Money, by Steve Forbes

12 April 2015 – In a review of Steve Forbes’ book Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It I offer a summary of his major points and some of my own personal thoughts on his suggestions for surviving difficult economic times that lay ahead. Thank you, Shea, for giving me this book.

MoneyExecutive Summary

Overall, I found Steve Forbes’ account of the economic predicament we find ourselves in to be very much in line with my own thoughts. He feels that ever since the US abandoned any currency linkage to gold and, by association, fixed exchange rates between currencies, that the meaning of money has been lost in that its value is no longer fixed. As a result, people, businesses, and nations have a difficult time understanding the true value of anything in the marketplace and the world is becoming more and more littered with booms, busts, mal-investment, and all the seeds historically proven to lead to currency collapse. He feels the only way to truly save the world from major currency collapse and subsequent depression is to return to a system of sound money based on some form of a gold standard. Until that happens, he offers some suggestions on how individuals can survive the inflation that will inevitably be associated with an ever-increasing supply of freshly printed paper money. To do otherwise would mean allowing one’s savings to be eroded by a tide of currency devaluation that robs from average savers and only benefits big government and banks. Although I disagree with many of his suggestions for surviving the interim period between now and when the dollar as we know it either fails or moves to a gold standard, he accurately highlights the major driving forces behind what is sure to be a cataclysmic transformation of the world as we know it.

Most of this post will be a summary of his book, and at the end I will offer some of my own opinions on the various mechanisms by which Forbes suggests people can weather the impending storm. On a whole, I agree with his analysis of the monetary system but disagree that inflation is the only possible outcome, and as good as his analysis throughout the book is I find his recommendations oddly out of sync with the macro-environment he describes.


The preface suggests the book will be mostly supportive of a gold standard, low taxes, and minimal government regulation. The greatest asset among humans is knowledge.

evolution[George] Gilder asks: What is the difference between our age and the Stone Age? Answer: we know more. The cave dwellers of thousands of years ago had “the same set of physical appetites and natural resources that we have today. The difference between our lives and the lives of Stone Age penury is the growth of knowledge.”

The importance of knowledge to wealth creation is why societies that thrive economically are those that don’t overprotect against risk and permit people to fail. Failure can be a source of new knowledge. Henry Ford went through two bankruptcies before his success producing automobiles. [Page xvi]

In the concluding passages of the book, Forbes offers that it is a fundamental gap of knowledge about money that is at the root of the largest problems of our day, and that only by beginning the process of educating the general public on these very important subjects can we start to affect change that will ultimately save us from ourselves.


Few topics are as misunderstood today as the subject of money. Since the United States abandoned the gold-linked dollar over four decades ago, its policy establishment has slid into a dangerous ignorance of the fundamental monetary principles that guided it for most of its history. The bureaucrats and officials who set policy today know less about money than their predecessors did 100 years ago when the First World War erupted. Americans and the rest of the world are now paying the price. [Page 1]

Steve Forbes introduces us to his book by suggesting that in order to have a stable society there must be a stable currency, and that because the US has been manipulating its currency for so many decades it has ruined the ability of markets to read pricing signals, has lead to all the crises we’ve seen since 2000, prevents individuals from saving, and will eventually lead to an economic calamity more destructive than the Great Depression. He puts forth that the only way to create a stable currency is to return to some form of a gold standard. [Pages 1-5]

Clock is WrongChapter 1: How We Got Here

Forbes states that much of our problem stems from officials unwilling to grasp the truth that money is not wealth. Money is simply a measure of wealth, not wealth itself. He goes on to make a great analogy in saying that today’s global monetary system is like a world in which we constantly change the number of inches in a foot or minutes in an hour. It’s chaotic and there’s no consistent unit of measure because there is no anchor to any of the currencies, no consistent unit of measure for gauging wealth. [Pages 8-9] The root of all this “currency chaos” can be traced back to Nixon’s abandoning the link to gold in 1971 and ushering in of an era where the value of currency is dictated by the whims of the Fed and various politicians in charge. This move to full fiat money has caused an 80% decline in the value of the dollar since 1971, much of which has been since the year 2000. [Pages 9-10] However, policy makers have failed to realize that easy money has been the cause of all our problems and instead has implemented quantitative easing programs (money-printing) that further inflate the money supply and cause a gross mis-allocation of capital. This has led to spikes in commodity prices, inflamed political divisions, and unrest in developing nations. [Page 11]

