10 | FORBES ASIA OCTOBER 2017
WHY IS THE KEY TO PROSPERITY
IGNORED?
BY STEVE FORBES, EDITOR-IN-CHIEF“With all thy getting, get understanding”FACT & COMMENT
HERE’S A BOOK for the ages. With Gold:
The Final Standard (CreateSpace Publishing,
$ 14 .99)—and his two previous volumes 1 —
Nathan Lewis has established himself as one
of history’s most formidable and correct-
thinking economic writers, joining the ranks
of Friedrich von Hayek, Ludwig von Mises,
Henry Hazlitt and a handful of others. Lewis
understands the subject of money better
than almost any other observer today, de-
molishing one harmful myth after another
that plagues economic policy and has shack-
led the U.S. and most of the rest of the world
with subpar growth.
The key to unlocking a great boom (along with a low-tax
regime) is stable currencies. Without sound money we will be
hurt by more dangerous and unnecessary crises à la 200 8–2 009
and subsequent limp recoveries, which are slowly eating away at
the legitimacy of our liberal democracies.
Why is correct monetary policy so fundamentally impor-
tant? As Lewis writes, a modern economy is ultimately “a vast
network of cooperation... in which hardly anything is created
without combining goods, services, labor and capital from all
over the world.... The network of cooperation is organized
through the use of money, with information transmitted via
prices, interest rates, profit and loss. These seemingly simple bits
of information direct all economic activity.”
Unstable currencies are like viruses in your computer—they
corrupt those “bits” of information. Destructive bubbles result,
such as the housing frenzy preceding the 200 8–2 009 crisis.
In 2 001, a barrel of oil cost little more than $20. Then the U.S.
Treasury Department and the Federal Reserve deliberately
began weakening the dollar in the mistaken belief that this
would stimulate more exports and economic growth. Petro-
leum rocketed to more than $ 100 a barrel. Other commodities
behaved in similar fashion. These surges didn’t come about
because of natural demand but because of a declining dollar.
Nevertheless, most people took to heart the message that the
rising prices seemed to convey: All these things were becom-
ing dearer. The misinformation conveyed by prices resulted in
hundreds of billions of dollars being misinvested, particularlyin the building of houses.
Everyone understands the basic need for
fixed weights and measures in daily life: the
amount of liquid in a gallon, the number of
ounces in a pound, the number of minutes
in an hour. None of these amounts fluctu-
ate; they are unchanging.
Just as we use a scale to measure some-
thing’s weight, we use money to measure
the value of products and services. If the
measuring rod itself becomes unstable,
the smooth functioning of an economy is
disrupted, just as our lives would be if the
number of minutes in an hour constantly fluctuated.
What’s the best way to achieve a stable currency? By link-
ing the currency to gold. Obviously, with gold we’re not going
to get a precise measurement, but as Lewis demonstrates in
his concise and deeply learned history, gold has maintained
its intrinsic monetary value better than anything else for 5 ,
years. Silver did the same until the mid-1 8 00s, but for several
reasons it then drifted decisively away from paralleling the
value of gold, which is why most of the major countries of the
world moved solely to a gold standard.
The fluctuating price of gold today doesn’t reflect the real
value of the yellow metal but, rather, the fluctuating value of
various currencies. Lewis strips away all the mumbo jumbo
about an effective monetary policy and the mountainous mis-
understandings about a gold standard. You tie your currency
to gold at a fixed weight. (For decades the U.S. dollar was fixed
at 1 /35th or $35 an ounce.) The mission of monetary policy
is to keep the currency at that ratio. Period. (A central bank
might engage as a “lender of last resort” to sound banks dur-
ing a panic, but the loans would be quickly repaid.)
Lewis chronicles how from time immemorial there has
been a contest between advocates of stable money and those
who, for a variety of reasons, want to toy with it. For centuries
there have been writers advocating the virtues of juggling with
currency values as a means of promoting more prosperity and
power for the state. Adam Smith and others blew up this non-
sensical notion (as well as other self-destructive ideas, such
as restricting trade across borders). The belief that a currency