The Rational, The Relentless – Liberty Magazine – September 2007

by Mark Skousen

“To keep the fish that they carried on long journeys lively and fresh, sea captains used to introduce an eel into the barrel. In the economics profession, Milton Friedman is that eel.”— Paul A. Samuelson

Milton Friedman, the intellectual architect of the free-market reforms of the post-World War II era, was a dear but prickly friend. We constantly argued over a variety of issues, but remained friends throughout. I was probably the last person to go out to lunch with him before he died of a heart attack on Nov. 16, 2006.

It was a privilege to know him, despite our policy differences. The triumph of free-market reforms introduced by Thatcher, Reagan, and other leaders in the post-Berlin Wall era (reforms such as lower taxes, deregulation, and privatization that showed the collapse of the Keynesian and Marxist paradigm) can be laid at the feet of a single giant figure: Milton Friedman. Other free-market economists made their mark, but Friedman was the most influential.

Founder of the modern-day Chicago school of economics, Milton Friedman was the force behind many new and excit­ing ideas: policies such as monetarism, privatization of Social Security, school choice, and futures markets in currencies, and also scholarly pursuits that transformed the economics profession from the “dismal science” to the “imperial sci­ence” of today. He was the first economist to counter effec­tively the Keynesian monolith and its myths: that capitalism is inherently unstable, that money does not matter, that there is a trade-off between inflation and unemployment. Friedman debunked them all. He demonstrated that money mat­tered a lot: “Inflation is always and everywhere a monetary phenomenon.”

His most important work is his 1963 magnum opus, A Monetary History of the United States, 1867–1960, with co-author Anna J. Schwartz. This book carefully demonstrates a close correlation between monetary policy and economic activity. Friedman and Schwartz demonstrated beyond doubt that ineptitude by a government body, not free-enterprise cap­italism, caused the Great Depression, when the Fed allowed the money supply to contract by over a third. This book marked the beginning of a counterrevolution, away from the Keynesian view that big government and the welfare state were beneficial. Now government was seen as the cause of our problems, not the cure, as Reagan used to say. Textbooks replaced market failure with government failure. And Friedman made it happen.

He was able to succeed where other free-market econo­mists failed because he had impeccable credentials within the economics profession — earning his Ph.D. from Columbia University, becoming president of the American Economic Association, being published by Princeton University Press, teaching at the University of Chicago, and winning the Nobel Prize in Economics (in 1976, appropriately on the 200th anni­versary of America’s Declaration of Independence).

After establishing himself as a top-ranked economist, he wrote for the general public, especially in Capitalism and Freedom (1962) and Free to Choose (1980), co-authored by his wife and fellow economist, Rose Friedman. (Rose was his beloved companion in life — they traveled and worked together, reared two children, and wrote the memoir “Two Lucky People.”) Milton told me that he always regarded Capitalism and Freedom as his best book for the intelligent layman. I recommend it as an ideal libertarian document.

On a personal level, Milton was unique. He had an “open door” policy toward people of all walks of life. Always intelligent and demanding of evidence, he kept his secretary busy with a huge correspondence with friends and strangers. When I met him in the early 1980s, he didn’t know me from Adam, but he was willing to talk with me and answered my questions seriously. I kept up our friendship by letters, emails, telephone calls, dinners, and lunches over the past dozen years. In 1988, he invited me to my first meeting of the Mont Pelerin Society, and through his influence, I became a member in 2002. He generously wrote blurbs for my recent books and was a big fan of FreedomFest, my annual gathering of freedom lovers. When I had the opportunity to teach at Columbia Business School, he wrote a favorable letter to the dean, which helped me win the position.

Friedman loved to debate, and took on all comers. Unlike many erudite libertarians, he suffered fools gladly and, to my knowledge, never excommunicated anyone over intellectual disagreements. He disagreed sharply with Keynesian economists such as Paul Samuelson and John Kenneth Galbraith, yet he remained friends with both. At times, my own disputes with him were so intense that I thought our relationship was threatened, but my friendship with this happy warrior continued to the end.

Friedman and I were friend and foe on many issues, to the point where I was criticized for being both too sympathetic and too critical. In 2001, at my first board meeting as president of the Foundation for Economic Education, I was approached privately by Bettina Greaves, a long-time FEE employee and devotee of Misesian (“Austrian”) economics. She said, “Mark, I support you in every way as the new president of FEE, but please be more critical of Milton Friedman.” I thanked her for the suggestion. Then, half an hour later, another board member, Muso Ayau, past president of the Mont Pelerin Society and founder of the Universidad Francisco Marroquin in Guatemala, pulled me aside to give me some advice. He whispered, “I support you in every way, but could you do me a favor? Please stop being so critical of Milton Friedman!” When I told Milton this story, he had a belly laugh.

I first met Milton Friedman at the San Francisco Money Show. I approached him with a question about Murray Rothbard’s book, America’s Great Depression, and he willingly engaged me. At the time, I was quite enamored with Rothbard’s Austrian-school explanation of the depression — his argument that it was caused by an inflationary boom in the 1920s that had to collapse, and that the 1930s was actually a good cleaning for a defective financial system. Friedman quickly disparaged Rothbard’s scholarly work, saying that the Fed’s policies during the 1920s were not the problem and that Rothbard had artificially inflated the money supply figures to justify his Austrian position. “The Great Depression was caused by inept Fed policy in the 1930s, not the 1920s,” he told me.

Afterwards, we continued our correspondence by mail, arguing largely about Austrian vs. Chicago economics. This correspondence eventually culminated in my book, Vienna and Chicago, Friends or Foes? (2005). When I asked Milton about the title of this book, he answered, “We’re both friends and foes!” Once I made the mistake of referring to Anna Schwartz, co-author of Monetary History, as his “researcher,” and he blew up. He accused me of being “narrow-minded” and “intolerant” in a way he termed “typical of Austrian economists.” He urged me to look at the back­ground papers and letters dealing with Monetary History at the Hoover Institution, where I would quickly realize that Schwartz was clearly a bona fide “co-author” and not just a “researcher.” This letter is still burning in my files. Funnily enough, a month later, I saw a picture of Anna Schwartz in the American Economic Review, and the short summary of her professional career listed the terms “researcher” and “research” seven times! But I dared not write him back with this comment for fear of retaliation.

A few years after the Money Show I was back in California for a meeting of political conservatives where Friedman was a speaker. I called his hotel room and invited him to lunch, just the two of us. He agreed, and we had a delightful two-hour luncheon overlooking the California coastline. I showed him a chart of M1, the narrowly defined money supply, noting that it had declined sharply in the mid-1980s. I interpreted this to mean that another economic collapse was imminent. He disputed my interpretation. “You can’t rely on M1 anymore — it’s out of date due to the deregulation of the bank­ing system. If you look at M2, which includes money market funds, the money supply is growing. There isn’t going to be any collapse.” He was right. The Reagan era was booming.

When the lunch was over, the bill came and I insisted on paying. As I was signing the credit card bill, I turned to him and said, “Dr. Friedman, one of your favorite sayings is ‘There’s no such thing as a free lunch.’ Well, I’m here to disprove it today because I’m paying for yours.” Quick as a flash, he retorted, “Oh, no, no, Mark, that wasn’t a free lunch. I had to listen to you for two hours!”

When my book Economics on Trial (1991) was pub­lished, I prepared an advertisement with the headline: “Japan and Germany Win World War III,” followed by these words: “Their formula multiplies wealth so rapidly that they will achieve their goal of world domination by the year 2000.” In the ad, I referenced the sound economic model that had transformed war-torn Germany and Japan into economic powerhouses and strengthened their stock markets in one generation. The principles were high savings rates, low taxes on capital and investment, low inflation, balanced budgets, and free markets.

I sent a copy of my ad to Friedman, and he took no time debunking it. “This prediction is a bunch of nonsense,” he scribbled over the ad copy. “I will not live long enough to see it falsified, but you will. In the year 2000, the U.S. standard of living will be higher than the Japanese.” He was, of course, proven right.

Friedman’s anger flared again in the late 1990s, when we gathered in Vancouver for a Mont Pelerin Society meet­ing. Milton and Rose Friedman were in charge of the conference program. Its title was “Can Creeping Socialism Be Stopped?” In one of the breakout sessions I asked Friedman about his easy-money solution to Japan’s economic problems. I held up an article he published in The Wall Street Journal, “Rx for Japan,” in which he advocated a massive printing of yen to jumpstart the Japanese economy, while ignoring such free-market solutions as cutting taxes, deregulating, or open­ing up the Japanese economy. “Isn’t printing more money another example of creeping socialism?” I asked. He was not amused, and noted that, historically, increasing the money supply has stimulated economic recovery, and that fast monetary growth was necessary, given Japan’s fragile condition. I countered, “Ah, so there is a free lunch, after all, Dr. Friedman?” “A free disaster!” he interjected with high emotion. Afterward, Professor Jim Gwartney came up to me and said, “You attacked God today!” Indeed. Yet even free-market icons can make mistakes.

