By Anthem Hayek Blanchard – Anthem Vault
“A return to gold-based money is not yet front and center on the national agenda. The policy establishment still dismisses it as radical. But history has shown time and time again that great social changes begin as seemingly radical ideas.” – Steve Forbes, Money.
In his latest book, Money, Steve Forbes calls for a dramatic about-face in our nation’s monetary policy: A return to the gold standard, abandoned by the United States in 1971. That decision, he argues, is one of the single largest contributors to the decline of the U.S. economy. It accounts largely for the erosion of wealth in this country and contributed greatly to the 80 percent decline in the purchasing power of the dollar over the past five decades, dragging down the standard of living of American families with it.
Central to this crisis, Forbes and co-author Elizabeth Ames assert, is a monumental misunderstanding of the definition of money itself. Money is, they eloquently articulate, simply a measure of value. Much like we use scales to measure weight and clocks to measure time, money measures value. A dollar is a unit of measure, just like an ounce or a minute. A dollar that fluctuates, therefore, has the potential to wreak as much havoc as an hour that represents 30 minutes one day and 45 minutes the next.
My father, James U. Blanchard III, is the man often viewed as the ‘godfather’ of the gold industry. Credited for his crusade in the 1970s for the right of U.S. citizens to legally own gold bullion, he impressed upon me from an early age that gold would always be the soundest money available. Watching the precursors to the global financial system default in 2008, I realized that the conditions for my father’s vision of market-driven private currencies were coming to bear. In 2011 I founded Anthem Vault, which provides individuals with an easy, liquid and secure way to buy, sell and store gold and to increase the benefits of holding metal through added features such as using gold to make secure payments to others.
Given my interest in precious metals and sound money, I spoke at length with Forbes about his new book to get a clearer sense of why he felt compelled to write Money at this point in our nation’s history.
Anthem Blanchard: I’m interested in the timeliness of the book and how you came to the conclusion that Money was an important book for you to write at this particular moment in history?
Steve Forbes: In terms of enabling people to move forward, if you don’t get it right on money, then you’re eventually going to have a sub-par economy, frustration and a lack of progress and mobility. You can get it right on taxes, spending and regulation, but if you don’t get it right on money you’ll stall. If money has an unstable value then you get fewer productive transactions, you get less investment and you get a [reduced] standard of living.
AB: I like the analogies you make in the book to stress that money – like minutes to an hour or inches to a foot – is a unit of measure.
SF: Money works best when you trust it, when it has a fixed value, just like knowing there are 60 minutes in an hour. Imagine floating the clock, 60 minutes in an hour one day, 30 minutes the next. It would be chaotic; well, that’s what we get when we have unstable money.
AB: How concerned should Americans be about the state of the dollar today?
SF: Well, the Fed’s mismanagement of the dollar is the key reason that we have a punk economy today—and it’s not just that the economy doesn’t grow as much as it should. A fluctuating dollar undermines social trust, undermines the link between honest effort and reward, undermines investment in the future and exacerbates social divisions, which undermine the fabric of society.
AB: I think sometimes the gold standard can seem obtuse for people to wrap their heads around. I’m curious – what do you feel are the benefits of the gold standard for entrepreneurs in particular?
SF: Well, when you have money that is stable, you get not only more capital creation but also more risk-taking. Investing is risky enough, but if you don’t know whether you’re going to get paid back in 80-cent dollars or 20-cent dollars or 110-cent dollars, you’re less likely to make investments. The way you get a higher standard of living is by investing in things that are not here today. And that’s one of the invidious things about an unstable dollar; it focuses on the present rather than letting entrepreneurs focus on the future.
AB: A mentor of mine, James Turk at GoldMoney, used to talk about his viewpoint on the difference between money and currency. I found that fascinating. Do you see any difference between money and currency or do you see them as synonymous?
SF: Well, currency is simply a tangible form of money, whether it’s in coins – today it’s mostly token coins, as the intrinsic worth is not there – and in pieces of paper. The bulk of transactions today are really just ellipses on a computer, which, when you think of it, is astonishing. This, again, just goes to show that money in and of itself is not wealth. It measures wealth and makes transactions infinitely easier.
AB: I’d like for you to expand on what you just said regarding new technologies. Do you see technology changing the role of money and, if so, how?
SF: What technology is doing is underscoring the basic definition of money as a means to transactions, because technology is just beginning to pound down the huge amount of money we spend on processing payments. Ask any merchant about the fees they end up paying when you use a credit card. Technology is going to sharply reduce the cost of processing transactions to almost nothing.
AB: In the book, you talk in passing about cryptocurrencies like Bitcoin. Do you have any thoughts on how cryptocurrencies promote the idea of decentralized clearing or increased transparency?
