In Money, Steve Forbes provides a brief history on the development of money and monetary systems, and then spends a lot of time explaining his opinion about the recessions in the 2000s—its causes, consequences, and fixes. It should be no surprise that Forbes argues that loose money and over-regulation of the financial markets–not the opposite–are what caused our recent financial difficulties, and he traces the source of trouble to the decoupling of the dollar from a gold standard.
In the period since the Federal Reserve began meddling with the economy (1913) and the U.S. abandoned the gold standard (1973), government (and individual) debt has exploded, the purchasing power of the dollar has plummeted, and our economy has been subjected to a roller coaster ride of booms and busts, including the recent recession in the 2000s. To remedy our economic sickness and usher in an era of growth and stability, Forbes argues, we should return to a sound monetary system based on a gold standard.
Forbes spends a lot of time explaining that as a medium of exchange money has no inherent value; its purpose is to serve as a measurement of the value of other things. The government has (or should have, rather) an interest in setting and maintaining a consistent means of measuring value. Forbes writes, “Just as we need to be sure of the number of inches in a foot—or the minutes in an hour—people in the economy must be certain that their money is an accurate measure of worth. When the value of money fluctuates, as it so often does today, it produces uncertainty in addition to unnatural and often destructive marketplace behavior—artificial booms and busts that breed malignant economic and social consequences.”
The affects have been wide-ranging. The gradual increase in the price of oil is not because of OPEC, argues Forbes, but due to the dollar’s declining value. It’s made us poorer: “The debasement of the our dollar has taken away every penny of nominal pay increase for 41 years, leaving the median income in 2009 […] virtually the same as it was in 1968.” Easy money has fueled the alarmingly exponential growth in the cost of higher education, resulting in graduates up to their eyeballs in debt and with wages with shrinking purchasing power. One particularly fascinating study that he cited found that “inflation has actually been found to have a stronger connection to crime than joblessness.” When a government can print money at will, politicians take every opportunity to grow more powerful, more coercive, and more corrupt as they traffic in influence and purchase votes by spending on expensive social programs. This is not a partisan reality; it’s a general political one.
Forbes ridicules the Keynesians and central planners who think 1) that they can organize and control an economy as huge and complex as ours, and 2) that they can spend their way out of a depression. He quotes Ron Paul, who said, “If governments or central banks really can create wealth simply by creating money, why does poverty exist anywhere on earth?”
Yet Forbes tempers against fear-mongering by noting that other countries have been in an even worse situation than ours and managed to growth themselves back to economic health by implementing a sound monetary system: “Great Britain […] had a huge debt after the War of Spanish Succession in the early 1700s—250 percent of GDP. That nation also took on enormous debt during the subsequent Seven Year War, and later, as a result of the 20-year war with Napoleon. Yet the British were able to emerge in the 19th century as the greatest industrial power in the world because of their stable currency and capital markets.” He also notes that the US was in worse shape after WWII than it is in today.
There is not a lot of new content here (I’ve heard most of the arguments already), but for the lay reader it’s a straightforward and compelling discussion of our economy today and the necessity of going back to a gold standard of some sort. Forbes is not particularly strict about which approach to take—there are several that he outlines—but he stresses the general imperative for a sound monetary system. “A gold standard would obliterate inflation. From 1821 to 1914, the cost of living in Britain went up 0.1% a year. Compare that to the double-digit rate of inflation between 1971, when the link to gold was severed, until 1983, when that bout of inflation was conquered.”
Unfortunately, Forbes’ investment advice is about as banal and mainstream as you can find: Contribute the maximum to your 401(k) and IRA accounts, invest in index funds to spread your risk out over the entire stock market, etc. For somebody who wrote the forward to George Gilder’s contrarian book about capitalism, Wealth and Poverty, I was surprised to read this section. I expected something a bit more paradigm-shifting. That made the book a mixed bag overall, but I was still glad I read it.
(A digital copy of this book was provided by the publisher through Netgalley for purposes of review.)