(FORTUNE Magazine) – IT WAS JUST before noon in Laconia, New Hampshire, when Steve Forbes walked into the small, nearly empty, wood-paneled dining room at the Margate Resort, where the Laconia Rotary Club was holding its monthly meeting. His eyes held a wary, owlish look as he peered out over the room through round, horn-rimmed glasses.

Instead of going around the room introducing himself on that fall afternoon--that is to say, instead of doing what almost anyone else running for public office would have done--Forbes walked quietly up to the table where an elderly man was selling lunch tickets. He stood next to the table, waiting for someone to approach him. Finally a young man in khakis and an open-necked sports shirt walked up. "Somebody has to throw the bastards out," the man said, shaking Forbes's hand enthusiastically. "I don't know if you're the person to do it, but..."

Steve Forbes put both arms down stiffly by his sides and made a fist with each hand, pumping them awkwardly against his thighs. "I'm eager to try!" he said.

This is about as thrilling as it gets on the Forbes campaign trail. The eldest son of the late Malcolm Forbes, bland scion of a great family fortune, inheritor of the highly profitable publishing company his father built (its flagship, Forbes, is, of course, a fierce competitor of FORTUNE's)--Steve Forbes was in New Hampshire to make himself known to the Granite State's legendarily tough-to-please voters. Having declared himself a candidate for the presidency three weeks before, on September 22, Forbes was staking a claim to the "Elect Me Because I'm Not a Politician" position with almost alarming authenticity. Forbes had never run for--much less held--any elective office before running for President of the United States. He possesses neither the personality kink that makes politicians want to be publicly loved nor the easy demagoguery of a tycoon turned faux populist like Ross Perot. He sticks to an extraordinarily narrow set of campaign themes--the flat tax, a return to the gold standard, unreconstructed supply-side economics--without demonstrating much interest in the wide range of issues facing the country.

And yet, when votes are cast in Iowa and New Hampshire in coming weeks, polls indicate that the 48-year-old Forbes will be in second place for the Republican nomination, after Bob Dole. Granted, it won't be close: Polls taken just before this issue went to press showed Dole with 47% of the vote, Forbes with 11%, Phil Gramm with 10%, Pat Buchanan with 7%, and the other contenders in the low single digits. And granted, Forbes is spending at least $12 million of his own money, most of it concentrated on aggressive television ads in early-primary states. But give him credit: Now that Colin Powell and Newt Gingrich have decided not to run, Steve Forbes is emerging as the "boutique candidate" of the moment.

Like Paul Tsongas in 1992, Forbes is the beneficiary of the soft press coverage that attaches to such a campaign in its early days--a celebrity kiss from Vanity Fair; uncritical sketches in the New York Times and the Washington Post; affectionate column inches on the editorial page of the Wall Street Journal, whose supply-side economic fanaticism marks the true north of his ideology. Some of this phenomenon is due to wistfulness on the part of the political press--Washington reporters are understandably desperate for something more interesting to cover than the grim forward march of the Dole machine.

But the gauzy coverage of Forbes also stems from just how far outside the political sphere he comes--let alone the Beltway. To understand who he is, what drives him, and how he would serve the nation, it is necessary to understand him as a creature of business. Instead of a legislative record to examine he has a privately held publishing empire--not the kind of thing the nation's political press corps is accustomed to crawling around in.

So perhaps we may be of service.

If Forbes stays in the race for the long haul--and he insists he will--political correspondents will be faced with the question of whether his campaign is driven by ideology, magazine ad sales, or both. In assessing his fitness to govern, they will find much to write about: They will turn up a curious outpost of the family empire--an installment land sale business, built on the Forbes name, that has left hundreds of buyers feeling ripped off. At Forbes magazine they will find an unusually cozy relationship between those who edit the stories and those who sell the ads--a link unique in mainstream business publishing and one that raises questions of journalistic ethics. They will find a family fiefdom enriched by aggressive tax avoidance. And when they launch into the inevitable psychoanalysis of the candidate, they will find that while Steve Forbes's background may not hold anything to suggest he is capable of governing, it holds all sorts of reasons he should want to run.

JACK AND JUDE

THIS IS, to say the least, an unusual candidacy," Steve Forbes admitted on that morning last September when he stood at a podium at the National Press Club to announce his intention to run. "And I expect there are a few skeptics in the room."

