Steve Forbes Misunderstands Money

Billets_de_5000A recent column by Steve Forbes on money is a peculiar mixture of insight and error.  Forbes rightly says, “The blunt truth is that an active monetary policy has never, ever led to sound, sustainable growth. Without exception it has always done more harm than good, the only variable being the degree of damage rendered…It’s truly amazing that economists and policymakers remain obliviously impervious to the mountains of evidence proving that you cannot constructively guide an economy by manipulating interest rates and bank reserves.” Given these wise words, you might expect Forbes to call for a total end to government monetary policy.

Unfortunately, a key mistake prevents him from taking this step. He thinks that money measures economic value. “Money isn’t wealth. It measures wealth the way a ruler measures length, a clock measures time and a scale measures weight.” Forbes ignores the Austrian insight that economic value is purely subjective. There is no “unit of value” that corresponds to the objective measurements Forbes mentions.

Because Forbes thinks that money measures value, he favors “stable” money. “Central banks have only two legitimate tasks: preserving stable values for their money and dealing quickly, decisively with financial panics.” Beguiled by the illusion of a stable measure of value, Forbes winds up in support of an activist monetary policy.

Forbes discusses at greater length his account on money in his recent book Money, written with Elizabeth Ames.  I review this book, with my customary lack of enthusiasm, in the forthcoming September issue of The Free Market.


  1. I disagree. Yes, all value is subjective, but Mises’ explanation for why money is not a measure is insufficiently persuasive. Is it semantics, you measure or gauge one good against another?

  2. Apparently Gordon did not read Forbes book or his many articles on the gold standard. Steve did not choose precise language but conceptually he understands gold as a flexible standard to account for demand. I am not sure the criticism is valid the way it is written.

  3. Gordon takes his disagreement with Forbes too far. Money is a source of reference, and therefore a measuring stick. Money gives you a reference number at a point in time. Yes, a pumpkin might be $4 today; maybe $5 tomorrow. A tomato might cost $5 today, maybe $4 tomorrow. At a point in time, money does give you a unit of value to compare one good with another — a price in a liquid commodity everyone can use. Forbes, of course, is wrong in wanting stable prices, but to quote prices in money as opposed to other goods does make money a unit of value measure. This has nothing to do with subjective value v. intrinsic value.

    • The following passage from Mises, Theory of Money and Credit, may be of interest:

      CHAPTER 2
      On the Measurement of Value

      1 The Immeasurability of Subjective Use-Values

      Although it is usual to speak of money as a measure of value and prices, the notion is entirely fallacious. So long as the subjective theory of value is accepted, this question of measurement cannot arise. In the older political economy, the search for a principle governing the measurement of value was to a certain extent justifiable. If, in accordance with an objective theory of value, the possibility of an objective concept of commodity values is accepted, and exchange is regarded as the reciprocal surrender of equivalent goods, then the conclusion necessarily follows that exchange transactions must be preceded by measurement of the quantity of value contained in each of the objects that are to be exchanged. And it is then an obvious step to regard money as the measure of value.

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