“Unstable money is a little bit like carbon monoxide: it’s odorless and colorless. Most people don’t realize the damage it’s doing until it’s very nearly too late.” [Page 12]

The housing crash of the 2000’s is a prime example in that people rushed to buy hard assets due to the weakening currency, doing it using cheap loans they couldn’t afford, and when interest rates went up the whole thing crashed. Regulatory failure and greed were not the cause, as many in the mainstream like to proclaim. Other examples of problems caused by the weak dollar have been high food and fuel prices, declining mobility, greater inequality, destruction of personal wealth, increased volatility and currency crises, a weak economic recovery following major attempts to fix things, slower long-term growth, higher unemployment, and a larger government with higher debt. [Pages 13-18]

The Earth is FlatForbes compares mainstream modern day Keynesian economists to scientists that used to tell people the world was flat. Despite a succession of economists discrediting the theory that inflation increases employment, Keynesians (i.e. those who run the Fed) continue to use mechanisms aimed at increasing inflation and manipulating the economy. The best line from this section is when Forbes states:

…perhaps the most senseless and paradoxical idea is that the way to increase wealth creation is through policies that lower the value of people’s money.” [Page 19]

He goes on to stress that there hasn’t been one instance in history where active monetary management has actually advanced a society.

Chapter 2: What is Money?

Forbes states money has three roles in society that boil down to measurement, trust, and communication. It is a tool that facilities transactions – it does not create them.

A Unit of Measure

First and foremost, money is a unit of measure. It is not wealth itself – it is a measure of wealth. However, in order to function he states,”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.” [Page 26] If the value of money changes it can cause uncertainty and often destructive marketplace behavior.

BitcoinSomething People Trust

People invented money, not government, out of the need for a stable unit to facilitate trade. For this reason, above all else money must be stable. This stability is best achieved by linking the money to a commodity. Gold and sometimes silver have typically served this purpose over the centuries. [Page 29] If the value of money is stable, people come to trust it and once this trust is lost, the value of the money disappears. Forbes states this loss of trust sometimes happens out of some cataclysmic event, but more often because “governments, for whatever reason – such as building bloated welfare states or financing costly military conflicts – print too much money or seem likely to do so in the future.” When this scenario happens it can cause a sell-off of the currency, which triggers inflation and eventually currency collapse. [Page 31] One of the early signs of this loss of trust is the spontaneous creation of alternative currencies. This can be seen happening today through bitcoin and the State of Utah legalizing the use of gold and silver as forms of currency. [Pages 35-36]

However, when a country has a stable currency the opposite occurs. Rather than people moving to other currencies, people instead want to hold that currency. A prime example is Great Britain, who had a stable currency linked to gold for 200 years (the record for stability), during which time it enjoyed great prosperity. Their success prompted other countries such as the US to follow it’s lead and use gold standards in the late 1800’s and on into part of the 1900’s. [Pages 32-33]

An interesting point that Forbes raises is that Keynesians focus too much on the supply side of the supply and demand equation when it comes to the value of money, and therefore tend to manipulate it’s supply in order to control its value. This technique was referred to “pushing on a string” in the 1930’s and does not effectively improve an economy. Rather, it is better to focus on the demand side of the equation, and the best way to increase demand for a particular currency is to not abuse their power and manipulate the supply of money. This causes stability and therefore demand for the currency. [Page 34]

Money TalksIt Communicates

Finally, the third cornerstone of money is that it communicates. Rising and falling prices provide critical information that people throughout the economy use to make decisions. When prices start to rise and fall, not because the value of goods are changing but because the value of the money itself is changing, this clouds important decision-making processes and people begin to make bad decisions. [Page 38] “When money is made artificially unstable by government, the information it provides ends up being corrupted. Both producers and consumers respond to distorted market signals. The end results are gluts, shortages, or market bubbles.” [Page 39]