For 20 minutes he spoke woodenly about the flat tax, the gold standard, and the need for a new political culture in Washington. He said little about foreign policy, or about pressing domestic issues. Almost puppetlike, he barely moved as he spoke. In the middle of his speech he began gesturing with one hand for the first time, and as he heard photographers start to click away, he smiled, ever so slightly.

Then came questions. "Ronald Reagan cut taxes, and the deficit went wild," said one reporter, challenging the flat-tax credo. His reply: "I don't want to get stuck in static analysis." Another reporter asked him about abortion. "I would hope to create an environment where abortion disappears," he said, causing the press to snicker. When he invoked Reagan, it only served to invite unflattering comparisons.

So why is Steve Forbes running for President? He says it's because the message he is spreading is simply too important not to have someone preaching it. His message is that replacing the existing tax structure with an across-the-board flat tax would trigger "a renaissance the likes of which has never been seen before." Not only would the economy boom, Forbes argues, but the culture of Washington would finally be refreshed because the flat tax would "take away the politicians' power to manipulate the tax code, to trade tax loopholes for reelection money."

Never mind that his flat tax is borrowed, virtually intact, from House Majority Leader Dick Armey. And never mind that few types of companies would gain more from a flat tax than Forbes's own. Forbes is plainly a believer (as are many in the business community, who see Forbes as the only pro-growth candidate).

Indeed, Forbes says, he is in the race in no small part because a far more logical standard-bearer for Reagan-era supply-side economics, Jack Kemp, is not. Both Forbes and Jude Wanniski, the former Wall Street Journal editorialist turned supply-side fundamentalist, were staunch Kemp backers. It was only when Kemp pulled out that Wanniski began pushing Forbes to run for President. Besides Wanniski, Forbes counts among his advisers Tom Ellis, who was co-chairman of Kemp's 1988 presidential campaign, and campaign manager Bill Dal Col, a former Kemp aide. (Forbes has also hired Carter Wrenn, a longtime political fundraiser for Senator Jesse Helms, and engaged Reagan's old speechwriter, Peggy Noonan.)

To borrow from Lloyd Bentsen, Steve Forbes is no Jack Kemp, a powerful speaker whose optimism is tempered by his willingness, rare among supply-siders, to face such nontheoretical problems as how to reduce the number of Americans living in poverty. But Forbes has something Jack Kemp will never have: a net worth of about $440 million and a willingness to spend a good chunk of it on a presidential campaign.

It is this personal campaign war chest, of course, that has propelled Forbes to his current position as first among also-rans. Unlike the other candidates, he doesn't rely on federal matching funds, which frees him from the spending limits that the law imposes on recipients. Thus, while the other Republican candidates can spend only $600,000 in New Hampshire and $1 million in Iowa before the primaries, Forbes has clearly spent far more. The campaign won't say just how much, but rivals estimate the sum at around three times the federal limits. One TV station in New Hampshire has aired so many Forbes campaign ads that it has been called "the Forbes Channel."

Forbes isn't by any means the first millionaire to spend his money this way (think Ross Perot), but he will almost certainly be the first to get more bang for the buck after his campaign eventually runs aground. Spending money to buy fame in order to earn even more money from that celebrity is in fact the principal business legacy left behind by his late father. Steve Forbes may be bland, but he's not Malcolm Forbes's son for nothing.

FATHER, SON & CO.

PRESIDENTIAL candidates always like to talk about their "roots," and Forbes is no exception. Not surprisingly, though, he speaks less about his privileged upbringing or his inherited position than about his "political" roots, which are intertwined with the experience of his father. Not many people remember it now, but before Malcolm Forbes turned his considerable energies to publishing and transformed himself into one of the most theatrical businessmen of his time, he had another career in politics.

Malcolm Forbes won his first elected seat--on the Bernardsville, New Jersey, borough council--in 1949, when he was 30 years old (and Steve was 2). By the time Steve Forbes was 4, he was riding along in an old Studebaker pickup truck as his father drove house to house, ringing 18,000 doorbells in Somerset County to get elected state senator. When Steve was 5, his father campaigned for Eisenhower and Nixon. Steve and his young neighbor, Christine Todd (now Christine Todd Whitman, who became New Jersey's governor with Steve's backing but has nevertheless endorsed Bob Dole), were chosen to present dolls to Pat Nixon for the Nixon daughters. According to Forbes family lore, Steve was always drawn to politics--or rather the vote-counting, election-returns side of politics. "He used to flip me out," the elder Forbes would recall a year before his death in 1990. "When I was running for governor and state senate, Steve could tell me county by county what they had done in past years."