A year later, Milton and Rose were invited to speak at the New Orleans Gold Conference, an annual gathering of hard-money investors. After Milton spoke, he took questions from the audience. I tempted him with the question, “Who’s the better economist, Ludwig von Mises or John Maynard Keynes?” I knew Milton would answer straight; he didn’t care what gold bugs thought. “Keynes,” he proclaimed to a shocked audience. When asked who was the greatest economist ever, he didn’t say Adam Smith, but settled on Alfred Marshall, the British economist who invented supply and demand curves.

Rose dissented. I had never seen her disagree with her husband in public, but she stood up and said that Marshall was infamous for treating his wife poorly and refusing to support her professional career as an economist. In all my private meetings with the Friedmans, Rose was always graciously reserved and seldom if ever argued with her husband. I had heard a rumor that she differed with Milton on Austrian capital theory, and one time I asked her if this was true. She simply smiled and winked.

My most embarrassing moment with the Friedmans came later that evening when I invited them to dinner at the best restaurant in New Orleans, Commander’s Palace, along with two friends, Gary North and Van Simmons. After we ordered and exchanged greetings, Milton turned to me and asked in a serious tone, “Mark, why are gold bugs so passionate about gold?” It was a perfect opportunity to talk about the importance of “honest money,” a theme that Ludwig von Mises, Henry Hazlitt, and other Austrian economists have taught for years. I pulled out of my jacket pocket a large oversized $20 banknote, a “gold certificate” issued in the 1920s. Together we read the words spelled out on it: “This certifies that there has been deposited in the Treasury of the United States of America TWENTY DOLLARS IN GOLD COIN payable to the bearer on demand.” I then explained, “Milton, we’re passionate about gold because under the gold standard, there’s a contract between the government and its citizens. For every gold certificate issued, the government had to back it up with a $20 gold coin. Under a genuine gold standard, the Treasury can’t just print up money to pay their bills. It’s honest money.”

All along, I felt that Friedman was simply playing along, since after all, he was the world’s foremost monetary historian. I went on, “So, what kind of contract exists today between the government and its citizens? Milton, do you have a $20 bill?” He reached into his pocket and handed over a $20 bill. “See, the contract has completely disappeared. Now it only says ‘Federal Reserve Note.’ And the Fed doesn’t even pay interest!” I paused and said, “Milton, this $20 bill isn’t worth the paper it’s printed on.” And I tore it up! I ripped Milton Friedman’s $20 Federal Reserve Note into a half-dozen pieces.

Suddenly, the atmosphere changed. He turned to me and said angrily, “Mark, you had no right to destroy my property!” Rose chimed in, “Yes, Mark, you shouldn’t have done that. That was Milton’s private property.” Gary North and Van Simmons stared in horror and didn’t say a word. Milton’s voice rose, and other dinner guests looked over at us and could see emotions rising. At this point, I was worried. My relationship with the Friedmans seemed to be ending that very night. Finally, I said, “Well, I suppose you want your money back?”

They assented heartily. So I reached into my pocket and pulled out a $20 St. Gaudens Double Eagle gold coin, handed it to Milton, and said, “Okay, here’s your $20!”

He looked startled and stared at the coin. I thought he would be pleased, but I was wrong. Suddenly, he handed it back to me. “I don’t want it!”

I gulped, struggling for words. “But Milton, it’s a gift. Here, take it. It’s a $20 gold coin, worth a lot more than a $20 Federal Reserve Note.”

“No,” he repeated emphatically. “I don’t want it.”

After an agonizingly pregnant pause, I finally figured out a solution. Setting the coin aside, I reached into my pocket, pulled out a fresh new $20 paper note, and handed it to him. “There, okay, will this help?”

He calmed down and took the $20 bill. Gathering up some courage, I brought out the gold coin again. “Look,” I said, as I handed it over to him, “look at the date.” He examined the coin again. “Oh, 1912 — my birth year!” He laughed haltingly. Rose looked on and smiled.

I explained that the entire evening was a set-up, an opportunity for me to give him a St. Gaudens Double Eagle gold coin minted in the year he was born. The coin was in a PCGS certificated plastic container with the words, “To the Golden Milton Friedman.” I told Milton and Rose that my friend across the table, Van Simmons, was a coin dealer and had gone to great lengths to find a 1912 Double Eagle, which was rare. Van added that it had been shipped overnight from Switzerland and had arrived only an hour before dinner. I think that only then did the Friedmans recognize what was going on. The next morning they came up and thanked me for the coin and my gesture of appreciation.

Throughout the evening Gary North — a well-known economic historian and gold bug — said nothing. But in the morning, he came up to me at the conference and said something profound. “Mark, I’ve thought all night about what happened at dinner at Commander’s Palace. You and I have an ideology of gold. And Milton has an ideology of paper money. Mark, last night you attacked his ideology!”

Milton and I never discussed the coin incident again. (I keep his torn-up $20 bill in my wallet as a keepsake.) We met on many other occasions, but I shall never forget our last lunch together in San Francisco. There for the Money Show, I took the opportunity to call him. We met at his favorite Italian restaurant, the North Beach. For the past few years he had walked with a cane and traveled only on cruises or in private jets. At age 94, he had weak legs, a serious heart condition (after two open heart surgeries in the 1980s), and was losing his eyesight. Yet his mind was still sharp.

We discussed the latest Nobel laureates in economics. “We’re running out of good names,” he said. I showed him a Photoshopped picture I had created of him standing next to the 6 foot 10 inch John Kenneth Galbraith, the premier Keynesian and welfare statist of the 20th century. Galbraith towered over the diminutive Friedman. Beneath the picture* was a funny line from economist George Stigler: “All great economists are tall. There are two exceptions: John Kenneth Galbraith and Milton Friedman.” Milton was so pleased with the photo and caption that he sent it to all his friends.

As we left, I asked him, “Do you think you’ll live to be 100?” He answered quickly, “I hope not!” But he was almost always upbeat about life, even to the end. He was not a religious man, but he expressed interest in religious topics near the end of his life. His favorite poem was Keats’ “Ode on a Grecian Urn” which ends, “ ‘Beauty is truth, truth beauty’ — that is all / Ye know on earth, and all ye need to know.” He discovered both in a full and complete life. I consider it a privilege and honor that I knew him.

Friedman’s Less Familiar Quotations

Milton Friedman was not only a great economist, but a memorable quotesmith. Besides the standard-bearers, such as “Inflation is always and everywhere a monetary phenomenon” and “There’s no such thing as a free lunch” (which he popularized), here are some others less well known:

“If a tax cut increases government revenues, you haven’t cut taxes enough.”

“I favor tax reductions under any circumstances, for any excuse, for any reason, at any time.”

“A society that puts equality ahead of freedom will end up with neither equality nor freedom.”

“Competition is a tough weed” (George Stigler). “Freedom is a rare and delicate flower” (Milton Friedman).

“Nothing is so permanent as a temporary government program.”

“Inflation is taxation without legislation.”

“The economy and the stock market are two different things.”

“If government is to exercise power, better in the county than in the state, better in the state than in Washington.”

“The great advances of civilization, whether in archi­tecture or painting, in science or in literature, in indus­try or agriculture, have never come from centralized government.”

“The minimum wage law is one of the most, if not the most, anti-black laws on the statute books.”

“Nobody spends somebody else’s money as carefully as he spends his own.”

“The government solution to a problem is usually as bad as the problem.”

Tranquility
Liberty Magazine
March 2007

by Mark Skousen

“How many a man has dated a new era in his life from the reading of a book.”— Henry David Thoreau, Walden

Would you do me a favor? Find an easy chair, or better yet, go outside to a secluded spot and read this essay at your leisure.

Ever since my family and I lived in the Bahamas for two years,1 I’ve had an interest in leisure, the lure of breaking away from business and just relaxing, wandering, and letting my mind go. It seems like a very libertarian thing to do. Along with a photo of my family in the Bahamas, I have on my bookshelf a whole list of titles to remind me to walk away from work: The Idle Thoughts of an Idle Fellow; Leisure: The Basis of Culture; and Bertrand Russell’s In Praise of Idleness.

But before I go on, would you mind indulging me? As I write this, it’s a beautiful sunny day here in New York, and my wife has just beckoned me to join her at the swimming pool along the Hudson River. I’ll be back in a not-so New York minute . . . (While you wait, go ahead and read the rest of this issue of Liberty, or just listen to the birds sing.) There’s nothing like an opportunity to think, meditate, and relax with friends on a balmy summer day.

