Anyone who has read Steve Forbes's columns in Forbes or any of his prior books will not be surprised that his new book, Money: How the Destruction of the Dollar Threatens the Global Economy--and What We Can Do About It, is well-written, accessible to the non-specialist, and quite convincing. He and Elizabeth Ames, with whom he has collaborated on several prior books, make a solid argument for a return to sound money.
Forbes and Ames argue that the economic problems of the last several decades are the result of the lack of stable currency, and that the means to a stable currency is the gold standard. "Without an economy based on stable money," they argue, "we will face an ever bigger government, stagnation, and ever more severe political troubles." That sounds pretty much like the story of the last 40 years, since Nixon abandoned the gold standard.
Money describes what money is: a measurement, a signal, basically information. Without a measure of what things are worth, transactions turn chaotic. Could a butcher sell his meat if the number of ounces in a pound was in constant flux? Could a builder build a house if he wasn't sure how many inches are in a foot this week? By the same token, an economy without a stable measure of value is subject to the whims of, well, the Federal Reserve.
Forbes and Ames are highly critical of quantitative easing, the most recent move to weaken the dollar. They write, "QE did not just fail as a stimulus. It prevented recovery by causing a destructive misallocation of credit" and caused "spikes in the prices of commodities that raised the cost of food and fuel, inflaming political divisions and unrest in many developing nations." Proponents of QE are followers of John Maynard Keynes's theories. But "Keynes and monetarists are on the wrong side of history. Increasing the supply of money cannot create prosperity because that is not how wealth is created. Wealth and growth come from innovation." Any Keynesian growth is artificial. The only genuine growth is from innovation.
Even though Forbes and Ames make a convincing case, I am not sure they believe anyone who matters will listen to them. They know Keynesianism dominates among politicians and economists today. But I think we can also see the tide turning. When Ron Paul called for a return to the gold standard, and demanded that we audit the Fed, he was, at first, written off as a loon. But voices like his and Forbes's seem to be taken more seriously now. Perhaps, against all odds, the right people will read Money and be spurred to agree that "the way to growth and a more prosperous future is not through weak money or tight money--but through sound money."
Thanks to NetGalley and the publisher for the complimentary electronic review copy!