Steve Forbes, it turns out, isn't even the first Forbes to want to run for President. His father dreamed that dream too: "It's the Holy Grail," he once remarked, "the gold at the end of the rainbow." But Malcolm never got close. In 1953 he ran unsuccessfully for the Republican New Jersey gubernatorial nomination. He tried again in 1957 and this time won. He campaigned on an anti-tax platform but was soundly defeated by the Democratic incumbent governor, Robert Meyner, and never ran for office again. According to Malcolm Forbes's biographer, Christopher Winans, the same night the election was decided a dinner was held to celebrate the 40th anniversary of Forbes magazine, which had been founded by Malcolm's father and was then being run by his brother, Bruce. At the dinner, Malcolm stood up and announced that he was coming back to work full-time for Forbes. Perhaps only half kidding, he pulled out a gold watch, handed it to Bruce, and wished him well in retirement.

Steve Forbes, meanwhile, was growing up in extremely comfortable and insular surroundings. Born in Morristown, New Jersey, Malcolm Stevenson Forbes Jr. spent the first three years of his life in Bernardsville before moving to Timberfield, the 40-acre family estate in nearby Far Hills. The homestead, though hardly the palace that Malcolm's publicity machine later made it out to be, is a handsome, spacious, colonial clapboard house. It was there that the five Forbes children--Steve, Tim, Christopher (Kip), Robert, and Moira--grew up.

Steve was a precocious kid with a gift for statistics. But he was not a good student. He attended Far Hills Country Day (with classmate Christine Todd), and at the end of each school year he always knew he was going to have to spend time in summer school. "I didn't like to do homework," he said in an interview with FORTUNE. "I had other interests." By the time he was 11 or 12, he was assembling his own stock portfolio.

The Forbes family appears to have been the classic Fifties suburban family headed by a demanding father--an image rather at odds with the leather-clad, motorcycle-driving, Faberge-egg-collecting bon vivant of later years--and an adoring mother. Steve's mother, Roberta "Bertie" Laidlaw, the daughter of the founders of Laidlaw & Co., a Manhattan brokerage firm, had married Malcolm when she was 22; Steve and his brothers remember her as "a softie," in contrast to their taskmaster father, whom they all called "Pop." Every Sunday the boys had to dress up in kilts to attend services at St. John on the Mountain Church. They also had to learn to play the bagpipes and perform on the Forbes yacht, the Highlander, whenever Pop entertained guests--which he did incessantly. Did they ever say no? "Sure," says Tim Forbes. "We would say, 'This stinks.' But Pop was unfazed by these protestations. He ignored it. There wasn't any question. You would do these things."

By the time Steve was 13 or 14, he was taken along on the Highlander on Saturdays in the fall, when Malcolm invited various CEOs and their wives to West Point football games. These, of course, were never purely--or even primarily--social events. They were business events in which the main purpose was to get the executives onboard in the right frame of mind to buy an advertisement in Forbes magazine. "My father made sure that we knew that there's nothing wrong with salesmanship," Steve says. "At a very early age, we were expected to know, as my father put it, where our bread was buttered." The Forbes children would study lists to learn the names of all the guests aboard--as many as 50 or 75 people on some trips.

It could not have been easy to be the firstborn son of such a driven, demanding man. Steve Forbes never let it show, except on the rarest of occasions. One such time was after the death of his mother in the spring of 1992, when he took a moment in a tribute he wrote in Forbes to reflect upon his father as well, who had died two years earlier. "Pop exuded energy and strength," he wrote. "This can be inspiring but also intimidating to a young, less outgoing, less confident son. Only in my late teens could I truly come to terms with this dynamo of a man and realize how I could work with him and even thrive and blossom with him."

At 14, Steve left home for the Brooks School in North Andover, Massachusetts, and there he appears to have found himself. "Going away to boarding school for me was a great experience," he says, "because in effect you could start over again and have no baggage from the past." He spent five years at Brooks--he had to repeat the eighth grade--but by the time he graduated, he was a cum laude student. From there he went to Princeton, his father's alma mater. It was the height of the Sixties, a time when most college students were in full revolt against their parents' values, but Steve spent his college years embracing those of his own father. He founded a quarterly business magazine, titled Business Today, just as his father had founded a campus magazine before him. Its launch got Steve his first taste of publicity: an appearance on the Today Show and a front-page story in the Wall Street Journal.