In my travels, I make a point of wandering aimlessly around the city or neighborhood I’m visiting, and usually end up at some used-book store. In the mid-’80s, I happened to be in Durango, Colo., a small college town, and came across a first edition of a book called The Importance of Living by Lin Yutang. I’d tried to read Chinese philosophers before, but never found them appealing until this book came along. What makes Lin Yutang so different from Confucius, Mencius, and Lao Tzu? He lived in both the East and the West, and consequently does an extraordinary job of contrasting the cultures. His book was so refreshing and shocking, so charming and witty, that I found myself underlining something on practically every page. And though Lin wrote in 1937, he sounds very modern.

Lin was a 20th-century Taoist known for his philosophy of leisure and “letting go.” He was also a libertarian who despised all forms of government control, especially Marxism-Leninism and Maoism in Red China. Born in southeastern China in 1895 to Christian missionaries, he learned English at St. John’s University in Shanghai and pursued a doctoral degree at Harvard University. He left Harvard early and went to France and then Germany, where he earned a Ph.D. at the University of Leipzig. After 1928, he lived most of his life in New York, where he translated Chinese texts and wrote prolifically. His objective was to bridge the gap between East and West, teaching Westerners about the old Chinese culture in such bestsellers as My Country and My People (1935) and The Importance of Living (1937). Refused permission to return to China by the Communists, Lin moved to Taipei, Taiwan, where he died in 1976.

The Age of Busy-ness

To understand Lin’s Chinese philosophy, I begin by quoting his most famous line, a line that mystifies workaholic Americans: “Those who are wise won’t be busy, and those who are too busy can’t be wise.”

I made the mistake of writing this statement on the blackboard on my first day of class as a professor at Columbia Business School. A third of the students immediately left, and dropped the class. (Fortunately, the majority had an open mind about pursuing interests other than a 24/7 lifestyle, and later rated my class highly.)

Yet there is wisdom in Lin’s statement. If you are too busy in your work, you don’t have time to learn new ideas, to discover new truths, to enjoy life’s little pleasures, or perhaps to pick a winning stock! Beating the market requires you to look down untrodden paths, and you need the free time to do it.

Lin Yutang criticizes most Americans for being too busy, and therefore slaves to the business culture and the old ways. They worry themselves to death. In another startling statement, Lin writes, “The three American vices seem to be efficiency, punctuality and the desire for achievement and success. They are the things that make the Americans so unhappy and so nervous.”2 Gee, I thought they were American virtues!

Life in the West, according to Lin, is “too complex, too serious, too somber, and too involved.” He would agree with Henry David Thoreau: “Our life is frittered away by detail. Simplify, simplify.” Following Taoist philosophy, Lin warned against “over doing, over achieving, over action . . . of being too prominent, too useful, and too serviceable.” The “perfectly square” house, the “perfectly clean” room, and the “perfectly straight” road rankle in him. He goes on to say, “O wise humanity, terribly wise humanity! How inscrutable is the civilization where men toil and work and worry their hair gray to get a living and forget to play!”

The Art of Loafing

Lin says not to worry: “The Chinese philosoph[er] . . . is seldom disillusioned because he has no illusions, and seldom disappointed because he never had extravagant hopes. In this way his spirit is emancipated.”

Culture, says Lin, is essentially a product of leisure. “The art of culture is therefore essentially the art of loafing. From the Chinese point of view, the man who is wisely idle is the most cultured man.” He likes a messy room, a crooked road, and a leaky faucet!

Lin offers the secret to success for the businessman (busy man?) in this statement: “Actually, many business men who pride themselves on rushing about in the morning and afternoon and keeping three desk telephones busy all the time on their desk, never realize that they could make twice the amount of money, if they would give themselves one hour’s solitude awake in bed, at one o’clock in the morning or even at seven. There, comfortably free, the real business head can think, he can ponder over his achievements and his mistakes of yesterday and single out the important from the trivial in the day’s program ahead of him.”

But the West won the cultural war. Today, 70 years after Lin’s critique of the three American vices, it is the Japanese, the Chinese, the Koreans, and the Indians who dress in Western business suits and spout the Western philosophy of efficiency, punctuality, and goal-setting, and who work 14-hour days and forget to play. In the new China, the roads are straight, the houses are perfect, and everything works. I suspect Lin Yutang would not like the new Asia, especially the regimented Singapore. It’s a paradise lost.

The Individual and the State

Lin Yutang is a champion of the individual and “its unreasonableness, its inveterate prejudices, and its waywardness and unpredictability.” But in today’s society, warns Lin, the individual free thinker is being replaced by the soldier as the ideal. “Instead of wayward, incalculable, unpredictable free individuals, we are going to have rationalized, disciplined, regimented and uniformed, patriotic coolies, so efficiently controlled and organized that a nation of fifty or sixty millions can believe in the same creed, think the same thoughts, and like the same food.” Lin goes on to warn, “Clearly two opposite views of human dignity are possible: the one believing that a person who retains his freedom and individuality is the noblest type, and the other believing that a person who has completely lost independent judgment and surrendered all rights to private beliefs and opinions to the ruler or the state is the best and noblest being.”

I daresay which of the two applies to Liberty readers! Lin dislikes the popular trend of sorting people into groups and classes. “We no longer think of a man as a man, but as a cog in a wheel, a member of a union or a class, a ‘capitalist’ to be denounced, or a ‘worker’ to be regarded as a comrade. . . . We are no longer individuals, no longer men, but only classes.”

Lin Yutang experienced the brutality of Chinese communism and the heavy-handed bureaucracy of Washington durng the New Deal era. Needless to say, he had a low opinion of government: “I hate censors and all agencies and forms of government that try to control our thoughts.”

Favoring persuasion over force, Lin distrusts laws and law enforcement. Quoting Lao Tzu, Lin says government regulation “represents a symptom of weakness.” Lin adds, “the great art of government is to leave the people alone.” Quoting Confucius, Lin suggests that if you regulate people by law, “people will try to keep out of jail, but will have no sense of honor.” But if you regulate the people by moral teaching, “the people will have a sense of honor and will reach out toward the good.” War is never ideal, even when your side is right. Again Lin quotes Lao Tzu: “Where armies are, thorns and brambles grow.”

Lin opposed Mao and the Communists because they placed society above the individual. The Soviet model was “disastrous” and Maoism “the worst and most terroristic regime.” Lin favored a “silent revolution, of social reform based on individual reform and on education, of self-cultivation.”3

He also questioned the establishment economist and forecaster:

“Perhaps I don’t understand economics, but economics does not understand me, either. The sad thing about economics is that it is no science if it stops at commodities and does not go beyond human motives . . . It remains true that the stock exchange cannot, with the best assemblage of world economic data, scientifically predict the rise and fall of gold or silver or commodities, as the weather bureau can forecast the weather. The reason clearly lies in the fact that there is a human element in it, and when too many people are selling out, some will start buying in. . . . This is merely an illustration of the incalculableness and waywardness of human behavior, which is true not only in the hard and matter-of-fact dealings of business, but also in the shape of the course of history.”

He was probably unfamiliar with the one school of economics that does take into account human behavior: the Austrian school of Ludwig von Mises and Friedrich Hayek. Undoubtedly Lin would like the title of Mises’ magnum opus Human Action.

Lin Yutang has many more things to say about our culture and how to live a happy and fulfilling life: about growing old gracefully (“The East and West take exactly opposite points of view. In China, the first question they ask is, ‘What is your glorious age?’ ”); the need for women at dinner (“the soul of conversation”); the evils of Western wear (“inhuman”); the only way to travel (“buy a one-way ticket”); and his controversial views on smoking (“one of the greatest pleasures of mankind”). I’ve only scratched the surface of this brilliant Chinese philosopher.

On Buddhism and Christianity

For Lin, Buddhism’s outlook (“life is suffering”) was too pessimistic and its path to happiness (“suppress one’s desires”) too austere. In a chapter called “Why I am a Pagan” in “The Importance of Living,” Lin renounced his parents’ Christianity, which in his age forbade enjoying sex, dancing, food, smoking, drinking, and the good life, in favor of an ascetic lifestyle that suppressed all sinful pleasures to obtain salvation.

Although Lin approved of the Christian emphasis on technology and education, and its banishment of foot binding and drug use in China, he rejected the austerity and social isolationism. “Chinese Christians virtually excommunicated themselves from the Chinese community,” he wrote. While at college, Lin discovered “the vast world of pagan wisdom.” His personal philosophy: “If I had to make a choice between contemplating sin exclusively in some dark, cavernous cor­ner of my soul, and eating bananas with a half-naked girl in Tahiti, entirely unconscious of sin, I would choose the latter.”

