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Mises Institute, Quarterly Journal of
Austrian Economics, Jan, 30 2015, QJAE 17 - 4 Winter 2014. 6 pgs., The book is
by Steve Forbes and Elizabeth Ames. Forbes is touting it now that there is a
PBS movie based on it.
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Reviewer Comment: David Gordon cites many
errors and misunderstanding the authors make in this book. There are more. The
author's thesis is that the dollar should be based on gold. But apart from the
direct problems with that, they have a misunderstanding about the actual
historical use of gold as 'money' and an even more serious misunderstanding
about the nature of 'value' when applied as a concept about real world goods
and services.
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The author's objection to the policy proposed
in this book is that it does not go far enough. He agrees with the analysis
that governments are destroying the exchange 'value' of the dollar by creating
to much unsupported 'fiat' 'money'. But their solution is merely to base
'money' on gold. So this is claimed to reduce the government ability to do
this, creating inflation. But Mr. Gordon wants to prevent the government from
creating inflation at all. If inflation is bad, then even a little of it is
bad. And the author's belief (held by many) that inflation would increase
exports and reduce imports but Mr. Gordon does not accept this idea. But he
agrees with the author's attack in Keynesian claims that inflation would reduce
unemployment.
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Mr. Gordon then notes that Forbes and Ames
miss the fundamental source of their misunderstanding. (And this is indeed the
fundamental problem of so many economists today). This is 'the error that money
is a measure of value that must be kept constant.
He quotes from the book. "Money is a standard of measurment, like a ruler
or clock, but instand of measuring inches or time, it measures what something
is worth... Just as we need to be sure of the number of inches in a foot or the
minutes in an hour, people in the economy must be certain that their money is
an accurate measure of worth".
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Mr. Gordon describes why this idea is so
wrong. He presents hypothetical example to show why. But he then agrees with
them and repeats a different false theory, that 'money originated in the market
place as solution to a problem. It arose spontaneously, like the spoon or the
personal computer in response to a need".
NO, it did not. Money as a measure of account was developed by the very first
Mesopotamian societies' governments at least by 3000 BC. He agrees with them
that money is a 'comodity'.
No, it is not. Physical things, like grain, can be employed as a token to
express 'value' as an inch can be used to express 'length. but both 'value' and
'length' are abstract concepts. The difference is that 'length' is a concept
that can be applied directly and unchangingly to a physical object such as a
brick. It is an attribute of a brick. But 'value' is NOT an unchanging
attribute of any physical or immaterial good or service. It is purely a
psychological, abstract, idea in the mind of individuals that expresses
relativity, and is relative to time, place, and the desireability of all
available alternative goods and services. 'Value' is a measure of relative
desirability.
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Mr. Gordon correctly notes that Forbes and
Ames "identify the need as 'for a stable unit of value to facilitate
trade'". He continues,. "This fundamental error leads to recommend
inadequate policies." He continues with "Their plan leaves plenty of
room for monetary expansion. their 'gold standard' allows the money supply to
expand naturally in a vibrante conomy. Remember that gold, a measring rod, is
stable in value. It does not restrict the supply of dollars any more than aa
foot, with twelve inches restricts the number of rulers being used in the
economy'.
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He continues by noting that Forbes and Ames
propose that the FED use its market manipulation to keep the dollar 'fixed' to
the same quantity of gold. He objects to the very idea of government price
fixing. But, in addition he notes the central falicy of their concept, as I
pointed out above. They claim that 'money is a measure of value' .
He writes, correctly, "The fail to grasp that economic value is
subjective: there are no fixed units of value that correspond to units of
measurmenet of physical objects."
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His final conclusion is to recommend ignoring
the book and instead to read Murray Rothbard's book - America's Great
Depression. That is a fine recommendation. You might read my own earlier
review of the book, link next below.
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Steve Forbes and Elizabeth Ames - Money:
How the Destruction of the Dollar Threatens the Global Economy - and What We
can Do About It
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