SF: Cryptocurrencies are, in one sense, a high-tech cry for help because our current money isn’t working. But to be effective as currencies they have to have a stable value, and the how of that hasn’t quite been figured out yet. The most promising thing Bitcoin—they’re still grappling with trying to make it a functioning money—is the payment-processing system being developed. It’s seamless and very inexpensive. Even if they can’t solve the money problem, the payment-processing system has huge potential.
AB: One of the things that you and [co-author] Elizabeth Ames talk about in the book is that politicians know less about monetary policy today than they did 100 years ago. If you were to ask congressional members to define the root cause of the mortgage crisis meltdown that we had five years ago, I don’t think any of them would say that the reason was because money was cheaper.
SF: One of the things we point out in the book is that many of the things the government did wrong in housing— Fannie Mae, Freddie Mac, the Community Reinvestment Act et al., which goosed the housing market artificially—were largely in place in the 1990s. But we didn’t get a disaster then. However, in the 2000s we did. What was the difference? We had a stable dollar in the 1990s, and we had an unstable, weak dollar in the 2000s. Hence, the housing debacle in the 2000s.
AB: And because Greenspan had interest rates too low or kept them too low for too long.
SB: We were creating too much money. When that happens you go into hard assets, and this is where weak money becomes like a virus in a computer, corrupting information. Prices in the marketplace, as you know, are supposed to tell you the value of things—what’s dear and what isn’t. But when you have a weak dollar, the pricing mechanism no longer works.
AF: Given that, how do we educate people and politicians in a way for them to understand the virtues of sound money?
SF: Part of it comes through circumstance, but the key is to get the word out, which is why we wrote the book. I hope others write books, blogs, op-eds and essays to get the discussion going. So when people criticize the book, I don’t take offense, as I’m glad they feel they have to react to it. I want to get a debate going … then we can create conditions where big changes can be made.
AB: Economist Friedrich Hayek, my middle namesake actually, is well known for communicating incessantly with the Bank of England and later with The Fed and The U.S. Treasury about putting metrics in place to serve as guide rails to monetary policy. Towards the end of his career, he realized the nationalization of money was a fruitless exercise and argued that the best and only long-term solution is to privatize money. What are your thoughts on that?
SF: People want a single currency for convenience. You don’t want to go to a store and have to figure out whether your Bank of America dollar is worth as much as your Citibank dollar. In terms of the dollar, it can be done in two ways. One, you fix it to gold, to a fixed price of gold—and by law—and you make it convertible. You can take your dollars and exchange them for gold from the government. You also can remove barriers to people establishing alternative currencies. And you remove the tax barriers and the regulatory barriers to alternative currencies.
AB: In the book you suggest a series of steps to create a gold standard for the 21st century. Is this a one-fell-swoop approach or can we do this incrementally?
SF: Removing barriers should be done anyway. If you want to do it with the re-introduction of a gold standard, fine, but there are things that can be done now. Consider that when you take a dollar bill and buy four quarters you don’t pay sales tax, as you’re exchanging money. However, if you do this with gold, you will pay a tax. So we should be removing these barriers. Regarding a gold standard, part of the challenge is to make sure that the authorities understand how a gold standard is maintained.
AB: You make the point in the book that if politicians understood the Bretton Woods system, we’d still be on the Bretton Woods system. How do we keep politicians on this rail? I mean, do we need a constitutional amendment?
SF: Constitutional amendments can be ignored, as we saw with the 14th and 15th amendments that were passed in the years immediately following the Civil War; they were dead letters until the 1960s. So, it’s not laws per se; it’s that there must be a law about maintaining a fixed value. But you also need to have an electorate and public opinion that feel this is the way to go.
AB: One of the interesting comments that you made, too, was when you said, “Money is really an expression of self.” Can you elaborate upon this?
SF: Money represents what you have produced or sold, whether it’s your product, service, stock or whatever. Money is a claim. You get paid for a certain thing. The claim should always be valid and not be able to be undermined by government’s arbitrary actions.
AB: Are there any other topics in the book that you feel are critical for people to take away that we haven’t touched upon yet?
SF: Just that the classical economists felt that producing products and services was the real economy and money was the symbol economy. John Maynard Keynes and others of like mind reversed that. They thought money was the real economy and responded to more money. So they reversed the process, putting the cart before the horse. They felt that if you manipulated money, interest rates, spending and through taxes, you could guide the economy, like one does when driving an automobile. This has caused untold mischief. So Keynes has a lot to answer for regarding this.
Special thanks to Joseph Hassan and Jackie DeMaria for their assistance with this article.