TL;DR: History shows us a clear pattern: when profits are suppressed (like rent control in WWI-era Britain), supply collapses, and everyone suffers. Conversely, when capital flows freely, production booms. But the modern world has added a new layer to this: since the end of the Gold Standard and the Bretton Woods system, we have entered the era of Fiat Currency and Infinite Inflation. In this system, money is no longer tied to gold; it is tied to debt. This structural change guarantees that asset prices (like real estate) will rise forever, not because they are inherently more valuable, but because the currency used to buy them is designed to be infinite.
James here, CEO of Mercury Technology Solutions. Taipei - December 8, 2025
Most people think of London as the eternal financial capital of the world. But originally, that title belonged to Amsterdam.
It wasn't until the late 18th century, when the French Revolutionary Army liberated the Netherlands and Napoleon—aiming to crush British trade—suppressed Dutch financial activity, that the 300-year-old Amsterdam Exchange closed its doors.
This chaos almost destroyed the British Pound. But after Napoleon's defeat, Britain stabilized its currency in 1816 with the Great Recoinage, establishing a strict Gold Standard. By 1873, the entire world was on this system.
The Sherlock Holmes Era: A World Without Inflation
The late 19th century—the era of Sherlock Holmes—was an economic anomaly by modern standards. It was a world of zero inflation.
Because every pound note was backed by physical gold in a vault, money supply was strictly limited.
- Price Stability: Things cost the same (or less) a decade later due to productivity gains.
- Stable Housing: House prices almost never rose. Your grandfather's house cost the same as yours.
- Low Rents: With no rampant speculation, rents were cheap.
To some, it was paradise. But it was about to be destroyed by war and policy.
WWI and the Lesson of Rent Control
When WWI broke out, soldiers went to the front, emptying rural homes. But in the cities, the war industry boomed, flooding urban centers with workers. Rents skyrocketed.
This created a political crisis: soldiers fighting at the front were receiving letters that their families were being evicted. The government's solution? Rent Control.
This sounded noble. It protected tenants and capped rents. But the economic consequence was catastrophic:
- Profit Vanished: Landlords and developers could no longer make money.
- Supply Collapsed: Private house building dropped by 80-90%.
- Shortage: Because no new houses were built, there was a massive housing shortage.
The lesson was brutal: If you remove the profit motive, you remove the supply. A policy designed to make housing "affordable" resulted in no housing at all.
It wasn't until the 1950s, when these controls were relaxed, that private construction boomed again (increasing 10x). Society relearned that allowing capitalists to profit is the only way to ensure abundance for the masses.
The End of Gold and the Birth of Infinite Inflation
But the real game-changer happened in the 1970s. The Bretton Woods system—a "pseudo-gold standard" where currencies were pegged to the US Dollar, which was pegged to gold—collapsed.
This marked the beginning of the Fiat Currency Era, the world we live in today.
Why Inflation is Now Infinite
Under the Gold Standard, a bank could only lend money if it had the gold to back it. Under the Fiat System, money is backed by... nothing but government decree and debt.
- Unshackled Lending: Banks were no longer constrained by gold reserves. They could issue massive amounts of mortgage debt.
- The Credit Boom: Easier access to credit meant more people could buy houses. More buyers meant higher prices.
- The Feedback Loop: As house prices rose, banks created more money (credit) to finance them, which pushed prices even higher.
This structural shift turned real estate and finance into the engines of the modern economy.
Why is there infinite inflation? Because in a fiat system, money must be printed to service the interest on existing debt. The supply of money is theoretically infinite. The supply of prime real estate (or gold, or Bitcoin) is finite.
When you divide a finite asset by an infinite currency, the price of the asset goes to infinity.
Conclusion: You Are Swimming in Diluted Water
We are not living in the world of Sherlock Holmes. We are living in a system designed to inflate.
- Don't save in cash: Cash is the asset that is being diluted.
- Don't wait for prices to "return to normal": The definition of "normal" is constantly being debased.
- Own finite assets: In a world of infinite money, the only safety is owning things that cannot be printed.
The "Great Inflation" isn't a bug; it's the operating system. Adjust your strategy accordingly.
