On December 23, 1913, the U.S. Federal Reserve was born. Over the past 109 years, the purchasing power of the U.S. dollar has plummeted by more than 96%, according to data from the American Enterprise Institute. What cost $1 in 1913 would require about $30 today, reflecting a cumulative inflation rate of 2,907%. This erosion of fiat value has reignited interest in hard assets such as gold and bitcoin.
The Secret Birth of the Federal Reserve
The Fed was not America's first central bank. The First Bank of the United States (1791) and the Second Bank (1816) both failed amid political opposition. The Panic of 1907 convinced elites that a permanent central bank was needed. In November 1910, Senator Nelson Aldrich and representatives of the “Money Trust” met secretly on Jekyll Island to draft the Federal Reserve Act. The legislation passed Congress in December 1913 and was signed into law by President Woodrow Wilson on Christmas Eve. The American public was kept in the dark about the Jekyll Island meetings, which were later revealed to be the blueprint for the modern Fed.
Purchasing Power Decimation: 96% Gone
Since 1913, the dollar has lost more than 96% of its value. Visual Capitalist noted that $1 could buy ten bottles of beer in 1933; today it barely covers a small coffee. The M2 money supply surged from $4.6 trillion in 2000 to $19.5 trillion in 2021, with $3.4 trillion (about 20% of all dollars ever created) printed in 2020 alone. This massive monetary expansion, amplified by the 2008 financial crisis and the COVID-19 pandemic, has been a primary driver of inflation.
Why Inflation Persists: War, Sanctions, and Regulation
The Russia-Ukraine war sent energy prices soaring, as Western sanctions restricted Russian oil and gas exports. Meanwhile, U.S. government spending on military, climate regulations, and bureaucratic red tape have further pushed up prices. Economists argue that when money supply growth outpaces the production of goods and services, inflation is inevitable. Government interference—through irrational spending, sanctions, and regulations—exacerbates the problem, making essential goods and services artificially expensive.
Alternative Monies: Gold and Bitcoin Rise
In response to fiat depreciation, free-market advocates have turned to precious metals like gold and silver, which are scarce and cannot be printed arbitrarily. However, physical metals pose security and portability challenges. Bitcoin, with its fixed supply of 21 million coins and decentralized issuance, offers a more portable and secure alternative. Unlike fiat currencies, bitcoin cannot be inflated by central banks. As economist Friedrich Hayek famously said, “I don’t believe we shall ever have a good money again before we take the thing out of the hands of government… we can’t take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.” Bitcoin represents precisely such a roundabout innovation.
Historical data makes clear that the U.S. dollar is not a reliable long-term store of value. With persistent inflation and monetary expansion, scarce assets like bitcoin are increasingly viewed as hedges against the erosion of purchasing power. Whether they can fully replace fiat remains uncertain, but their role as alternative money is growing.