Yet in the 1950s, he returned to his Christian roots, although it was a liberal, tolerant, forgiving Christianity. What reconverted him? Not the catechism, but Christian charity, the showing of love, kindness, and good works toward his fellow man as Jesus proclaimed in the Sermon on the Mount. “Once this original emphasis is restored and Christians ‘bear fruit’ in their lives, nothing can withstand the power of Christianity.”4

But for now, it is Lin Yutang and his works that are bearing fruit. There is a growing hunger for leisure in a speedy world and for individualism in a conformist globalization. As if speaking today, Lin states, “I am quite sure that amidst the hustle and bustle of American life, there is a great deal of wistfulness, of the divine desire to lie in a plot of grass under tall beautiful trees of an idle afternoon and just do nothing.”

While enjoying that idle afternoon, may I suggest you take along a copy of Lin Yutang’s “The Importance of Living”? In the United States, a Little, Brown edition came out in 2003, although I’m disappointed that it is without Chinese art on the cover or running heads inside the book. Lin would not approve of such an austere edition! A Singapore edition by Cultured Lotus recaptures the beauty of the original and is far superior. Yet I personally prefer the 1937 edition by John Day Company, available by wandering through any dusty, dank, disorganized bookstore.

Notes
1. See “Easy Living: My Two Years in the Bahamas” (Liberty, December 1987).
2. Lin Yutang, “The Importance of Living” (John Day and Company, 1937), p. 150.
3. Lin Yutang, “From Pagan to Christian” (World Publishing, 1959), p. 78.
4. “From Pagan to Christian,” p. 236.

Liberty
February 2003

by Mark Skousen

Is the sun setting on the world’s oldest freedom organization?

The Foundation for Economic Education (FEE) is often called “America’s oldest freedom organization.” It predates the Institute for Humane Studies, the Cato Institute, and the Libertarian Party; its monthly magazine The Freeman (now Ideas on Liberty), was published for years before Reason or Liberty began publication. FEE was founded in 1946 by Leonard Read, a libertarian businessman and prolific writer most famous for his book Anything That’s Peaceful and his essay “I, Pencil.” For almost 60 years, the Foundation has been located in a 35-room mansion on a five-acre estate in Irvington-on-Hudson, just 20 miles north of Manhattan. Through its books, student seminars, and The Freeman, FEE has been associated with some of the biggest names in the freedom movement: Ayn Rand, Ludwig von Mises, Henry Hazlitt, and Milton Friedman, among others. Even Ronald Reagan, John Wayne, and Lawrence Welk wrote letters of support to Read. (Go to www.FEE.org for a delightful color photograph of Ronald Reagan reading The Freeman, while his wife, Nancy, rests on his shoulder.)

Yet since the passing of its founder in 1983, FEE has fallen into obscurity while the Cato Institute, the Heritage Foundation, and Hillsdale College have become household names. It has struggled to survive financially and The Freeman has dropped to only 5,000 paid subscribers. A series of presidents, including Hans Sennholz and Donald Boudreaux (now chairman of the economics department at George Mason University), worked hard to resurrect the glory years of FEE. Their efforts were valiant. But despite these valiant efforts, when I became president of FEE in August, 2001, many of my friends in politics and finance had never heard of it.

So now it was my turn to take on the challenge of resurrecting FEE. I thought my background had prepared me well. I hold a Ph.D. in economics from George Washington University. I’ve been a professor of economics and finance at Rollins College for 16 years. I’ve edited a very successful investment newsletter and spoken on economics and liberty to a wide variety of audiences. Having written over a dozen books, including three textbooks, The Structure of Production, Economic Logic, and The Making of Modern Economics, I felt it was time to focus my efforts on spreading the word.

And I had a long experience with FEE. I have been an avid reader of The Freeman since the 60s, a columnist since 1994, and a financial supporter of FEE. I knew Leonard Read and have lectured at the FEE mansion many times over the past two decades. FEE published my Ph.D. dissertation, Economics of a Pure Gold Standard, in 1988 and a pamphlet, What Every Investor Should Know About Austrian Economics and the Hard Money Movement, in 1995. For many years, I have recommended FEE in my investment newsletter, Forecasts & Strategies as the one organization worthy of a tax-deductible contribution. Most importantly, economic education has always been as much my passion as the world of investing.

So when Gary North, a longtime FEE supporter, urged me to apply for the job as president in early 2001, I jumped at the opportunity. When the FEE board approved my name, our family suddenly dropped our easygoing lifestyle in Florida and moved to New York, with less than a month’s notice.

Attract Attention!

FEE has fallen into obscurity while the Cato Institute, the Heritage Foundation, and Hillsdale College have become household names.

I immediately went to work to restore the glory days of FEE, telling the board that my plan was to think big and make FEE a household name. I read everything I could about FEE, including Leonard Read’s private diaries and essays. My wife, Jo Ann, and I worked twelve-hour days, including weekends, to turn a candlestick (Leonard Read’s favorite symbol of liberty) into a lighthouse. I paid my respects to Andrew Carnegie, the legendary financier buried a few miles away in Sleepy Hollow Cemetery, by following his advice to “attract attention.” The first thing I did upon arriving was to replace the 50-year-old sign at the Broadway entrance with an impressive new sign. Here are some of the other FEE accomplishments in my first year:

• We acquired Laissez Faire Books, the largest distributor of books on liberty in the world.

• We created the annual Leonard E. Read Book Award for Excellence in Economic Education.

• We publicized FEE by obtaining complimentary exhibit booths at the Money Shows and other major investment conferences around the country.

• We created the James U. Blanchard III Memorial Scholarship Fund to finance scholarships for needy international students to attend FEE seminars. We raised over $60,000 in our first year and eight international students were recipients of the Blanchard scholarships this summer.

• We updated our primary website, www.FEE.org, and created a daily news service, www.FEEnews.org, with Ron Holland as editor. He did a terrific job and FEE won an award for this new daily news service. This past summer, FEE.org was averaging 30,000 new visitors each month — not “hits,” visitors.

• We dramatically expanded our high school and college outreach program, with Dinesh D’Souza serving as our spokesman on college campuses, and Greg Rehmke expanding his debate program into the homeschool arena.

• We invited Nobel Prize economist Milton Friedman to write an article for Ideas on Liberty (a first).

The FEE National Convention: First Time on Nationwide TV

Perhaps our greatest achievement was the FEE National Convention (“FEE Fest”) at Las Vegas in early May. It put FEE on the map and people are still talking about it. We attracted nearly 900 paid attendees, 100 exhibitors, and 80 speakers (including Ben Stein, Charles Murray, Ron Paul, Nathaniel Branden, and Dinesh D’Souza). FEE Fest was co-sponsored by Reason Foundation, Heritage Foundation, Young America’s Foundation, Institute for Humane Studies, Leadership Institute, Goldwater Institute, Liberty magazine, and dozens of other freedom organizations. Our seminar director, Tami Holland, put together this program in only four months and Kim Githler, president of the Money Show, was able to negotiate a contract with Bally’s/Paris Resort Hotels without requiring a minimum deposit (thus minimizing our risk). We made some money — $14,000 — on the convention, but more importantly, we made FEE visible for the first time in decades, and introduced hundreds of people to free-market economics in the course of three wonderful days. “I feel an electricity that I have not felt in many years among libertarian gatherings,” commented Nathaniel Branden. We received extremely favorable comments from attendees, and even today people write us to ask when the next FEE convention will be.

As a result of the convention, FEE appeared on nationwide television for the first time when C-SPAN Book TV taped speeches by Dinesh D’Souza, Harry Browne, Michael Ledeen, Charles Murray, Tom DiLorenzo, and me. C-SPAN Book TV broadcast these speeches from the FEE convention repeatedly from May until November. C-SPAN was so impressed with the FEE convention that they wanted to bring two crews to the next one.

As an added benefit of the convention, FEE acquired two new prestigious toll-free numbers, 1-800-USA-1776 and 1-888-USA-1776. These numbers — previously owned by the U.S. Bicentennial Commission — were valued by an independent media consultant conservatively at $400,000. The toll-free numbers were donated by Terry Easton, a telecommunications expert who attended the FEE convention and was so impressed with the “new” FEE that he offered to help FEE financially in many other ways.

FEE Summer Seminars: “You Changed My Life”

The FEE convention also led to the doubling of student/teacher seminars. We sold out all of our student seminars this past summer and even had to add an additional seminar because of higher demand. Over 175 students attended. One major supporter who attended the FEE convention was so pleased that he more than doubled the number of scholarships he awarded to FEE summer seminars.

In addition, we made money on all our seminars this summer (a first). We cut costs by using staffers and trustees to teach. My wife, Jo Ann, and the staff prepared 3,200 meals in the FEE kitchen, thus saving thousands of dollars. But the best part was the response of the students. (One student wrote me, “I will be forever grateful to FEE for making this life-changing event possible. It was one of the most enjoyable and productive weeks in my life.”) Of all the things we did in 2002, the student seminars were the most rewarding.