Chapter 3: Money and Trade

This entire chapter can be summed up by stating that Forbes believes the argument that a country must hold a trade surplus to be successful is false, comparing that belief to the mercantilism of bygone centuries in which countries believed they needed to export more than they imported in order to prosper. Since the middle of the 1900’s, the United States has believed it needs to devalue its currency in order to encourage foreign countries to purchase goods from the US. This is false thinking, he states. The truth is that in trade all transactions are balanced, meaning both sides are gaining something of value – otherwise they would not engage in the trade. He amusingly compares this to an encounter in McDonald’s.

Big MacWhen you go to McDonald’s and buy a Big Mac, you have a trade deficit with McDonald’s. You’re buying from the restaurant, but it’s not buying from you. No one gets upset. McDonald’s may get your money, but you get the Big Mac. You get something in return.” [Page 55]

Although silly, this example is spot on. Free trade promotes prosperity. For example, although all the things we import into the US technically lead us towards a trade deficit, those goods are then used as inputs within the economy to produce goods, which are then either sold domestically or exported back to other nations. Measuring the raw dollars being spent importing and exporting does not present an accurate indicator of prosperity. However, when you purposefully devalue your currency (as the US and practically all other nations on Earth have done) it simply makes it more difficult for people and businesses to assess the relative value of the goods they’re buying and selling, which leads us down a path towards poor investment decisions, bubbles, and economic instability.

The heated accusations about currency manipulation totally miss the point. Trade is ultimately about the needs of people, not exchange rates. If any nation manipulates currency, it is the United States [not China]. As noted,since the early 2000’s both the Bush and Obama administrations have deliberately weakened the dollar to spur exports. [Pages 60-61]

The only real deficit is not enough trade. [Page 69]

Chapter 4: Money Versus Wealth: Why Inflation is Not a Good Thing

Since quantitative easing started in 2008, the amount of money on the Federal Reserve’s balance sheet has gone from $900 billion to $3.7 trillion in 2013. He jokes that this, in addition to near-zero interest rates, should have been enough stimulus to “revive Keynes himself” (the creator of current mainstream economic thinking). [Page 72]

Keynesians 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.” [Page 74]

Toilet Paper MoneyHe states that money-printing serves only to drive prices up, but not true wealth. The contra-argument many propose to this is that inflation has actually been fairly low in recent years, but Forbes indicates this is largely due to misleading statistics. He points to economist John Williams of who recalculates the official rate of inflation using the original formulas. When doing so, actual inflation of recent years is as high as 10%. [Page 76] Furthermore, Forbes goes on to state that the best place to look for the answer on inflation is gold prices. According to Forbes, “Gold is the purest indicator of the dollar’s value because the supply and demand of the precious metal do not vary dramatically from one year to the next.” [Page 76] When using this metric, one would see that the price of gold has gone up over 200% since the start of the decade.

Forbes also makes an important point that often times inflation can “come out of nowhere and hit you.” The example he uses is Germany, who following World War I began printing insane amounts of money to pay off its war debts. It wasn’t until six years later that the legendary hyperinflation of the Weimar Republic started. Once it had run its course, the illusory value of their currency completely evaporated and the currency failed. [Pages 78-79] Forbes sums up the absurd notion that printing money leads to growth by quoting Ron Paul:

Ron PaulIf governments or central banks really can create wealth simply by creating money, why does poverty exist anywhere on earth?

~ Ron Paul [Page 81]

Forbes spends the rest of the chapter discussing the true effects of inflation:

  • Redistribution of Wealth – those who get the benefit of the money-printing first (banks and government) win and those who get it last (average consumers) lose. [Pages 81-82]
  • Debtors Win and Savers Lose – those with lots of debt win because their debt is worth less (again, banks and government), and those who are not in debt (savers) lose because the value of what they’ve saved is worth less. [Pages 82-83]
  • Manias, Bubbles, and Distortions – inflation creates the illusion of wealth, which leads to big bubbles, and once people realize these illusions for what they are the bubbles pop, causing wild economic turbulence. [Pages 83-85]
  • Subprime Mortgage Meltdown – policies in the early 2000’s that encouraged banks to lend caused lots of loans to go out to people who couldn’t afford them, which later resulted in the massive housing and financial crash of 2008 that “nearly took down the US financial system.” [Pages 85-88]
  • Income Inequality – inflation transfers wealth from savers to debtors, causing huge income inequalities between the ultra-rich and the ultra-poor. [Pages 88-89]

Suffice it to say that Forbes believes not much, if any, good comes of increasing the supply of money.

