If you want to understand how Steve Forbes feels about money, you need look no further than the dedication page of his new book by that name: Money: How the Destruction of the Dollar Threatens the Global Economy - and What We Can Do About It
"In remembrance of Alexander Hamilton, our first Secretary of the Treasury… Like few others before or since, he showed that money, properly understood, is the root of all good."[Emphasis mine.]
Money as the root of all good; that would be a controversial statement even under more benign economic conditions. Coming six years after one of the worst financial crises in U.S. history-and one that has been widely blamed on the greed of bankers-it would sound like near heresy.
Yet I would absolutely agree with Forbes that sound money is an important foundation on which to build an economy. Money is not "wealth," per se. As Forbes paraphrases the futurist George Gilder, it is the ingenuity of the human mind that is the source of all wealth. But money plays essential roles as a measure of value and a medium of exchange. It allows for trust between counterparties-which is essential in a functioning economy-but its impact here goes further. Sound money is a pillar of sound government and strong society, and periods of inflation and monetary instability are associated with higher crime and a breakdown of social cohesion.
Money is also a system of communication between debtors and creditors and between buyers and sellers, and manipulating the value of a currency can cause false signals that lead to bad decision making and misallocation.
In the opening chapters of Money, Forbes gives a brief history of the post-Bretton Woods world of floating exchange rates not backed by gold. At times, Forbes seems to romanticize the ancien régime, comparing its relative order favorably with the seeming chaos of today. On this count, I might have to disagree. The fixed-exchange-rate system under Bretton Woods had its flaws as well, as a country could be locked into an artificially cheap or artificially expensive exchange rate, which in turn could distort its economy. There is something to be said about a floating exchange rate's ability to act as a pressure release value and move with market conditions.
Of course, theory is very different than practice, and Forbes is absolutely correct when he says that the abandonment of Bretton Woods ushered in an era of profligate government spending, enabled by acquiescent central banks, and runaway inflation.
Perhaps the most interesting section of Money is the chapter titled "Money and Morality: How Debasing Money Debases Society."
Though perhaps a little esoteric-and definitely a little preachy-I agree with Forbes' premise that sound money creates a better society:
By providing a common standard of value that facilitates trade among total strangers, money promotes the cooperation and trust vital to commerce. Unstable money that can't be trusted undermines the market's common perception of value, creating distortions and uncertainty that disrupt transactions, making trust harder to establish… People lose faith in the system-and in each other.
Destruction of money brings "social malaise" marked by "scapegoating, corruption, social unrest, and increasingly coercive government."
I would add that, while inflation has not been a problem since the onset of the 2008 crisis here in the United States, the bailouts and unprecedented Fed stimulus that bankrolled them have contributed to a widespread perception of unfairness, that Wall Street runs Washington. With this perception comes resentment-and none of this is healthy for the country.
Forbes proposes returning to the gold standard and spends the final chapters of the book making his case. This might be a bridge too far for me and, in any event, it would be politically impossible any time in the foreseeable future. I do, however, agree with Forbes that loosening restrictions on alternative free-market currencies should be a priority. If the dollar-or any other currency-is managed prudently, then our government should have nothing to fear from a little competition.
I recommend you pick up a copy of Forbes' Money. Steve Forbes is no stranger to radical new ideas, and his thoughtful yet unapologetic defense of free markets is a refreshing contrast in this age of post-bubble statist solutions.
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