My Most Controversial Decision: Inviting Rudy Giuliani to Speak

Every year FEE plans a fall dinner in October for trustees and supporters. My goal was to put FEE on a national pedestal, so I invited the #1 speaker in America, former mayor Rudy Giuliani, to be the keynote speaker. I didn’t think this choice would be out of character, since past speakers have included Lady Margaret Thatcher, Bill O’Reilly, and Paul Gigot (new editorial page editor of The Wall Street Journal). Although not a libertarian, Giuliani had almost singlehandedly transformed the world’s most powerful city from a stifling, dirty, dangerous metropolis into a thriving, safe, and clean city. Giuliani proudly points to the recommendations of the Manhattan Institute, a free-market think tank, as having influenced his decision to cut taxes, privatize, and deregulate the city’s economy. And few questioned his leadership during the terrible days after the terrorist attacks in September, 2001. I probably would not have moved to New York if Giuliani hadn’t been mayor, because the New York of ten years ago simply wasn’t safe or inviting.

In my mind, the biggest risk was financial — Giuliani gets a high honorarium and we had reserved the big ballroom at the New York Hilton. My goal was to attract the largest gathering of freedom lovers in New York history and to let them know that FEE was the place to learn more. Kim Githler again came to our aid by co-sponsoring the event and negotiating excellent terms with the Hilton. The chances of getting Giuliani were slim, however, since he turns down nine out of every ten requests. But everything fell into place when Giuliani accepted my invitation. And John Stossel of ABC News graciously agreed to be Master of Ceremonies for the event. Talk about a one-two punch! I quickly arranged pledges from supporters to buy patron tables to cover the cost of Giuliani’s honorarium, and Tami Holland went to work selling tickets. Everything was set for a spectacular extravaganza that would elevate FEE to national prominence.

However, I failed to take into account one thing — the extreme reaction of some libertarians around the country to my choice of Rudy Giuliani as a speaker at a FEE event. Many were outraged that I would select a “fascist” and a “thug” who “represents everything inimical to what FEE stands for,” to quote some of the more colorful lines from libertarians on the Internet. I was attracting attention, all right, but not the kind I was expecting. I countered by explaining that the Liberty Banquet was not an endorsement of Giuliani’s political record, but an outreach program. We wanted the general public to become familiar with FEE as the best source of sound economics, and what better way to attract the public than to invite America’s hero after Sept.11? Thousands of investors and business people didn’t know FEE from Adam, but they knew Giuliani, and by coming to a banquet with America’s mayor as speaker, they would be introduced to a powerful new organization that could change their lives forever.

The only way we are going to make a difference in this world is if we reach out to people who don’t yet agree with us. Sound economics is too important to leave only to libertarians! Henry Grady Weaver wrote in a FEE pamphlet: “I [already] believe in free enterprise. Explain it to those who don’t, not to me.” Amen!

I didn’t think choosing Rudy Giuliani to speak would be out of character, since past speakers have included Lady Margaret Thatcher, Bill O’Reilly, and Paul Gigot.

It didn’t seem to matter that John Stossel, a true libertarian hero, was willing to appear on stage with Giuliani, or that Giuliani had done wonders to restore the value of life, liberty, and property (the libertarian trinity) in the city of New York. I was amazed how closed-minded my libertarian friends were to Giuliani’s positive contributions. “It’s like inviting the devil to church,” accused John Pugsley. My response: “I already did that when I invited Doug Casey to speak at the FEE National Convention on Sunday, May 5.” Many Christian libertarians, including me, were offended by Doug’s attack on Christianity, but I was willing to listen to his opinions. I wish libertarians could be more tolerant and open-minded, more willing to have a dialogue with those whose views differ from their own. As Ben Stein, our keynote speaker at the FEE convention, said, “It’s funny how libertarians are so controlling.” (I was criticized for inviting Ben Stein, too, because he wasn’t a pure libertarian.)

Ironically, another organization, Washington Policy Center, dedicated to “advancing limited government and free markets,” promoted their own banquet in Seattle two weeks before ours. The keynote speaker? Rudy Giuliani. They had over 850 attendees in a very successful outreach program.

Mission Aborted!

It was during this ongoing debate over Giuliani that I received a startling telephone call from the chairman of the FEE board. He said the executive committee had met and decided to ask for my resignation. He did not go into details, aside from saying the board did not share my grand vision for FEE. He cancelled the Liberty Banquet and all future FEE national conventions.

I must admit that this move was the most shocking and disappointing event I’ve ever experienced in the freedom movement, and it came at a time when FEE was on the verge of once again making a real impact. Over the past ten years my wife and I had put our hearts and souls, as well as a good deal of money and reputation, into FEE and then it ended like this! It seemed unfair to us and destructive to FEE’s future. I have no doubt that the board members are good people and well-intentioned supporters of liberty. They volunteer their time, donate funds, and attend board meetings without compensation. Several board members were quite supportive of my presidency and wrote letters on my behalf. But I did not want to cause further controversy by fighting a divided board, so I agreed to resign. I still feel a great sadness about this.

Looking back, I made lots of mistakes as president, things I would do differently if I had the benefit of hind-sight. I would have worked more closely with the board and spent more time raising money. I probably tried to do too much too soon. But I think we did some things right and, in large measure, fulfilled the mandate I was given.

When I became FEE’s president, the organization was coming off a difficult year financially and charitable giving was plummeting across the country. I am pleased that in the six months before I was asked to resign, FEE’s revenues were up 30% and contributions were up 20%. And I am proud of the FEE convention and the student seminars.

When I was asked for my resignation, it was the most shocking and disappointing event I’ve ever experienced in the freedom movement, and it came at a time when FEE was on the verge of once again making a real impact.

After the executive committee cancelled the fall dinner, I was worried about the financial burden the cancellation of the Liberty Banquet would put on FEE, since it would still have the expense of honoring Giuliani’s contract while returning the patron table donations. So with the help of my publisher, Tom Phillips, and Kim Githler of the Money Show, we resurrected the Liberty Banquet and it went off on schedule Oct. 25 at the New York Hilton. It had lost momentum after the initial cancellation and a three-week delay in sending out the major promotions, but we still managed to attract 250 paid attendees. Rudy Giuliani was the perfect gentleman and quite a few libertarians gave him a standing ovation.

Jo Ann and I have appreciated the many letters and emails of support we have received during this difficult period. I continue to teach on college campuses, write my investment letter, speak at conferences, and author books. Instead of writing a column for Ideas on Liberty, I am now a contributor to Liberty magazine. I have my free time back but, to paraphrase John Maynard Keynes, I’d rather be the slave of some great cause.

Whither FEE?

Jo Ann and I will persevere, but what about America’s oldest freedom organization? An aggressive new FEE is unlikely under the current board. The new toll-free numbers have been returned to Terry Easton (upon his request), the daily news service is dormant, and the Blanchard Scholarship Fund is looking for a new home. There’s talk among a few board members of selling the FEE mansion and distributing the assets of FEE to other freedom organizations. Such an action would be most unfortunate. As one FEE supporter wrote, “it would be a crime to discontinue FEE since it was the first free-market foundation preaching in the wilderness to the business community which was then plagued with Keynes’ dogmas.”

FEE deserves to survive and prosper. Many organizations do a fine job of lobbying in Washington, researching public policies, supporting important libertarian scholarship, and fighting the enemies of freedom. But only one organization is dedicated solely to educating students, teachers, businesspeople, and citizens on the principles of free markets and sound money. And, if there’s anything the world needs desperately, it’s a strong dose of sound economics and an enthusiastic FEE. Jo Ann and I sincerely hope FEE can regain its influence.

When the Founding Fathers signed the Constitution of the United States in 1787, Benjamin Franklin, looking toward the half-sun carved on the back of the president’s chair, observed, “I have often in the course of the session, looked at that [chair] behind the president without being able to tell whether it was rising or setting. But now at length I have the happiness to know that it is a rising and not a setting sun.”

In a similar vein, as I was leaving FEE at the end of my presidency, I stood before the large portrait of Leonard E. Read located above the mantel in the living room of the FEE mansion and wondered whether Len was smiling or sad. I think that, for a year at least, he was smiling.

Personal Snapshots
Forecasts & Strategies
August 2002

Call 1-800-USA-1776 and Receive a FEE Gift!

“The cause of America is in great measure the cause of all mankind.”

— Tom Paine, Common Sense (1776)

Good news! We have just acquired two of the most memorable toll-free numbers for FEE: 800/USA-1776 and 888/USA-1776. We wish to thank Terry and Sue Easton of California for this generous gift. After attending the FEE National Convention in May, they were so impressed with the exciting things we are doing here at FEE that they decided to donate these two highly valued toll-free numbers, along with a dozen related websites (such as www.800USA1776.com). Terry is an expert in telecommunications and a longtime supporter of FEE and other free-market organizations. He says that these toll-free numbers were previously owned by the U.S. Bicentennial Commission, which organized the 1976 celebration of the 200th Anniversary of the birth of our nation.