Chapter 5: Money and Morality

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

~ John Maynard Keynes (creator of modern-day mainstream economic theory) [Page 99]

TrustThis quote is particularly disturbing and is a great start to the chapter in which Forbes describes how debasing money debases society itself. All of the negative effects in this regard can be boiled down to a breakdown of trust. Dictators can rise to power by giving helpless people a scapegoat; rising income inequality can lead to riots and social unrest when the rich blame the poor and the poor blame the rich; and buyers and sellers are more likely to think they’re being defrauded because the money as a measure of value isn’t stable. [Pages 100-105] Basically once the economy starts to breakdown, society is not far behind.

What’s worse is that the problems caused within society can quickly spread to larger issues with the country and between nations. Governments themselves will eventually begin going bankrupt and become forced to default on their loans, and geopolitical tensions will arise between nations as politicians seek to point the blame elsewhere. [Pages 106-108]

And to compound issues, usually with less trust comes more government. People will tend to blame others for the economic instability (i.e. poor people blaming Wall Street) and demand increased regulations from the government, when in reality it was the government that caused the issues in the first place. [Pages 112-114] The end result of this is a downward spiral in which the population becomes dependent on government. Indeed, Forbes ends this chapter by discussing how the Roman Empire had through currency debasement eventually became a welfare empire with raging inflation. “Like today, savings vanished. Businessmen were vilified. Increasingly overbearing government strangled the private economy…Romans first lost their character. Then, as a consequence, they lost their liberties and ultimately their civilization.” [Page 125]

When people stop trusting money, they stop trusting each other. [Page 125]

Chapter 6: The Gold Standard

Freeing the dollar from gold was supposed to make the United States stronger. Instead it has made the country weaker. It has eroded America’s wealth and has jeapordized its leadership position as the world’s strongest economy. Something has to be done. [Page 127]

Gold-Backed DollarAs if there were any doubt, Forbes spends this chapter discussing why the United States needs to return to a gold standard. He states that “gold is the best and the only way to achieve truly stable money.” And to boot, there would be no inflation. Prices may slightly fluctuate up and down with supply and demand, but “gold would allow prices to convey real market values, not Fed-distorted ones.” [Page 129] This is how it was during great times of prosperity throughout history, and this is how it could be again.

He goes on to debunk several myths about a possible gold system.

Gold Doesn’t Mean Fixed Supply of Money

The actual amount of currency in the system does not need to be fixed. It can go up and down. The only difference is that the value of that money would be fixed to a specific amount of gold. [Pages 131-132] “A gold standard no more means a fixed supply of money than a use of the metric system means there has to be a fixed number of rulers.” [Page 132]

Why Not Silver, or Something Else?

Gold is indestructible, tough but malleable enough to be shaped into coins or bars, not subject to changing weather conditions, never disappears once it has been mined, and has been treasured by all nations and cultures through all of history. [Pages 132-133] Silver, by contrast, does not have all of these qualities. In fact, nobody in 4,000 years of history has ever found a form of currency as stable as gold. “History shows that a gold-based monetary system is frequently abandoned, but it always re-emerges. Always.” [Page 133]

No Better Stimulus than Gold

Countries that have faced economic crisis and intentionally made the move to link their currencies to gold have averted crisis and gone on to prosperity, which happened with the British coming out of the 1600’s. [Page 134] Between the late 1800’s and 1914, there was a rare interlude in history where most major countries were on the gold standard. Many nations, not just the US, had spectacular growth. [Page 134]

Chapter 7: Surviving in the Meantime

This chapter discusses mechanisms by which people can preserve their purchasing power between now and when the system is forced to change. This is also the point at which I start interjecting my own personal opinions into the discussion.