Steve graduated from Princeton in 1970 with a degree in history. The Vietnam war was still under way; Forbes drew a draft number of 190 in a year when the cutoff was 195. He did what many other men of his age and station did at the time: He applied to the National Guard and put in five months of active duty. He insists that his well-connected father didn't pull any strings.

When he was done with the Guard, he married Sabina Beekman, a minister's daughter he had met at a debutante party in New York City. (They have lived near the Forbes homestead ever since, raising five daughters.) And he went to work for his father. He was 24 years old. He never even thought about doing anything else, and he has never worked anywhere else. "It simplifies life," he says with a slight smile.

SUPER MALCOLM

By the time Steve Forbes arrived at Forbes magazine, Bruce Forbes had died of cancer and Malcolm had taken charge, setting the little family firm on a course of splendid growth. Although B.C. Forbes had been a prominent newspaper journalist, the business magazine he founded had never risen above its marginal status in his lifetime. Malcolm was the one who turned the magazine into a magazine company. Forbes Inc. acquired American Heritage magazine and a small chain of weekly newspapers, and started a retail land sales operation in Colorado and the Ozarks (about which, more later). The flagship magazine, meanwhile, went from relative obscurity to one of the most profitable publications in America. Malcolm Forbes created his magazine's most famous feature, the Forbes 400, an annual tally of the 400 richest Americans, which has become as successful an annual event as there is in magazine journalism.

How did he do it? The way any instinctive politician would. He sold his magazine by selling himself. Never particularly involved in the editorial side of Forbes--although his column, Fact and Comment, was among its most popular features--he focused his energies on raising his own profile. It was a brilliant stroke, rooted in the notion that if he made himself famous, the money would follow. Thus was born the Malcolm Forbes of legend--a person quite different from the father Steve Forbes had known as a boy, and one whose transformation surprised many around him. "[Malcolm] didn't seem like someone who would become the leader of the band," former Forbes writer Steve Quickel told biographer Winans. "Since then I've often referred to him as Clark Kent; he went into the phone booth and came out Super-Malcolm."

It was Super Malcolm who collected Faberge eggs and who accumulated the toys of the super-rich: the private airplane (Capitalist Tool, he called it, in a reference to his magazine's ad campaign), the helicopter, the Normandy chateau, the private island in the Fijis. It was Super Malcolm who lunched with CEOs in his townhouse behind the Forbes headquarters in Manhattan and gave guests a bottle of wine from their birth year as a parting gift. As his public profile rose, Malcolm Forbes became known as a regular escort of Elizabeth Taylor, even as rumors grew clamorous that he led quite another life--as a flamboyant homosexual. (His wife, Roberta, by then was spending much of her time on her ranch in Jackson Hole, Wyoming. She and Malcolm were divorced in 1985.)

The capstone of his publicity-generating capers was surely the 70th-birthday party he threw for himself in 1989 in Tangier: one of the most garish spectacles of a garish decade. At an estimated cost of $2 million, Forbes hired 200 Berber horsemen, 600 belly dancers, and enough chartered aircraft (a 747, a Concorde, and a DC-10) to fly in a plague of celebrities. The sheer excess of that party moved one Democratic Congressman to demand that Malcolm not deduct it from his taxes. Malcolm said he wouldn't, but if he kept that promise, it would have been a departure from his usual practice. He deducted just about everything else. Forbes's celebrity, his parties, his "toys," made executives want to be around him, and those executives placed ads in his magazine, and those advertisements made his magazine fat and profitable. Rarely has the phrase "business entertainment" been interpreted on so grand a scale.

Meanwhile, as Malcolm was turning himself into one of the great business characters of his era, his son was rising through the ranks as unobtrusively as possible. Of course, his "rise" was a bit like Donald Graham's rise at the Washington Post or Tom Watson Jr.'s at IBM: From the day he walked in the door, everyone knew that he was the anointed. Over time, he went from researching stories to writing them himself, and then moved to the business side in the late 1970s, where he gradually assumed increasing responsibility. By the late 1980s, he held the title of deputy editor-in-chief and was writing his own column--a column having been a Forbes prerogative since B.C. Forbes founded the magazine.

