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Steve Forbes and Elizabeth Ames

Subtitle: How the Destruction of the Dollar Threatens the Global Economy - and What We Can Do About it. McGraw Hill, NY., 249 pgs., index, notes.


Also the following essays in Forbes magazine by Steve Forbes:
October 20, 2014, "Money is not Wealth but it helps create Wealth"
June 29, 2015, "Elephant in the Room, Money"
November 23, 2015, "Ted Cruz's Golden Answer"
November 23, 2015, "The Republican Fiscal Divide"
December 28, 2015, "The New York Times' Leaden Analysis of Gold"
January 18, 2016, "Reality Will Smash Obama's Fantasy World"
February 8, 2016, "Gold and Health Care Musts for next GOP Debate"
February 29, 2016, Life Begins at 83"
March 21, 2016, "The War Against Cash"


Reviewer: - It is amazing how one author can get so much right and yet also wrong. He is so right about the destruction of the dollar and the disaster he predicts. But he persists in equating 'money' with currency. Unfortunately this is a very common mistake and itself one of the causes of so many people not understanding the fundamental source of the problem. Yes, currency is a component of money - but money is not ONLY currency. It is much larger and is actually mostly credit. The total currency created by the FED and circulating amounts to about 650- billion dollars. But the daily transactions that constitute economic activity amounts to trillions of dollars. Credit constitutes over 95% of the American money supply. The same goes for foreign countries. For Great Britain credit is over 97% of the money supply. Of course Mr. Forbes realizes this, yet he apparently cannot break from the perception that money equals currency.
His mis-perception stems from another typical notion much in vogue since John Locke and other 18th century savants were called upon to define money. That is the notion that money was created when coined currencies were created in ancient Lydia and Greece and prior to that societies, with out money, conducted their internal economic exchanges on the basis of barter. They did not. They had fully functional credit systems. The mis-perception probably came because (1) in the 18th century Europeans had no real knowledge of how ancient Egypt and Mesopotamia and others functioned and (2) indeed when European merchants conducted exchanges of assets with primitive societies such as American Indians they did resort to barter. That was because the two societies did not have currency or credit systems that could interchange, but both societies had their own money systems for internal transactions.
The reason this misunderstanding of the difference between currency and money is so critical is that it led in the 1940's, when economists sought to calculate the economic output of the wartime economy the formula MV=PT was devised. And M was defined as currency (later a few other categories such as checking accounts were added). And in order to make the equation show and equality V was defined as 'velocity' with the idea that if M (money) changes hands repeatedly during the year it should be multiplied by V to make the combination equal PT. But V is not measured, it is inferred, and actually V is defined at PT/M creating a tautology. Thus, on a typical graph when M is actually increasing it appears that V is declining. In reality, rather than M having a V, it is the real M that is increasing in quantity.
Moreover, on the typical graph depicting values the X axis is time and the Y axis is money (usually currency in whatever is used, such as silver). Thus with 'money' held constant as the measure the graph will indicate that an asset such as a bond or bushel of grain is rising over time, when actually it is the 'money' that is declining.
Mr. Forbes also does not describe 'value' well. "Value" is not an attribute that can be attached to material or non-material assets. It is a psychological phenomena that resides in the mind of individuals and varies with many circumstances of time and place, and relative scarcity of supply and demand for each asset in relation to all other assets that are desired at the given time and place. Thus, there is no such thing as 'intrinsic' value. And this includes gold as well as everything else. Actually it has been a mistake to create currencies out of something such as gold or silver which has its own relative 'value' over time and space separate from the 'value' ascribed to it by government as money. The same is true for credit when used as a component of the money supply. This is why throughout history governments have needed to 'revalue' their silver or gold currency when its official 'value' as money diverged greatly from its relative value as a desireable thing in itself.
Mr. Forbes provides many other very important concepts that are both right and critical to overcome Keynesian theory. One is that money is not wealth. Governments cannot increase wealth by expanding the money supply. Another is that when governments hold interest rates artificially below the natural interest rate the result is that investors and businesses mis-allocate capital.
But his recommended solution - to establish a new 'gold standard' for the dollar - is not the answer.


Preface and Introduction


Chapter 1 - How We Got here


Chapter 2 - What Is Money?


Chapter 3 - Money and Trade


Chapter 4 - Money Versus Wealth


Chapter 5 - Money and Morality


Chapter 6 - The Gold Standard


Chapter 7 - Surviving in the Meantime


Chapter 8 - Looking Ahead


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