Stable Money

Per the Mundell-Laffer Hypothesis, a stable currency, most important of which being the world’s reserve currency, the US dollar, is the paramount variable for economic growth and equitable prosperity. Until Richard Nixon, in 1971-1973, formally abandoned the Bretton Woods definition of the dollar as, and convertible into, an ounce of gold at $35, upward mobility of workers continued apace with the increasing prosperity of investors. After that abdication, investors’ wealth increased much faster while median family income stagnated (except during the Reagan and Clinton eras of a stable dollar).

A stable dollar is the premier (yet too often overlooked) element of economic growth. Since the dollar is our most basic economic unit of account, equitable prosperity depends on maintaining the dollar’s integrity. After all, it destroys the incentive to work and save if inflation means that we work our whole working lives, and save for retirement, only to find out that our nest egg is worth a mere fraction of what we had anticipated when we saved rather than consumed it.

Per Forbes.com, on Steve Forbes and Elizabeth Ames’s Money: How the Destruction of the Dollar Threatens the Global Economy—and What We Can Do About It:

In a new book, Forbes Media Chairman and Editor In Chief Steve Forbes explains that today’s wrong-headed monetary policies are setting the stage for a new global economic and social catastrophe that could rival the recent financial crisis and even the horrors of the 1930s. Coauthored by Forbes and Elizabeth Ames, Money: How the Destruction of the Dollar Threatens the Global Economy—and What We Can Do About It tells why a return to sound money is essential if the United States and other nations are to overcome today’s problems. Stable money, which can only be achieved through a gold standard, is the way to a true recovery and a prosperous economy. (Emphasis supplied.)

As RealClearMarkets.com editor John Tamny wrote about Committee co-founder Steve Forbes:

Among monetary policy writers with a desire to revive money as a stable measure of value, Steve Forbes has saint-like qualities. He does because in modern times the economics profession has near unanimously run from the pithy and endlessly true insight from Adam Smith that “the sole use of money is to circulate consumable goods.” Because allegedly serious economists no longer agree with Smith, Ricardo, Mill, and other classical thinkers, the very notion of stable money that has perpetual qualities like the foot has become kind of low rent in the eyes of the influential.


This is where Forbes comes in. Respected on both sides of the ideological spectrum, and highly influential among policy types in and out of media, that he continues to energetically promote the crucial genius of a stable dollar means that the movement remains credible. “Thank goodness for Steve Forbes” is a frequent refrain among those who care about money as a measure. With him, the goal of returning money to its sole purpose seems feasible. Without him, the movement is unfocused and arguably somewhat fringe.

Money is by definition a medium of exchange, a store of value, and a unit of account. The Constitution gives Congress the power to regulate the value of money in the very same clause that it gives Congress the power to fix the standards of weights and measures. A minute measures time, a thermometer measures heat, money measures how much something is worth.

Imagine if the minute was constantly fluctuating in value— some days an hour was “worth” 60 minutes, other days it was worth 45 or 80. It would be impossible to plan your schedule for next week if the value of the hour was always shifting. It would be daunting to bake a cake or even figure out what time to set your alarm clock to wake up for work. Since the dollar similarly is a unit of account, it’s crucial to unleashing prosperity to meticulously maintain its integrity as close to invariable as possible.

Congress has delegated its power to fix the standards of weights and measures to the National Institute of Standards of Technology, NIST, which has done a superb job of maintaining these, in concert with other nations, with great precision. Congress delegated its power to regulate the value of the dollar to the Board of Governors of the Federal Reserve System, whose outcomes have been mediocre at best. The US and world economy have been traumatized by inflation and deflation and monetary fluctuation leading to panics, recessions, and chronically mediocre economic growth. Credit is tight for regular Americans, and job creation has been tepid.

Maintaining the dollar as a high integrity, stable, unit of account is a critical component to achieve the Fed’s triple mandate of stable prices, high employment, and reasonable interest rates. Reliably maintaining these qualities is crucial to unleashing prosperity and justice for all. Instead of the Fed operating by educated guesswork, pretentiously called “discretion,” the U.S. should adopt a rules-based monetary policy.

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