Steve's passion, though, was policy, not publicity. He embraced with a zealot's ardor the importance of returning to the gold standard, the virtues of the flat tax and term limits, and numerous other positions being espoused, most prominently, by the Wall Street Journal's editorial page. He was an unabashed cheerleader during the Reagan years. He began to build a reputation as an economic forecaster. To this day, he is the only person to have ever won the prestigious Crystal Owl award--given by USX Corp. to the writer making the most accurate economic forecasts--more than once (he won it four times). Whereas his father's column was filled with folksy chatter and restaurant tips, Steve's was full of policy prescriptions and economic prognostications.

Unlike his father, Steve was interested in Forbes's editorial product. Former Forbes writers roll their eyes at the number of times he asked for stories on the gold standard. Essays espousing the virtues of supply-side economics became a magazine staple. Forbes even published a sympathetic account of wealthy Americans who were renouncing citizenship and moving abroad to avoid taxes. Avoiding taxes, in fact, became a major theme at Forbes. As Steve took more control of the magazine, it became increasingly doctrinaire. These tendencies became even more pronounced after Malcolm died in 1990 and Steve took over the job of editor-in-chief. (Malcolm willed Steve 51% of the voting stock to ensure there would be no family fight over the company's future.)

As the man in charge, Steve Forbes threw galas on the Highlander, just as his father always had, but it wasn't the same. He just didn't have his father's charisma or his flair for the outrageous. Yet that didn't mean there weren't other ways Forbes could live up to his father's legacy. "The conventional wisdom," says one former Forbes writer, "is that Malcolm was the high-profile, flamboyant guy, interesting, beloved by the world. Steve is so uncharismatic and stodgy that he could never compete with that. The only way he can keep score with his dad is in ad pages." The search for ad pages, of course, was what underlay much of what Malcolm Forbes did. And it has been behind much of what Steve has done in the five years since he took the helm at Forbes.

Steve Forbes and his team go to extraordinary lengths to make a sale. If a corporate advertising chief hasn't included Forbes in his marketing plan, they go right over him to the CEO. Invitations suddenly arrive to fly to New York, to have lunch with Forbes in the Forbes townhouse, to take a cruise on the Highlander. "It's as unvarnished as any selling I've ever seen," says one buyer. "When we didn't place an ad with them, Steve wrote my boss a very pissy letter. I was really put off. I said, 'Who does he think he is?' Then I stopped and thought about it and said, 'He knows exactly who he is.' "

The hard sell has worked admirably. Between 1992 and 1994 no magazine in the country had more ad pages than Forbes. In 1995 the magazine logged 4,542 ad pages; by contrast, FORTUNE, which is also quite profitable, ran 3,184. Though it is hardly the sort of thing one is likely to find in a campaign resume, raising the magazine to No. 1 in ad sales is really the one great accomplishment of Steve Forbes's business life. It is also the one goal his father never reached.

SPECIAL INTERESTS

Assiduous salesmanship, however, may not be all that accounts for the success of the Forbes ad machine. Advertisers are, in effect, the great special interest groups of the magazine business--they provide most of a magazine's revenue and are naturally inclined to seek special treatment in return. Most magazine editors and writers make every effort to ignore the interests of advertisers, on the ground that an honest relationship with the reader is inviolable. Any aspirant for high office must legitimately be asked about his relationship with special interests. So how has Steve Forbes acquitted himself?

Remarkably badly, according to at least seven current and former writers and editors at the magazine.

Forbes is famous for its "company story," a short, punchy assessment of a company's performance that is supposed to help Forbes readers pick stocks. The staffers say that during Steve Forbes's stewardship, they have seen stories changed if the writer has turned in a negative assessment of an advertiser. In other words, the magazine's editors are turning downbeat stories into upbeat stories in order to keep advertisers happy--even at the risk of misleading their own readers.

What's more, a former Forbes writer says, the order to make these changes often comes directly from the people who sell ad pages. Every Forbes story goes to Steve Forbes and publisher Jeffrey Cunningham after it's been edited. "At times, when they see something that will piss off an advertiser," the former Forbes writer says, "Cunningham will call one of the people in the photocomposition or communications offices headed by Jimmy Cianelli and ask, 'Who's in charge tonight? [editor Jim] Michaels or [managing editor Lawrence] Minard?' Then the editor on the story will hear from Michaels or Minard."