BubbleOn Stocks

In Chapter 7 “Surviving in the Meantime” Forbes suggests that, despite all the risks of the paper money system, that people should put their money into the stock market as well as retirement funds. I find this argument misaligned with his warnings of the fiat-based inflationary era in which we live. He suggests throughout his book that the root of all our problems is the fact that the US has moved away from currency backed by gold. Stocks, by their nature, are paper assets and backed by intangible promises of future growth (no different than paper money). He also makes the comment that “inflation misdirects capital to hard assets and commodities.” [Page 175] However, I would argue that today’s inflation has been misdirected into financial instruments such as stocks, not hard assets and commodities. This would help explain why stocks are so high in value all while the economy stagnates and falters to get going again after 6 years of stimulus.

The only saving grace to his argument, in my opinion, is that his book was written in 2013. Since then, the stock market has actually done quite well. So, anybody following his advice would have made out well, but it is important to remember that this does not mean the underlying systemic risks are not present. All of the reasons he outlines in his previous chapters for the destruction of the dollar are still baked into the pie, and whatever event that pops the bubble could happen at any time and without warning.

He goes into some detail on picking stocks to invest in, and suggests that a sound stock “price-to-earnings” ratio is 15. Below this is under-valued and therefore a good investment. On the contrary, investors should beware P/E ratios of 20 or higher. Well in 2013 the P/E ratio of the S&P 500 was around 17 and now it is just above 20. This, by his own advice, is no time to be investing in the stock market. He stated at the time of the writing that although P/E ratios were healthy, corporate earnings would continue to grow. However, I think he’s giving the economy more credit than is due. Many (albeit not in the mainstream) would argue that present economic conditions are weak and that the economy is being supported by central bank “life support” (money-printing, bailouts, etc.). This is why people are struggling so hard all while the stock market is soaring. At some point, financial markets will come down to meet reality – it’s just a question of when and how far down.

He also makes recommendations in this section of the book to put money into retirement accounts such as 401(k)’s. However, during the same exact chapter he cites several examples of evidence both within the US as well as out that the government could take efforts to seize people’s savings from retirement accounts, such as what happened recently in Cyprus. The only explanation he offers that supposedly mitigates this risk is that “In the United States, such an attempt to seize individual assets will give rise to a fierce reaction.” [Page 170] This argument, in my opinion, is weak at best. I think people are much more willing to roll over than he gives them credit for. Even within US history, if you look at moments such as FDR’s 1933 seizure of privately held gold, there was not enough outcry to stop the government from blatantly stealing from the people’s personal savings then, and I doubt it would be any different now. Personally, I would not trust my lifelong savings to the hope that enough other people would protest and stop such a seizure. I like to keep my savings as close to me as possible, with as much insulation from external factors beyond my control as possible.

GoldOn Gold

In my opinion, Forbes correctly states that gold is “not an investment unless you’re in the jewelry business.” [Page 183] However, I would offer that although it is not an investment, it is most definitely a preserver of purchasing power and effectively an insurance policy against the event that your day-to-day currency fails or loses value. Most people forget that gold is in itself a form of currency, one that has persevered for thousands of years while countless others have come and gone. I think Forbes is incorrect to cherry-pick statistics that make the stock market look more attractive than gold. He offers select periods of time during which the stock market has “outperformed gold.” I think this is interesting since he spent most of his book saying that because the US abandoned any link to gold in 1971 that we have distorted the value of the dollar. Effectively, when he offers arguments that the stock market has outperformed gold, he is measuring the value of both in terms of US dollars, the exact unit of measure he spends half his book saying can’t be relied on!

Since 1914, the Dow Jones Industrial Average (aka the stock market) has gone up in US dollar terms by just over 9 times whereas gold has gone up in value just over 58 times. What’s interesting is that if you look at the price of an acre of land in US dollar terms from 1914 and compare it to 2015, both figures are worth about 1 or 2 ounces of gold. So, the purchasing power of 1 ounce of gold in 1914 is roughly the same today, whereas the US dollar has gone down astronomically. Had you invested in the stock market, you would have done better than just keeping cash, but not nearly as well as storing your wealth as gold.

