productivity growth has outpaced compensation growth by over 2 times.

Following Nixon’s decision to abandon the gold backed currency, the gap between the haves and have-nots deepened. In a 2019 study by Lenore Palladino at the Roosevelt Institute, the term “shareholder primacy” is used to describe a corporate framework focused solely on maximizing shareholders’ profits. 

It all started in the 1970s, according to Palladino. Before then, productivity and pay had increased together. Following the 1971 events, the shrunken dollar and rising prices resulted in an economic slowdown. 

Shareholders became angry with their low dividends and began demanding more money. Employees’ interests and well-being were no longer at the forefront. To meet shareholders’ expectations, management demanded greater productivity but kept salaries low.  “The rise of shareholder primacy has contributed to America’s high-profit, low-wage economy”, Palladino concludes.

Source: The Washington Post, Roosevelt Institute

15. In the 1970s labor union density declined from 27% to 22%.

The labor movement started to grow in the 19^th century to fight against workers’ low wages and poor rights. Between 1970 and 1979 the percentage of workforce members of labor unions saw a significant decline in the US. This marks an ongoing trend in the decline of labor union density.

As shareholder primacy flourished in the 1970s, union memberships became less powerful. It’s worth noting that the decline in labor union density is a global phenomenon, not just in the US.

16. The wages share of corporate assets dropped from 21% in 1972 to 11% in 2017.

The same paper concluded that wages fell relative to corporate assets, whereas shareholder payments saw an increase. While the wage bill share dropped from 21% to 11% between 1972 and 2017, payments to shareholders grew from 1.7% to 3.5% during the same period.

These changes align with the narrative of an increasing gap between workers and shareholders, triggered by what happened in 1971. 

Source: Roosevelt Institute

17. 1971 marked the highest personal savings rate of the 20th century, gradually declining by the century’s end.

The personal savings rate in the US reached 13.5% of disposable income in 1971. By 1977, Americans were able to save noticeably less (10.7%). A key factor for the decline was the high inflation rate, resulting in shrinking disposable incomes.

Source: St. Louis Fed 

18. Alcohol consumption jumped 9% from 1970 to 1980.

After WWII the nation’s alcohol intake started to increase. While in the 1950s and 60s, consumption remained relatively stable, there was a noticeable surge in the 1970s. 

In 1975 per capita alcohol consumption reached 2.67 gallons of ethanol per year. To set this in context, a standard alcoholic drink contains 0.6 fluid ounces of ethanol. Thus, the 1975 national per capita consumption level translates into 570 drinks.

The 1980s marked the highest levels of drinking recorded since the US National Institute on Alcohol Abuse and Alcoholism began tracking ethanol consumption.

Source: National Institute on Alcohol Abuse and Alcoholism

19. Home mortgage debt of US households and nonprofits soared by 758% from 1970 to 1990.

The amount of mortgage debt has been one of the most rapidly growing economic phenomena in the second half of the 20^th century. US household and nonprofit mortgage debt surged from $0.29 trillion in 1970 to $2.49 trillion just three decades later.

The trend shows that debt has increased much faster than population and disposable income in the US. Meanwhile, the costs of residential construction in the US saw significant growth in the decades following 1971. It was around that time when borrowing money from banks became the new normal.

Source: St. Louis Fed

20. The share of young adults living with parents hit a low of 29% in the 1960s, rising steadily by the century’s end.

Following a peak during the Great Depression era, the share of young adults living with their parents fell to below 30% in the 1960s. Over the 1970s, however, an onward trend emerged, with more young people unable to leave the family home. 

America’s youth is vulnerable to inflation and stagnating minimum wages, which can explain shared living trends from the 1970s onwards. 

Source: Pew Research

21. The real house price index grew from 55.7 in 1970 to 71.2 by the end of the decade.

Specifically looking at the costs to buy a home, the real house price index in the US was measured at 55.7 in 1970. By the end of the century, there was a 15.5-point increase. 

This reflects an increase in real housing prices over that time period, accounting for inflation. That said, homes have been less affordable specifically for budget-conscious young people.

Source: Organisation for Economic Co-operation and Development

22. In 1973, science and engineering PhD graduates peaked at 33,755 and fell 9% in five years.

Up until 1973, there was a consistent upward trend in the number of engineering and science doctorate recipients in the US. That year, 33,755 candidates received their degrees.

However, during the 1970s, the number of PhD degrees in these fields plateaued, declining to 31,238 by 1979. This trend continued into the mid-1980s, followed by a resurgence in successful PhD candidates in the 1990s.

Given the challenging economic situation after what happened in 1971, many young people likely sought job opportunities to pay their bills instead of pursuing a PhD.

Source: National Science Foundation

23. Since 1970, the top 10% income share has increased by 42% in the US and by 17% in Europe.

Between 1900 and 2010, the top 10% of earners in the US increased their share of total pretax from 34% to 48%. By contrast, in Europe, the rich saw a more modest increase, from 30% to 35% during the same period. Compared to Europe, income inequality in the US has surged since the 1970s and remains much more unequal.

Source: Science

Final thoughts

What happened in 1971 is a question popular on Twitter but, in fact, everyone should ask. In this article, we’ve backed assumptions with credible data to address questions like what was the gold standard, when did the gold standard end, and what was the impact on the economy and people. 

Simply put, the decision to abandon gold backed currency resulted in a shrunken dollar and rising prices. The 1970s roared in with a growing inflation rate, nearly doubling by 1980. To make things worse, oil prices were also skyrocketing.

This might have been a short-term hurdle, but the economic slowdown caused deeper changes in corporate life. Shareholders were unnerved by their shrinking returns and started demanding more from employees while keeping salaries low. This contributed to America’s high-profit, low-wage economy since what happened in 1971.

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