Steve Forbes declined to respond to any questions about the magazine's operations. But Jim Michaels, in a written reply to questions, says: "At Forbes, copies of every story ready for publication are routed to the publisher [Cunningham] and the editor-in-chief [Forbes]. Occasionally they send queries based on their own knowledge and information back to the editor, Michaels, or the managing editor, Laury Minard. The writer or editor of the story will hear from Michaels or Minard if they think the queries are valid, and very occasionally these queries lead to changes in those stories."

The former Forbes writer recalls in particular a March 1993 downbeat story on Georgia-Pacific that became an upbeat story by 11:30 the night of publication, and an April 1994 story on AT&T's videophone business where a negative assessment became a positive one by the time the story saw print.

Then there is the case of Willy Stern, currently a Business Week writer, who left Forbes after being ordered by Minard to write "smart buy" stories about advertisers. One such story was about Bethany, Oklahoma-based Commander Aircraft, a frequent Forbes advertiser. A former Forbes writer says Minard told Stern that the company hadn't been doing very well but was a contrarian play. Although Stern's reporting did not confirm Minard's view, he nonetheless wrote a story that emphasized the CEO's view that it was a "smart, if risky, contrarian play." When the story got to New York, Minard rewrote it to de-emphasize problems--like management turmoil--that Stern had pointed out in his original draft, which was obtained by FORTUNE.

Around the same time, Minard assigned Stern to a second story about another big advertiser, this time Hartmarx. Minard told Stern that "it was a company with a lot of problems but with a new CEO, and it was a great turnaround story--that now was the time to buy." Again, Stern researched the company and came away feeling that its prospects for turnaround were dim. He said so in his draft, which was also obtained by FORTUNE. "There was nothing to go on to rewrite it as a positive," says the Forbes source. So Minard killed it. Stern declined to comment.

Starting in Malcolm's time, certain companies have even been said to be "untouchable"--exempt from tough editorial criticism--because of the amount of advertising they place in Forbes. The current untouchable list, according to a Forbes editor, includes GM, Ford, Rockwell, GE, and insurer AIG.

Michaels says the idea that such a list exists is "nonsense" and cites three stories the magazine published last year about GM and Ford. (A reading of the stories, though, shows that one is not particularly tough, one is somewhat flattering, and the third is actually about fuel economy.)

As for the stories cited by Forbes sources, both Michaels and Minard say that any changes were part of the normal editing process. "It is no secret that Forbes is heavily edited," Michaels says. Adds Minard: "If the reporting and analysis in a story aren't up to Forbes's editorial standards, I wouldn't hesitate . to kill it." Michaels also points out that in the case of Georgia-Pacific, the company did in fact turn its fortunes around in the year after the story was published.

Bill Kovach, curator of Harvard University's Neiman Foundation for Journalism, says that while he isn't familiar with Forbes's operations, the practice of favoring certain advertisers is "antithetical to everything I believe and know as a journalist. It's anathema to the whole concept of a free press."

This is not to say that other mainstream publications don't occasionally fall victim to advertising pressure. It happens, without question--but it doesn't happen very often, and it is certainly not considered a normal part of doing business. That's really the crucial difference between Forbes and its competitors, including the Wall Street Journal, Business Week, and FORTUNE. Only Forbes systematically allows its advertising executives to see stories--and command changes--before they run. "There is absolutely no advertising interference with the editorial content of Business Week," said editor-in-chief Steve Shepard. "None." In this regard, Forbes operates more like a trade magazine--where favorable editorial mention is routinely traded for advertising dollars--than the mainstream publication it presents itself as.

To be sure, Forbes is well known--and liked by many of its readers--for writing negative stories with lots of attitude about some companies, and it even writes them about companies that advertise in its pages. "Nobody," a former Forbes writer says, "can figure out why they decide to burn some advertisers and why they decide to protect others. It's something a lot of smart people there haven't figured out." People familiar with the way the magazine operates say it's rare that more than one or two articles per issue get changed. But since readers never know which ones have been changed, the publication's overall credibility is undermined.

WORDS AND DEEDS

STEVE FORBES'S life in business holds other clues to his qualifications to be President of the United States. There is, for instance, the Forbes land business, which employs one of the few remaining examples of a once widespread and now widely discredited way of selling real estate known as "installment contract for deed." Companies that use this method are to established developers what penny-stock operators are to Merrill Lynch.

