DECEMBER 2017 FORBES ASIA | 11“With all thy getting, get understanding”FACT & COMMENT
CHINA’S ALLPOWERFUL leader, Xi Jin-
ping, wants to make his country the world’s
undeniably dominant economic and mili-
tary power within a generation or two. India
is another nation that considers itself on a
potent upward ascent. Russian czar Vladi-
mir Putin dreams of making his kingdom
an unquestioned global actor, rivaling the
U.S. Brazil, with its vast resources and large
population, from time to time believes that
it’s on the cusp of creating an undisputed
developed economy on a par with or even
greater than its large neighbor in the north.
These leaders and countries are not alone in nursing such
notions. Iran’s murderous mullahs intoxicate themselves with
fantasies of ruling a global caliphate.
What these states don’t yet fully grasp—or in the case of
Iran, which is incapable of understanding—is that there are
two surefire ingredients for success: sound money and low
taxes. A concept that is so simple yet so difficult for ambi-
tious leaders to wrap their minds around.
Some examples might help begin their education.
rThe Netherlands. In the early 1500s Holland was a small and
most unwilling part of the Spanish Empire, but in 1568 the
Dutch rebelled. Despite their small numbers, they succeeded in
winning independence and, remarkably, went on to become a
globe-girdling empire, with Amsterdam as the world’s financial
powerhouse. Key to this Dutch treat—in addition to a respect
for individual rights (at least by the standards of the time)—
was a currency as good as gold and a benign tax regime.
rBritain. In the late 1600s England was very much a second-tier
power. But the ingredients were there for a great economic takeoff:
property rights (“a man’s home is his castle”), individual rights and
(again, by the standards of the time) a government with restricted
powers. What was lacking for success were those two previously
mentioned necessary ingredients. Things started to change when
Isaac Newton, who was in charge of England’s mint, decided to peg
the pound to gold at a ratio that ended up enduring for more than
200 years. This small, somewhat isolated island became home to
the Industrial Revolution and established history’s largest empire.
rThe U.S. At the time America achieved independence it was
a bankrupt collection of 13 former colonies
along the Atlantic coast. With the wise
support of President George Washington,
Treasury Secretary Alexander Hamilton
established a sound, low-tax fiscal system,
whose centerpiece was a gold-based dollar. A
century later the U.S. was a continent-wide
industrial colossus, with a rapidly increas-
ing population that was enjoying history’s
highest standard of living. The essence of
Hamilton’s creation lasted until the 1970s,
when President Richard Nixon “temporar-
ily” severed the greenback’s link to gold.
So bereft in Hamiltonian ability and understanding of what
constitutes a beneficent monetary system were U.S. and foreign
officials that they were unable to reestablish a gold-based regime
for their currencies. They forgot that gold acted like a ruler: fixing
the value of a currency to the yellow metal was really no differ-
ent than “fixing” the length of a foot at 12 inches or the number
of quarts in a gallon of gasoline at four. Markets work best with
fixed weights and measures, and that includes money having a
fixed value. For a variety of reasons, gold keeps its intrinsic value
better than anything else. It’s not perfect, but it’s vastly superior
to any alternative that’s been tried over the course of 4,000 years.
Fluctuations in the price of gold are really fluctuations in the
value of the currency in which that price is denominated.
Since Nixon “closed the gold window,” the U.S.’ aver-
age economic growth rate has fallen by about one third.
Had the historic pace of expansion been maintained, our
economy today would be some 50% larger.
Stable money and a benign tax system are essential for
maximum progress in enhancing the standard of living.
Countries that want to truly play in the U.S.’ league need to
know and understand this.
Meanwhile, many observers and global leaders hope or fear
that the U.S. is in a long-term decline. Every 40 years or so an
influential gaggle of supposedly learned people indulge in doubts
about the durability of the American experiment. At least we’re
now beginning to lurch in the right direction on taxation.
However, we’ve yet to understand the Hamiltonian truths
about money. That is President Trump’s true opportunity.FSUREFIRE WAY
TO MAKE A NATION RICH
BY STEVE FORBES, EDITOR-IN-CHIEF