Foreign CurrencyOn Foreign Currencies

I agree with Forbes that trading foreign currencies is extremely risky and a good way to lose money. [Page 184] In today’s age where countries are all competing to devalue their currencies in order to make their exports cheaper, too much depends on an overly-complicated web of relative currency values that can swing drastically in value based on a multitude of political and monetary policies. This is interesting, since when the world was on a gold standard there were no such thing as foreign exchange markets. These were created once all the currencies of the world were un-tethered from gold and allowed to “free-float” against each other. Previously, there were simply fixed exchange rates and everybody knew exactly how much everything was worth. Imagine that!

On Real Estate

I also agree with Forbes here in that unless you are purchasing a house to rent it out (i.e. as a business decision) these are not good investments. He does say that “…like gold, it is more of an insurance policy than an investment that provides the kind of growth potential you need to beat inflation.” [Page 185] A house in and of itself as a home isn’t a great investment vehicle since they carry many maintenance costs. However, I would argue that actual improvements to your home that allow you to produce your own electricity, water, etc. are indeed valuable investments that can save you considerable amounts of money over the long-term.

On Inflation

Finally, I would like to add that Forbes seems to assume that the only likely outcome of all the Fed’s policies is that we will end up in a state of inflation. When it all boils down, the reason we are in such a horrible predicament is that the world has taken on too much debt, and usually when there is too much debt people/businesses/governments end up defaulting. When defaults happen this wipes out the debt and causes the supply of money to shrink, or deflate. Therefore, deflation is just as likely a scenario as inflation. All of his tips seem to center around how people can protect themselves against inflation, but he fails to adequately address how to insulate one’s self from deflation.

Chapter 8: Looking Ahead

…while the darkest days of 2008-2009 may have passed, the conditions that caused the catastrophe remain with us. The world will continue to lurch from one crisis to the next until we finally understand that the way to growth and a more prosperous future is not through weak money or tight money – but through sound money.” [Page 190]

By sound money, Forbes of course means money tethered to something like gold so that it’s value becomes constant and reliable. I agree whole-heartedly with him when he states, “If we are to overcome the obstacles that face us, we, the people in the United States and around the world, must learn more about money.” [Page 191] He summarizes the key principles he explained throughout his book:

  1. The primary objective of monetary policy must be to maintain currency stability.
  2. Trade surpluses and deficits have no bearing on an economy as long as money has a fixed value.
  3. Printing money does not create wealth.
  4. Beware false growth that comes from monetary stimulus.
  5. Debasing money always leads to unpleasant consequences.
  6. Normal fluctuations in the price of goods and services is okay as long as the value of money itself is stable.
  7. We don’t need a central bank manipulating interest rates.
  8. The euro would do just fine if they maintained stable money.
  9. The price of gold would not fluctuate if there were stable money.
  10. The Federal Reserve must stop trying to run the banking system and the economy.
    [Pages 191-196]

Forbes goes on to make specific recommendations on various geographical regions, such as the European Union, China, Japan, and emerging markets, but I will focus here on just his comments regarding the United States. With respect to the United States, he states that she “…is still far away from the intellectual understanding needed for implementing a new gold standard,” [Page 203] a standard that Forbes clearly states throughout his book would put us back on the track to prosperity. He goes on to say, “One of the things that will strike people is that the United States very successfully operated under a gold standard for 180 years. America’s performance since then has been anything but impressive.” [Pages 203-204] I couldn’t agree more with this statement.

He concludes his book by saying, “Our hope is that this book, and others like it, will help provide the insights and impetus for much-needed change.” [Page 204] On that note, thank you Steve Forbes for writing a book that will I’m sure continue to etch away at people’s misconceptions on what really drives the world economy. Many people before you have been saying this for a long time, but it’s a good sign of things to come when big names that people know and trust start to come out and corroborate what those outside the mainstream have been saying.


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