In 1971, Malcolm Forbes began using the magazine as a vehicle to sell small parcels of Forbes-owned land in Colorado (and later in the Ozarks). Advertisements in the magazine have long carried images of lush woodlands and snowcapped peaks, and courted readers with pitches like "own your own ranch in the Colorado Rockies."

But "own," in this case, can be an overstatement. Like any other developer, installment contract companies buy up land, divide it into parcels, and then resell it. But instead of gaining ownership of the property from the outset, the buyer merely gets a contract that promises him or her the deed--after, say, ten years of monthly payments. The buyer makes these payments, which often include hefty "finance charges," directly to the real estate company, which retains the deed.

Because there is no property transfer, if the "buyer" can't keep up the monthly payments for a full ten years, the seller can--and will--cancel the contract and "sell" the property all over again. In the freewheeling heyday of this business, from the 1960s through the 1970s, the big operators counted on that kind of consumer attrition. One of the biggest, the now-defunct General Development Corp., built into its business projections a default rate of 60%. "You can make 119 out of 120 payments, and they can cancel the contract without any formal foreclosure proceeding in court," says Richard Bennett, a Florida attorney who has built a practice by suing such developers, including Forbes Inc.

In 1979, Congress passed a law to offer some relief to buyers who wanted to get out of their deals. The law said that once a buyer has paid 15% of principal, if he or she defaults before the deed has been transferred, the developer can keep all the finance fees plus 15% of the principal. But the company must refund the rest of the principal--unless the damages resulting from the default are greater than that amount. The developers incorporated that provision in contracts. But when buyers asked for the refund, Bennett says, "the developers always wrote that there was no money left after they paid for the damages."

Forbes was sued in 1992 by a buyer who had defaulted after making payments for almost eight years and hadn't received a refund. The suit was dismissed after Forbes announced that it would pay refunds--not just to the plaintiff but also to 236 other would-be landowners who had defaulted. (Buyers who actually made all their payments and built on the land have problems of their own. For details of the land operation, see box.)

The practice of selling land by installment contract has dwindled mostly because consumers wised up. "In order to make a sale, you had to offer a deed, because people would say, 'I understand there's a chance I could lose everything,' " says Carl Bertoch, chairman of the National Land Council, a group that advises developers. But Forbes is holding out. Contacted through Forbes's toll-free number, a sales representative confirmed that the company still collects payments while withholding the deed for ten years. "It's a lot like making car payments," the salesman said. Except, of course, that you don't get this "car" for a decade.

Len Yablon, president of the Forbes land division, says, "We believe the contract to buy land is a more favorable approach for buyers" than a deed with a mortgage. "Why? No down payment. Get in at a low price. No fees associated with borrowing money from a third party."

AVOIDING TAXES

A LIFETIME of aggressive tax avoidance--even perfectly legal tax avoidance--might seem to be the kiss of death for anyone seriously running for high office. Voters want to know that their elected officials have paid their "fair share" of taxes, just as they have. Of course, the Forbes credo holds that the current system of taxation is inherently unfair, so perhaps it's not surprising that when FORTUNE asked to see Forbes's tax returns, the candidate flatly refused.

There are, however, certain aspects of Forbes's tax record that are publicly available, such as the candidate's cattle farm. Of the 520 acres Steve and his wife own around their home in Bedminster, New Jersey, over 400 are given over to cattle breeding. The Forbeses raise polled Herefords and two Scottish breeds, Galloways and belted Galloways, black cows with white stripes around their bellies. "You don't make money selling hamburger meat," Forbes says. "You make money breeding show cows; that's the name of the game."

In fact, the name of the game is much more likely legal tax avoidance. In addition to substantial federal tax write-offs given to cattle farmers, New Jersey has a farmland assessment program giving a huge property tax break to anyone who owns at least five acres and produces at least $500 in annual revenue. (The Forbeses' farm makes about $5,500 a year.) What does that mean? That Steve's farmland is assessed at only $160,531 instead of the $8.98 million the local assessor says could apply without the tax break. What does that leave him paying in property taxes? On his 70.5 nonfarm acres, he pays $50,000--but on his 449 farm acres, only $2,215.

