10 | FORBES INDONESIA JULY 2019
“With all thy getting, get understanding”FACT & COMMENT
HISTORIANS and pundits routinely
overlook the fundamental importance
of monetary policy and taxation in
the rise and fall of great powers. They
churn out countless books on strat-
egy, growing or declining economic
strength, weapons systems, diplomatic
machinations and the like. But rarely
do they examine the critical role of
money and taxes in the fate of nations.
Proposed appointments to the Federal
Reserve and the Treasury Department,
for instance, never prompt the media
to elicit comments from national security experts.
Keep this basic truth about money and taxes in mind
as the White House focuses on the necessity of rebuild-
ing our rundown military and countering the aggressive,
anti-American thrusts of Russia, China and Iran.
If the U.S. is to constructively play a keep-the-world-
stable role, it must have a sound dollar and a sensible,
low-tax-rate system. These beget the innovation and
economic muscle necessary for such responsibilities.
They generate the benign conditions for expanding
prosperity around the world. Our robust success would
spawn policy imitations everywhere.
History has demonstrated this time and time again.- Rome’s decline eerily parallels the decay of its cur-
rency and the relentless rise of taxation. - Holland, a small speck of Europe, literally underwa-
ter, successfully broke away from the powerful Spanish
Habsburg monarchy to become a globe-girdling empire,
as well as the financial capital of the world, based on its
twin polices of rock-solid money and low taxes. When
Amsterdam fell into the trap of raising taxes, its relative
prosperity and influence waned. - Britain, once a second-tier state, followed the Dutch
example but did it better. The Industrial Revolution
and history’s largest empire followed, even after Eng-
land had lost the 13 colonies when it temporarily forgot
the principle of low taxation.- The U.S. achieved independence
from London but followed its exam-
ple when it came to money and taxes
and achieved the highest long-term
growth rates in history—until it went
off the gold standard in the 1970s. Our
average annual expansion then de-
clined more than 25%.
Whenever we have strayed from
the true path of power and prosperity,
we and the world have paid the price,
most dramatically with the Great De-
pression and the terrible inflation that took place during
the 1970s and the early 1980s. In both periods U.S. power
and prestige sank, and the world suffered. We almost
lost civilization in the 1930s and early 1940s. Hard as it is
to believe, in the 1970s the soon-to-die Soviet Union was
seen to be the ascendant power.
We strayed again on the money front in the early
2000s, when we deliberately let the dollar weaken.
We shouldn’t underestimate the damage the 2008–
economic crisis did to the reputation of free markets
in China and in Russia and among “thinkers” and
pontificators everywhere. Beijing and Moscow con-
cluded that we were in a terminal decline punctuated
by intermittent rallies. Economists declared that we
were doomed to “secular stagnation.” Dirges about
capitalism’s flaws abounded.
Government errors were the villains, but free mar-
kets got the blame.
Those who doubt the pivotal importance of taxa-
tion and monetary policy should read The Magic For-
mula (Canyon Maple Publishing, $13), written by one of
world’s foremost monetary experts, Nathan Lewis. Why
policymakers stubbornly stay oblivious to this formula is
a mystery worthy of the talents of Sherlock Holmes.
Our military academies and those who train our
foreign service officers should take note.
WHAT EXPERTS MISS ABOUT POWER
BY STEVE FORBES, EDITOR-IN-CHIEFA Genuine Gem: Late Bloomers
James Boswell’s The Life of Samuel Johnson is generally considered to be the finest biography in the English
language. Boswell spent years by Johnson’s side, taking voluminous daily notes of the great man. But Boswell,By Rich Karlgaard (Currency, $28)