Remember what they took from you. 1960s Aerial Of Suburban Housing Development (Photo by Heilman/Classicstock/Getty Images)

Heilman/ClassicStock

The Case-Shiller index of home prices is something else. Chip Case, a Wellesley professor, started the thing in the 1980s because he saw Massachusetts home prices zooming up like never before. In 1980, Massachusetts had put a permanent hard cap on local property taxes. It said they could go up by no more than 2.5 percent per year. Inflation in 1980 was 14 percent. Tough luck, local government, you lose. Money poured into property like never before. Hmmmmmmm. Cap taxes at a low level, watch the asset flourish.

The full Case-Shiller index going back to 1890—not 1980, 1890—tells a tale. Home prices were generally flat, actually going down a little (check out the modernization of this index on page 23 here), for three quarters of a century until the late 1960s. Then home prices went up by over 50 percent in the 1970s. This is all in real terms, adjusted for inflation. In the 1980s they dipped down, recovered a little in the 1990s, and then powered up like never before in the new millennium.

Wait, home prices generally modestly declined for seventy-five years from 1890 to 1965? You read that right. For the bulk of American history, as our best evidence has it, the trend for home prices was down. This stuff about home prices soaring is exclusively a story of basically 1970 to the present.

To paraphrase the famous X feed, What the devil happened in 1971? That’s when we went off the gold standard. Here is the origin of the housing crisis.

Going off gold prompted mass dubiousness about currencies and sparked interest in currency hedges. This new state of affairs has waxed and waned, generally waxed, for fifty some years now. Any asset or useful product limited in supply by geology—land (the basis of housing), gold, oil, you name it—has attractive hedge characteristics in a non-gold standard environment. These hedge characteristics were not apparent, not relevant before the late 1960s, when it became clear the money masters were going to make the gold standard kaputt. Stable low-priced housing for the age before, big time housing bubbles after.

But you say, there are housing markets that stink (hi, Detroit, Toledo, that ilk), home prices rather sunk in the latter 1980s and early 1990s, and there was a housing bust after 2008 for Pete’s sake. Well yes, there is waxing and waning in an asset to which people would prefer not to allocate a major portion of their portfolio, that is if we had a real currency system. Having a fakey currency system—fiat money—makes people reluctantly grope for things, housing especially, to which they would rather allocate a modest portion of their resources.

The predicament today is that the normal person’s financial/asset portfolio has an outsized share of housing (or fails to because it is too expensive) because the premium continues to attach to hedging the fiat monetary system. Who talks about going back on gold today? Nobody? Then cue the housing boom.

Let’s be up and talk about solutions. Here comes one, a freight train. Bitcoin, as we discuss in our new book Free Money: Bitcoin and the American Monetary Tradition, is a barbaric yawp, Whitman’s enduring phrase, from the American people, or the global electorate to use a term of Jude Wanniski’s, saying if you are not going to return to classical money, we’ll force you. And my, is it working. Look at that price and market capitalization.

It’s weird, it’s not based on anything, why would anyone hold that stuff—we’re talking about…fiat money, right! That’s why Bitcoin exists. As Bretton Woods Research recently put it in a report on how “Bitcoin signals a market revolt”: “Its rise isn’t about fundamentals or even monetary architecture. Bitcoin is about a broad-based rejection of what the fiat system has become.”

Here’s the future of housing prices. As Bitcoin either forces the world back on to classical money or becomes the approximation of classical money itself, dispatching fiat to the ash-bin of history, the demand for hedges against the whole currency system will fall. Housing is one of the first examples of these hedges. Living quarters will revert to normal pricing, housing will fall as a share of portfolios, everyone will be snug as a bug in a great place, and we will be off to better uses of our time and energy and resources.

We’ll leave for another day the uninspiring saga of the hangers-on to the housing boom, the collectors and beneficiaries of property taxes. One remark is in order at this point. This is that where housing has done poorly even in this expectational hedge environment, property taxes have been ridiculous. In other words, you really can’t find an exception anywhere. Where housing is permitted to function as a hedge against the currency system, it sure has.

We should take lessons from when in the post-1971 era housing has moderated. We should look at the 1980s more than post-2008. In the 1980s, it looked like we had a chance to go back on the gold standard. Tax-rates had been cut big time, and the world of real investments was so great the value of businesses went way up while gold sunk precipitously and stayed low. People dis-allocated from housing to get in on the fantastic times. Had we gone back on gold then, which would have been a piece of cake, the old 1890-1965 Case-Shiller trend would have reasserted itself for the duration. Missed opportunity.