The Dollar Illusion: Everything You Think You Know About Money Is Wrong
Why we're trapped in 1971 thinking in a 2025 world—and how understanding this could change everything
What if I told you that the economic debates dominating our politics are based on assumptions that became obsolete over 50 years ago?
What if the reason your wages can't keep up with inflation, despite record corporate profits, isn't because "that's just how economics works"—but because we fundamentally misunderstand what money actually represents?
And what if the solution to inequality, crumbling infrastructure, and economic stagnation has been hiding in plain sight this entire time?
This is the story of how America got trapped in gold-standard thinking in a fiat-currency world. And why that confusion is costing us everything.
The Great 1971 Reset Nobody Talks About
In 1971, President Nixon made a decision that changed everything: he took the United States off the gold standard.
Overnight, American currency went from being backed by precious metal reserves to being backed by something far more powerful—the collective productive capacity of the American people themselves.
But here's the problem: while the system changed, our understanding never did.
We still think about money, taxes, and government spending as if we're constrained by gold reserves sitting in Fort Knox. We're not. We haven't been for over 50 years.
And that misunderstanding is literally killing people.
What Your Dollar Actually Represents
Ask most people what gives a dollar its value, and they'll say "because we all agree it's worth something" or "because the government says so."
They're not wrong, but they're missing the crucial point.
In a fiat currency system, the value of a dollar is fundamentally derived from labor—specifically, the value of that labor.
Think about it: A government of the people, by the people, for the people is a government of laborers. It makes sense that those laborers would want a system to easily exchange goods and services based on the work they do.
The dollar in your wallet doesn't represent gold sitting in a vault. It represents the productive capacity of American workers—their ability to build bridges, grow food, provide services, create value.
This isn't abstract theory. It's the foundation of everything.
The Tax Lie That's Destroying America
Here's where everything you've been taught falls apart.
In a fiat currency system, taxes don't fund the government. Taxes control inflation.
Let me explain: When the government spends money—say, to build a bridge—it creates that money. It adds it to the commercial banking system, which flows to construction companies, material suppliers, workers. Those workers spend their wages at local businesses, restaurants, stores. Currency velocity increases. The economy grows.
But here's the key: if you keep adding money without removing any, you get inflation.
So how do you remove excess money from circulation? Taxation.
Government spending creates money and economic activity. Taxation destroys money to maintain balance. It's not about revenue collection—it's about currency management.
This completely reframes everything.
When wealthy people convince you that "taxes are theft," they're not advocating for your freedom. They're advocating for their ability to extract money from circulation while forcing the government to create more money to maintain economic activity.
Which creates the very inflation they then blame on government spending.
The $5 Trillion Experiment We All Lived Through
Still skeptical? We just lived through the most definitive proof of this theory in economic history.
The pandemic response.
The Federal Reserve created more money in two years (2020-2021) than in the previous decade. Direct payments went to citizens, expanded unemployment benefits, business support. According to conventional economic theory, this should have caused immediate hyperinflation.
Instead? Economic boom. Rapid recovery. Growth.
But then inflation hit. When? Not when the money was created. Inflation spiked when supply chains broke (real resource constraints) and when that money started pooling in asset markets instead of circulating in the real economy.
Compare this to 2008: The Fed created $4 trillion and gave it to banks. Result? A decade of economic stagnation.
Same money printer. Different velocity.
$5 trillion to people = boom. $4 trillion to banks = stagnation.
Case closed.
The Wealth Extraction Machine
This brings us to the core problem: wealth extraction.
Look at Federal Reserve data on M2 velocity—how fast money moves through the economy. It's been declining for decades, coinciding almost perfectly with rising wealth concentration.
When money circulates—when people earn it, spend it, earn it again—the economy thrives. When it gets extracted and hoarded in financial assets, economic activity slows.
The wealthy aren't just getting richer. They're pulling money out of circulation, reducing currency velocity, and forcing the government to create more money to maintain economic activity.
Then they point to the resulting inflation and say, "See? Government spending is the problem!"
It's brilliant. Evil, but brilliant.
The 2% Inflation Scam
Here's the most insidious part: The Federal Reserve targets 2% inflation annually as "healthy" economic policy.
This is systematic wealth theft operating in plain sight.
If you bought a $100 toaster last year, it costs $102 this year, $105 next year. The Fed does this deliberately, regardless of economic conditions.
Now, if wages kept pace with inflation, this wouldn't matter. But they don't. Real wages have stagnated for decades while the Fed hits its 2% target.
Meanwhile, asset prices—stocks, real estate, bonds—consistently outpace inflation.
Every year, wage earners lose purchasing power while asset holders gain it.
The 2% target isn't neutral policy. It's a wealth transfer mechanism. And it works exactly as designed.
The Japan Model Everyone Misunderstands
Western economists love to point to Japan as a cautionary tale—the "lost decades" of slow growth, deflation concerns, massive debt-to-GDP ratios.
But look at the actual outcomes: Japan has longer life expectancy than the US, lower inequality, better social cohesion, higher reported happiness, lower crime rates.
Japan essentially abandoned orthodox inflation targeting decades ago. They've maintained near-zero inflation, sometimes deflation, while Western economists predicted disaster.
Instead, they prioritized currency velocity and broad economic participation over GDP growth and asset inflation.
What if the metrics we use to define economic success are fundamentally wrong?
The Simple Solution
The fix isn't complicated:
Progressive taxation that actually gets collected. Wealth taxes, capital gains treated as ordinary income, closing loopholes that let corporations pay lower effective rates than their employees.
Massive infrastructure spending. Every dollar spent on infrastructure creates multiple dollars of economic activity. The construction worker buys lunch, the restaurant owner pays rent, the landlord fixes the building.
Compare that to a tax cut for someone who already has more money than they can spend—that dollar ends up in a portfolio, extracted from circulation.
The goal: maintain currency velocity while preventing wealth extraction.
It's not about punishing success. It's about understanding that in a fiat currency system, money needs to circulate to work.
Why This Matters More Than Ever
We're at a unique moment in economic history.
The pandemic response was the first time we could see unrestricted fiat currency management in action. We have proof that this model works.
Meanwhile, wealth inequality has reached levels not seen since the 1920s. Infrastructure is crumbling. Wages are stagnant despite record productivity.
The current system is failing everyone except those who understand how to extract value from it.
But here's the thing: once you understand what money actually represents, the political math changes completely.
Higher taxes on wealth extraction combined with infrastructure spending benefits virtually everyone except the ultra-wealthy. The current system only seems politically sustainable because people have been convinced it serves their interests when it doesn't.
The Choice We Face
We can keep operating under gold-standard assumptions in a fiat-currency world, watching inequality grow while our infrastructure crumbles and our wages stagnate.
Or we can acknowledge that the system changed in 1971, update our understanding accordingly, and build an economy that actually serves the people whose labor backs our currency.
The choice is ours. But first, we have to understand what we're actually choosing between.
The dollar in your wallet isn't what you think it is.
And that misunderstanding is costing us far more than we realize.
What do you think? Does this reframe how you think about money, taxes, and economic policy? Share your thoughts in the comments—I'd love to hear whether this resonates or if you see holes in the argument.
And if this changed how you think about economics, consider sharing it. These ideas need to break out of academic circles and reach the people whose labor actually backs our currency.