I can’t think of a more fitting 800 number for FEE. The year 1776 changed the world forever, and the good ol’ USA, as embodied by the Declaration of Independence, was the primary reason why 1776 was a revolutionary year.

A Year of Miracles

Like most Americans, I’ve always been fascinated by the events of 1776. It was a year of earth-shattering events that transformed forever the Western world.

It is, of course, the year the American colonies broke off relations with the Mother Country, declared political independence from monarchy, and established the words of Thomas Jefferson that “all men are born equal” and endowed with certain “inalienable rights.”

It is the year that Adam Smith’s monumental Wealth of Nations was published, a powerful declaration of economic independence. Smith proclaimed the establishment of a “system of natural liberty” and the “invisible hand” doctrine that private enterprise would benefit the public wealth.

It is the year the eminent British historian Edward Gibbon published the first volume of his classic history, The Decline and Fall of the Roman Empire. It was considered a scandalous book because it blamed the decline and fall of Rome after it adopted Christianity as its state religion. Through his review of the Roman world, Gibbon emphasized the principles of “liberty, virtue and courage.”

Last but not least, 1776 is the year Thomas Paine’s Common Sense was printed, and Paine, more than any other revolutionary figure, symbolized the Age of Enlightenment. Paine’s philosophy encompassed the entire compass of liberty. He was a radical who advanced democratic emancipation, individual rights, religious tolerance and competitive capitalism.

Just as Adam Smith, Thomas Jefferson, Edward Gibbon and Tom Paine were radicals of their day, so FEE and its supporters are the radicals of our day, supporting maximum political, economic and religious freedom.

Calling All Patriots: Call This Number!

To celebrate this new toll-free number, I urge each one of you to call 800/USA-1776 (800/872-1776) and declare your support for 1776, American independence and FEE. Use this opportunity to do one of the following:

1) Subscribe to our award-winning Ideas on Liberty ($39 a year). I write a monthly column. So do Walter Williams, Larry Reed, and other major libertarians and conservatives.

2) Order a copy of my book, The Making of Modern Economics, the story of economic freedom through the eyes of great economic thinkers, including Adam Smith, Karl Marx, John Maynard Keynes, Ludwig von Mises and Milton Friedman. Only $39.95 for hardback, $24.95 paper, plus $5 S&H.

3) Sign up to attend our Liberty Banquet & FEE Benefit on October 25 at the New York Hilton Hotel. A “friend of FEE” pays $250 per person ($149 for dinner only).

4) Join the 1776 Club by making a donation in any amount with the numbers “1776″ or “76″ in them. Funds from the 1776 Club go to help assist needy students to come to FEE seminars and other events.

Anyone who calls will receive a FEE gift — a complimentary copy of The Mainspring of Human Progress, by Henry Grady Weaver, or Government — An Ideal Concept, by Leonard Read.

Personal Snapshots
Forecasts & Strategies
July 2002

“Is anybody there? Does anybody care? Does anyone see what I see?”

— George Washington, 1776

The 21-gun salute is considered the highest expression of honor and respect, given to recognize the presence or the passing of a great military hero or political leader. What is the origin of the 21-gun salute? In ancient times, warships fired seven-gun salutes based on the lucky number seven. Seven is also an important biblical number — e.g., God rested on the seventh day.

In 1810, the War Department of the United States defined the “national salute” as equal to the number of states in the Union, at the time 17. This salute was fired by all U.S. military installations at 1 p.m. (later at noon) on Independence Day. Today 50 guns are fired when the president visits a military installation, or when a president or ex-president dies.

In 1842, the presidential salute was formally established at 21 guns. Why 21? Some say it is a multiple of three based on another significant biblical number. At Independence Hall in Philadelphia, tour guides report that the 21-gun salute reflects the founding of our country. Independence was declared on July 4, 1776. If you add up the numbers 1 + 7 + 7 + 6, what do you get? 21! In Las Vegas, “21″ is a lucky number. Not only does it represent winning at Blackjack, but if you add the 1 and the 6 in 1776, you get 777, the lucky winning combination in slot machines. And my friend Bert Dohmen, a financial technical analyst, noted that “21″ is a Fibonacci number, a number that is found often in nature (the numbers in a Fibonacci sequence are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, … where you add the previous number to get the next Fibonacci number). Fibonacci numbers are used frequently by mathematicians and technical analysts on Wall Street.

What Is the 1776 Club?

To honor our Founding Fathers and the Spirit of 1776, I’ve created the new 1776 Club. The purpose of the 1776 Club is to help deserving students learn the principles of free-market economics and the freedom philosophy in several ways: by attending seminars at FEE headquarters and other centers of liberty around the world; by attending on-campus lectures, regional seminars and international conferences; and taking accredited Internet classes in sound economics. (I’m working right now with Grantham University — www.grantham.org — to create courses in investments, economics and finance, to be announced soon.)

We chose the 1776 Club as the name of this Foundation for Economic Education (FEE) program in honor of our Founding Fathers who declared economic, political and religious independence, and thus created the freest, most prosperous nation in the world.

At the FEE Fest 2002 in Las Vegas in May, we encouraged attendees to donate any amount of money using the numbers “76″ or “1776″ in them, from 76 cents to $1,776. So far we have raised nearly $15,000 in the 1776 Club. Please feel free to donate any amount, such as $76, $760 or $1,776, to this good cause. If you donate $1,776 or more, you become a Founding Member of the 1776 Club. Some of the first to become Founding Members are: Andrew Westhem, president of Westhem Grant Group of La Jolla, California; Mel Adams, president of Adams Bank in Nebraska; Bert Dohmen of Dohmen Capital Management of Hawaii; Conrad Denke, president of American Production Services of Hollywood, California; and our new FEE chairman, Ed Barr.

What are the benefits of being a Founding Member of the 1776 Club? First, you receive a lifetime subscription to our monthly publication, Ideas on Liberty. Second, you receive a complimentary copy of Leonard E. Read’s classic work, Government — An Ideal Concept. And third, you receive special discounts for our annual FEE Fest and other FEE seminars throughout the year. Most importantly, you share in the joy of helping young people learn the principles of sound economics.

Throughout the month of July, we are planning to ring FEE’s Liberty Bell in honor of all those who send in donations to the 1776 Club. If you send in a donation, we will ring the bell once. If you donate $1,776 or more, we will ring the Liberty Bell 21 times in your name as a way of showing our appreciation for your patriotism and support. Send your donation to the Foundation for Economic Education, 30 South Broadway, Irvington, New York 10533, call 800/960-4FEE, ext. 209, or go to www.FEE.org.

From The President’s Desk
Published in Ideas on Liberty
July 2002

by Mark Skousen

“The problem of making poor countries rich was much more difficult than we thought.”

—William Easterly, World Bank1

“If there is one formula for our success, it was that we were constantly studying how to make things work, or how to make them work better.”

—Lee Kuan Yew, former Prime Minister, Singapore2

William Easterly has spent his entire adult life working for the World Bank, living in the Third World, and helping poor countries develop into rich countries. You would think he would severely lecture the World Bank and his fellow economists about the dumb policies governments have pursued.

Instead, Easterly throws his hands in the air and offers no clues to the “elusive” quest for growth. He confirms a few economic truths, such as “incentives matter” and “government can kill growth,” but ultimately he thinks luck has as much to do with it as anything. “There are no magic elixirs,” he sighs. The almighty empirical evidence solemnly declares it. Foreign aid doesn’t work. Foreign investment doesn’t work. High savings don’t work. Investment in machinery doesn’t work. Education doesn’t work. Technology doesn’t work. Tax cuts don’t work. All have failed to live up to expectations. It’s time for the economist to be humbled: “It’s very, very hard to predict success in sports, music, and politics—as well as in economics.”3

Over the years I have witnessed a split in the economics profession. Some adhere to the view that we live in an Age of Ignorance; that we know very little about how the world economy really operates and what government policies should be pursued. They are in large measure armchair critics and doubting Thomases.4 Others believe we live in an Age of Enlightenment; that despite maddening uncertainties about the marketplace, we do know with some assurance how a freely competitive market economy works and we have learned a great deal about what governments should and should not do. It is sad commentary to see that despite his honesty, Easterly, a seasoned veteran in the war on world poverty, tends to fall into the former category. He certainly lost an opportunity to clear the air and reveal the root causes and cures of poverty.

Singapore’s Economic Miracle

Perhaps one reason Easterly’s story ends in tragedy is that he apparently spent too much time in failed economies and not enough time in successful ones. I notice that his book says almost nothing about Chile, the economic model of Latin America, or the Four Tigers—Hong Kong, Korea, Taiwan, and Singapore.

