MONEY: How the Destruction of the Dollar threatens the Global Economy and

what we can do about it

Originally written by By Steve Forbes and Elizabeth Ames

Book Reviews Dyman Associates Publishing Inc - In The Wealth of Nations, Adam Smith
wrote, The sole use of money is to circulate consumable goods. Truer words have
rarely been written, but the remarkable thing about Smiths passage was that it was a
throwaway line in what remains to this day one of the most important books on economics ever
written.

Smiths line about money was throwaway simply because it was a tautology. The world is
round, the sun sets in the west, and yes, moneys sole purpose is to facilitate exchange. Money
is not wealth, its merely what we use to measure our production so that we can exchange it for
that which we dont have, not to mention place a value on investments representing the
production of future wealth.

Precisely because money is a measure, much like a foot and minute are, its essential that its
value be as stable as possible. Gold has historically been used to define money not because its
nice to look at, but simply because its stability renders it money, par excellence, in the words
of Karl Marx.

In modern times, the economics profession has perverted money, and turned it into wealth
itself. Weve seen this most notably through the monetary machinations (quantitative easing
QE) foisted on the economy by then-Federal Reserve Chairman Ben S. Bernanke. Money is no
longer seen by economists as a low-entropy measure; now, its simple creation is viewed as the
path to actual production. In light of this, its no surprise that the economy took a dive under
our former Fed chairman.

Enter Forbes editor-in-chief Steve Forbes and Elizabeth Ames. Theyve co-authored an essential
new book, Money: How the Destruction of the Dollar Threatens the Global Economy
and What We Can Do About It, which seeks a return of money to its proper
place. Channeling Smith, the authors write that the money in our pockets is
fundamentally simple, and that its singular purpose is as an instrument of
measurement.

The problem, described by the authors expertly, is that ever since 1971 when President Nixon
delinked it from gold, the dollar has floated in value. Just as houses would be asymmetrical and
souffles burned if the foot and minute were to constantly change in terms of length and time,
so has economic growth been sadly restrained thanks to a dollar that is no longer a stable
measure of value. As the authors explain it, This ever-fluctuating system of fiat money,
with its gradual weakening of the dollar, has produced four decades of slow-motion
wealth destruction.

Why is this? The answer is as simple as the correct conception of money is. The authors write
that when money is weakened, people seek to preserve their wealth by investing in
commodities and hard assets least vulnerable to the decline of the dollar itself. Looked at
in historical terms, we didnt have oil shocks in the 1970s; rather, we experienced
commodity shocks across the board as the dollar in which they were measured declined in
value. Just the same, oil isnt currently expensive; instead, the dollar in which it is once again
measured has declined substantially since 2001.

Looked at from an investment perspective, economic growth is derived from information, good
and bad, entering the economy. In short, its about experimentation with always-limited
investment. However, when money is losing value, investment flows into hard assets
representing wealth that already exists (think land, art, rare stamps, oil, gold) and away from
the stock and bond income streams representing wealth that doesnt yet exist. Floating, cheap
money signals a descent into darkness that robs the economy of the information necessary to
power it forward.

Some readers will understandably point out that the U.S. economy performed well in the 1980s
and 90s despite a floating dollar, but the authors know why this is. As they note, the dollar
back then, despite ups and downs, averaged around $350 an ounce, as measured in
gold. With the dollar largely stable during the Reagan and Clinton presidencies, investment was
reallocated from the prosaic wealth of yesterday, and back into stocks and bonds representing
future wealth. The technology explosion in the 80s and 90s was no accident.

Thats why the authors so confidently and correctly assert that quantitative easing did not
just fail as stimulus. It prevented recovery by causing a destructive misallocation of
credit.

In their clear-eyed way of looking at the economy, the authors make plain that QEs imposition
explicitly deprived the dollar of its essential role as a measure, and with the value of money
once again uncertain a la the 1970s, the investment that powers growth has once again gone
into hiding. The authors solution to our economic malaise rooted in devalued money is simple:
We must give the dollar a gold definition once again. As they explain, getting the economy
right requires getting money right. Its no accident that gold was used to define money
for the hundreds of years leading up to 1971, and it will be no accident when the economy
takes off again, assuming a return to gold.

Mr. Forbes and Ms. Ames have laid out a simple plan for returning to good money. Unknown is
whether either political party is aware. Whats certain is that the party that discovers the basics
of money yet again will oversee an economic boom that will make the Reagan and Clinton eras
seem tame by comparison.