The flat tax that is at the core of Forbes's campaign would cap individuals' taxes at 17% of their income above $13,000, while eliminating deductions for such things as home mortgages and property taxes. Deductions of $5,000 would be granted for each child in a household.

That this would be a boon to Forbes personally is obvious; his current tax rate is 39%. When critics have noted this, the Forbes camp has rightly pointed out that he is spending far more money to promote his idea than he would ever recoup in personal tax savings.

What has generally been overlooked, however, is that the Forbes company would also profit handsomely from the imposition of the kind of flat tax its CEO is promoting. Many corporations would get hammered by a flat tax. Loss of the fringe-benefit deduction would hurt companies that are labor-intensive; loss of the interest-payment deduction would harm companies that carry a lot of debt. And loss of the R&D credit would hurt whole industries, like pharmaceuticals. But Forbes has virtually no research and development, a small labor force, and very little debt.

What's more, under the original flat-tax plan devised by Hoover Institution economists Robert Hall and Alvin Rabushka, all investments in capital equipment and building are immediately deductible, as are all "business inputs," including "all costs, if reasonable, of travel and entertainment expenses." So while homeowners across America would lose their home mortgage interest and property tax deduction, Forbes could be writing off 100% of his company's expenses for entertaining business executives on the yacht, at the chateau, or aboard the airplane--just as his father did. (Can you imagine Forbes debating Bill Clinton on this issue on national TV this fall?)

PRESIDENTIAL TIMBER?

THERE IS one other important question that has to be asked about Steve Forbes as a presidential candidate, and that is, Is there anything in his background to suggest he has what it takes to be President? The blunt answer is no. Forbes grew up rich. So did Franklin Roosevelt, John Kennedy, and George Bush, of course, but they all devoted most of their adulthood to public service. Forbes has no work experience outside the company his father built, where he was the heir apparent his first day on the job. He inherited his position rather than earned it, and in his five years at the helm of Forbes Inc. hasn't shown much originality or even ambition--except when it comes to ad sales.

Also, his views have been formed in a cocoon and are almost entirely economically driven. Ask him about foreign policy, and he'll say that we shouldn't be sending troops to Bosnia. And that's about it. Look for his position on affirmative action, race, school prayer, and crime, and you'll come up with little more than boilerplate. His solutions to the problems facing the inner city are lifted directly from (who else?) Jack Kemp and rely on the market's magic. He supports school vouchers, wants to turn housing projects over to the tenants, and proposes establishing inner-city "enterprise zones." Indeed, for all his talk about the virtues of the flat tax, one wonders how well versed he really is on the subject. When FORTUNE asked the Forbes camp for details of the candidate's flat-tax plan, for instance, it took campaign press secretary Gretchen Morgenson two weeks to come up with answers. The reply? The Forbes flat-tax plan would duplicate House Majority Leader Dick Armey's flat-tax plan.

Despite his goofy smile, it's important to understand that Steve Forbes isn't Jimmy Stewart, and Mr. Smith isn't going to Washington. "Forbes is getting a free ride from the press right now," says the American Enterprise Institute's Norman Ornstein, co-author of The People, the Press and Politics. "It's a predictable reaction on the part of the press pool covering campaigns. They are desperate to have an interesting contest. They have to spend a year and a half of their lives covering it, and they don't want it to be boring."

However, Ornstein says: "Get him in a position where he comes in second place in Iowa, and you'll see a much more critical view taken. The baseline, the analogy I use, is 1984. Bob Dole is like Walter Mondale. In Iowa, Gary Hart was beaten by Mondale more than three to one, but because he barely eked out a position above the other candidates, he became the anointed anybody-but-Mondale candidate. Bob Dole is the Walter Mondale of 1996, and the question is, Who's the Gary Hart? At this point Steve Forbes has at least as good a chance as anybody of being in that position."

For a person devoted to a career in public service, that might sound like an uncomfortable position in which to be. But Steve Forbes isn't just a candidate; he's the inheritor of a dynasty built on celebrity. He has seen what fame can do for the business he's in. Even if his campaign withers, he will have increased the Forbes share of the public's attention far more effectively than if he had bought more Faberge eggs or thrown more parties. As Malcolm Forbes himself once said--summing up, in effect, his lifelong business strategy: "It helps if they're curious about you."

Reporter Associates Anne Faircloth, Tim Carvell, and Rajiv M. Rao