Contrast Easterly’s confused story with Lee Kuan Yew’s autobiographical account of Singapore. Lee became president of the tiny, poverty-stricken British colony after it was granted independence in 1965. In one generation, he oversaw its transformation into an Asian giant with the world’s number-one airline, best airport, busiest port of trade, and the world’s fourth-largest per capita real income.

How did this economic miracle happen?

First, Lee offered real leadership. He was a seminal figure in Asia who accomplished extraordinary things. He built an army from scratch, won over the unions, and destroyed the communists after the British left a vacuum. Despite strong opposition, he insisted on making English one of four official spoken languages, knowing it was fast becoming the language of international business. Singapore, like other Southeast Asian countries, was known for its nepotism, favoritism, and covert corruption; Lee cleaned up the courts, police, and immigration and customs offices. Today Singapore is ranked as the least corrupt country in Asia. Singapore was also dirty, so Lee began a “clean and green” campaign. Rivers, canals, and drains were cleaned up and millions of trees, palms, and shrubs were planted.

The Lee government tore down dilapidated shacks and replaced them with high-rise apartments. He imposed law and order by demanding severe sentences for murder and other crimes. Today Singapore ranks no. 1 in the world for security. To reduce traffic congestion, a huge problem in Asian cities, Singapore built an underground subway system, and imposed an electronic road-pricing program. Every vehicle has a “smart card” on its windshield, and the toll amount varies with the road used and the time of day. During rush hour, the price goes up. “Since the amount people pay now depends upon how much they use the roads, the optimum number of cars can be owned with the minimum of congestion.”5 A sound economic principle!

Lee rejected Soviet-style central planning and domestic heavy industry, although he did target certain industries for development. He focused on a two-pronged plan to advance Singapore: First, his government encouraged domestic industry to leap over their neighbors and link up with the developed world of America, Europe, and Japan, and tried to attract their manufacturers to produce in Singapore. Second, Lee wished to create a First World oasis in the Third World by establishing top standards in security, health, education, communications, and transportation, and a government offering a stable currency, low taxes, and free trade. Singapore would become a “base camp” for multinational corporations from around the world. And, after years of effort, it worked.

Under Lee’s brilliant leadership, Singapore has advanced far beyond anyone’s dreams. Yet we cannot ignore his mistakes—his paternalistic strong-arm tactics, his interventionist targeting of industries, his forced saving programs, his denial of a free press, and his excessive punishments for certain crimes. It will be interesting to see how Singapore performs, both as a people and economy, after Lee Kuan Yew is gone. We can only hope that economic freedom will lead to political liberty.

1. William Easterly, The Elusive Quest for Growth (Cambridge, Mass.: MIT Press, 2001), p. 291.
2. Lee Kuan Yew, From Third World to First: The Singapore Story, 1965–2000 (New York: Harper Collins, 2000), p. 687.
3. Easterly, p. 208. Despite Easterly’s failure to come to any clear conclusions, his book offers an honest and often entertaining appraisal of development literature.
4. See my columns, “Is This the Age of Ignorance—or Enlightenment?,” June 1994; “European Unemployment: The Age of Ignorance, Part II,” January 1995; and “The Age of Confusion,” August 1995.
5. Lee, p. 206.

Mark Skousen is president of FEE.

From The President’s Desk
Published in Ideas on Liberty
June 2002

by Mark Skousen

“The human mind is charming in its unreasonableness, its inveterate prejudices, and its waywardness and unpredictability.”

—LIN YUTANG1

“Behavioral” finance is the hot new field in the rapidly growing “imperial” science of economics. Consider the titles of recent books on the subject: Irrational Exuberance by Robert Shiller of Yale University, who correctly warned investors that the bull market on Wall Street in 2000 was not sustainable, and Why Smart People Make Big Money Mistakes by Gary Belsky and Thomas Gilovich.

Essentially, these writers take issue with a fundamental principle of economics—the concept of “rational” predictable behavior. They argue that investors, consumers, and business people don’t always act according to the “rational economic man” standard, but instead suffer from overconfidence, overreaction, fear, greed, herding instincts, and other “animal spirits,” to use John Maynard Keynes’s term.2

Their basic thesis is that people make mistakes all the time. Too many individuals overspend and get into trouble with credit; they don’t save enough for retirement; they buy stocks at the top and sell at the bottom; they fail to prepare a will. Economic failure, stupidity, and incompetence are common to human nature. As Ludwig von Mises notes, “To make mistakes in pursuing one’s ends is a widespread human weakness.”3

Fortunately, the market has a built-in mechanism to minimize mistakes and entrepreneurial error. The market penalizes mistakes and rewards correct behavior (witness how well business responded to the Y2K threat in the late 1990s). As Israel Kirzner states, “Pure profit opportunities exist whenever error occurs.”4

But the new behavioral economists go beyond the standard market approach. They argue that new institutional measures can be introduced to minimize error and misjudgments, without involving the government.

At the American Economic Association meetings in Atlanta in January 2002, Richard Thaler of the University of Chicago presented a paper on his “SMART” savings plan, which is being tested by five corporations in the Chicago area. Thaler, author of The Winner’s Curse and a pioneer in behavioral economics, has developed a new institutional method to increase workers’ savings rates. Thaler noted that the average workers’ savings rates are painfully low. I blame the low rate on high withholding taxes, but Thaler suggested that part of the problem is the way retirement programs are administered. He convinced these corporations to adopt his plan to have their employees enroll in an “automatic” investment 401(k) plan. Most corporations treat 401(k) plans as a voluntary program and, as a result, only half choose to sign up. In Thaler’s plan, employees are automatically invested in 401(k) plans unless they choose to opt out.

Result? Instead of 49 percent signing up (as they do in a typical corporate investment plan), 86 percent participate.

Raises Invested

In addition, Thaler has participating employees automatically invest most of any pay increase in higher contributions to their 401(k) plans, so they never see their paychecks decline, even though their 401(k) plans are increasing. Consequently, employees under this SMART plan have seen their average savings rate increase from 3 to 11 percent.

Robert Shiller was a discussant at the session and rightly called Thaler’s plan “brilliant.” I agree. Having authored several investment books advocating “automatic investing” and dollar-cost-averaging plans,5 I applaud Professor Thaler for taking the concept of automatic investing to a new level. If companies everywhere adopt his plan, it could indeed revolutionize the world and lead not only to a much more secure retirement for workers but to a higher saving and investment rate. The result could be a higher economic growth and standard of living throughout the world.

Most important, Thaler’s plan is a private-sector initiative and does not require government intervention. In short, through innovative management techniques and education, individuals can solve their own financial and business problems without the help of the state.

1. Lin Yutang, The Importance of Living (New York: John Day Company, 1937), p. 57.
2. References to “animal spirits” and “waves of irrational psychology” can be found in John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Macmillan, 1973 [1936]), pp. 161–62.
3. Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 268. However, Mises refuses to call bad decisions “irrational.” He states, “Error, inefficiency, and failure must not be confused with irrationality. He who shoots wants, as a rule, to hit the mark. If he misses it, he is not ‘irrational’ he is a poor marksman.”
4. Israel M. Kirzner, “Economics and Error” in Perception, Opportunity, and Profit (Chicago: University of Chicago Press, 1979), p. 135.
5. Mark and Jo Ann Skousen, High Finance on a Low Budget (Chicago: Dearborn, 1993) and Mark Skousen’s 30-Day Plan for Financial Independence (Washington, D.C.: Regnery, 1995).

Mark Skousen is president of FEE.

Personal Snapshots
Forecasts & Strategies
April 2002

“I’m tired of Love: I’m still more tired of Rhyme. But Money gives me pleasure all the time.” —Hilaire Belloc

I came across a very interesting book the other day called Happiness and Economics: How the Economy and Institutions Affect Human Well-Being (Princeton University Press, 2002), by Bruno S. Frey and Alois Stutzer. It’s a very academic book, with lots of graphs and mathematical regressions, but the conclusions are pretty clear: “The general result seems to be that happiness and income are indeed positively related.” In other words, money can provide many benefits—more opportunities, higher status in society, the ability to travel, enjoy better food, housing, health care and entertainment, etc.

I remember the day I discovered that I would be financially independent. It was a summer day in the 1970s when I came home and presented my wife with more than a dozen checks from a mail-order business I had started. Within a year, we had bought our first home, with 20% down, and by 1984, we had become successful enough that we could move our entire family (with four children) to the Bahamas to “retire.” The experience of becoming financially secure gave Jo Ann and me an incredible feeling of satisfaction.

The graph shows the relationship between income and happiness across nations. In general, people in poor countries are less satisfied than people in rich countries. One reason is that poor nations are often more subject to violence and uncertainty. “Countries with higher per capita incomes tend to have more stable democracies than poor countries have…. The higher the income, then the more secure human rights are, the better average health is, and the more equal the distribution of income is. Thus, human rights, health and distributional equality may seemingly make happiness rise with income.”

But the graph also indicates that more money provides diminishing returns in happiness. Subjective well-being rises with income, but once beyond a certain threshold, income has little or no effect on happiness. That’s why many wealthy people are not any happier than middle-class people. In fact, some wealthy people are downright unhappy.

Four Elements of Happiness

I once read a sermon by a church leader on the “Four Sources of Happiness.” He spoke of work, recreation, love and worship. I think he’s right. You have to find rewarding and honest employment to be happy. Unemployed people, not contributing to society or themselves, are generally unhappy. At the same time, people who spend too much time at the office and can’t relax with their family or friends at home need to learn the joy of recreation with a hobby, sports, travel or other avocation. Some of my most memorable times have been at a county softball game or a pick-up game of basketball with my kids or friends.

Love and friendship are also key elements of happiness. Everyone needs someone to confide in, to spend time with, to learn from, to reminisce with, to love and be loved. For most people, love and friendship take time and effort. You have to work at developing friendships, but the rewards are never-ending.

Finally, worship. Developing one’s spiritual side is essential to happiness. Some of my friends say they don’t need religion, but they are missing out on one of the joys of life—listening to a great sermon, singing hymns, meditating on the word of God and praying for God’s help.

In short, there’s more to life than doubling your money on a hot stock (although that, too, gives a lot of pleasure).

Personal Snapshots
Forecasts & Strategies
March 2002

“We live in a ‘knowledge economy’—either you gain new knowledge, or your business and your investments die!” — Peter Drucker, World’s #1 management guru

Peter Drucker is right. Either you grow in knowledge and opportunity, or you and your business die. Either you correctly foresee the future, or your old investment strategy fails. You must always be on the lookout for change, and how it will affect your business, your portfolio and your personal life. My, have we learned this lesson in the past year as stocks have floundered and gold has flourished.

Last month I started putting together the best minds I could think of and asked them to join me for an unprecedented “pow wow,” a three-day intensive program of ideas and strategies on economics, finance, public policy and personal philosophy for the future. Since Sept. 11, 2001, we have all recognized that we live in a much more dangerous world than we could imagine—the growing threats of terrorism, mismanagement, depression, bear markets and trade wars. What will the future bring?

Here are just a few of the experts coming to this historic event, the FEE National Convention & 30th Anniversary Celebration of Laissez Faire Books, scheduled for May 3–5 in Las Vegas:

• Charles Murray, #1 expert on government policy and controversial author of Losing Ground and The Bell Curve, on “The Growing Power of the State in the War on Terrorism, Drugs and Illegal Aliens.”
• Robert Poole Jr., founder of Reason magazine, on “Is Air Travel Really Safe?”
• Gerald P. O’Driscoll Jr., senior fellow at Heritage Foundation, on “The World Map of Economic Freedom—a Startling Revelation.” (You must see this unusual world map in person to appreciate its significance.)
• Larry Abraham, author and editor of Insider Report, on “What Every Investor Must Know about the Middle East.”
• Gary Hoover, author of Hoover’s Vision and entrepreneur extraordinaire (creator of Bookstop and Hoovers, Inc.), “The Right Stuff: What it Takes to Succeed in the 21st Century.” Gary will lead a special panel on newly developed management techniques.
• Ben Stein, actor and social conservative, on “Why Bashing Big Business is Big Business in Hollywood.” He will give us an inside look into the dangers and opportunities in the entertainment world.
• Congressman Ron Paul on “Danger Ahead: The Way Congress Really Works.”
• Mike Ketcher, editor of The Financial Privacy Report, will lead a special panel on “How to Protect Your Assets and Privacy in this New Age of Big Government.”
• Dinesh D’Souza, author of The Virtue of Prosperity and a Hoover Senior Fellow (and FEE spokesman on campus), on “Why They Hate Us.” This is a speech you won’t want to miss.
• Madsen Pirie, president of the Adam Smith Institute and a privatization consultant to numerous governments around the world, on “The Outlook for Global Capitalism in a Terrorist World.”
• Louis James, editor of Free-Market.net, on “How to Spread Your Cause on the Internet.”
• My brother, Joel Skousen, expert on geo-politics, bio-terrorism and survival techniques, “A Principled Approach to Liberty,” and “How to Survive the New World of Terrorism.”
• Other speakers include: Richard Ebeling from Hillsdale College in Michigan, Parth Shah from India, Doug Casey from New Zealand and Manuel Ayau from Guatemala.

“Big Idea” to be Announced

Finally, I plan to take this opportunity to announce a blockbuster idea that will revolutionize the freedom movement, and maybe even stop the growth of government in its tracks. Don’t miss this opportunity to hear this “big idea” and how it will be implemented—with your help!

Last Chance for “Early Bird Special”

This the last month to take advantage of the “early bird special” at only $175 per person, $99 per student. After March 31, the price goes up to $225. This price includes everything: the Friday pre-conference FEE Course on Sound Money and Free Markets, the cocktail reception and speech by Ben Stein, all the sessions on Saturday and Sunday, entrance into the exhibit hall, and the Saturday night banquet & 30th anniversary celebration of Laissez Faire Books.

How You Can Change the Lives of Hundreds of Students

This is a conference for adults as well as students. If you would like to provide financial assistance to students, please buy a patron table at either the silver, gold or platinum level (call Tami Holland for specific benefits at each level; or go to the website). The FEE National Convention is sponsored by Reason Foundation, Young America’s Foundation, Hillsdale College, Heritage Foundation, Leadership Institute, and dozens of other top-ranked think tanks and colleges. See you in Las Vegas!

Personal Snapshots
Forecasts & Strategies
February 2002

“Skousen’s course on executive economics was ranked the #1 course we have ever had at the Learning Center.”— Wayne Fortun, president, Hutchinson Technology

Included in this issue is a brochure for the first FEE National Convention, which is scheduled for May 3–5, directly before the Las Vegas Money Show. I strongly urge you to attend this intellectual feast. In particular, I recommend you come early for the FEE Course on Sound Money and Free Markets, an executive economics course I teach, set for all day Friday at Bally’s in Las Vegas. This FEE course has changed people’s lives, and it could change yours. I’ve given this course before managers at Hutchinson Technology (HTCH, $22.67), and have been invited back six times! In this one-day course, you will learn:

• How the economy really works
• Seven popular economic myths since September 11
• Will the Fed panic again? How to understand the mysteries of money and central banking, and how Greenspan & Co. can affect your business and your investment portfolio
• Why Social Security and Medicare can’t work,” and why you must plan for alternatives to these government programs
• The global battle for economic freedom and how it will affect your business and personal life

But this is only the beginning. On Friday evening, you’ll enjoy a sumptuous cocktail party and hear Ben Stein, actor, author and game show host, talk about “Why Bashing Capitalism Is Big Business in Hollywood.” Stein is one of the few social conservatives in Hollywood.

Beginning Saturday morning and running throughout the day and into half a day on Sunday, you will enjoy an unforgettable educational experience choosing from over 30 scholars in history, philosophy, economics, finance, business management and public policy. Hear Charles Murray, author of Losing Ground and The Bell Curve; Stephen Moore, president of Club for Growth and author of It’s Getting Better All the Time; and Dinesh D’Souza, author of The Virtue of Prosperity. Gary North, editor of Remnant Review, will speak on “The Most Dangerous Philosopher of Modern Times (You KANT be serious, Gary!),” and Robert Poole Jr., founder of Reason magazine, will address the question, “Can you really fly safely when the government is in charge?”

We are also planning sessions on “business strategies for libertarians and conservatives,” with Gary Hoover, founder of Hoovers, Inc., and other top CEOs who believe in the free market. There will be debates and panels.

On Saturday evening, we are planning a fantastic banquet, where we will hear from several distinguished speakers, including Nathaniel Branden, author of the classic The Psychology of Self-Esteem, as we honor Andrea Rich, who for the past 20 years managed Laissez Faire Books.

For full details, including online registration information, go to www.FEEnationalconvention.org, or call Tami Holland at 888/565-8779, or e-mail her at tholland@fee.org. You can also call FEE directly at 800/960-4FEE, ext. 209.

NOTE: This conference is now FreedomFest. See www.freedomfest.com for more information.

Announcing the First Leonard E. Read Book Award

I’m pleased to announce that Ken Schoolland, professor of economics and political science at Hawaii Pacific University, is the recipient of the first Leonard E. Read Book Award for Excellence in Economic Education for his insightful and entertaining satire, The Adventures of Jonathan Gullible: A Free Market Odyssey. The award is named after the founder of FEE. This is a very funny little book that teaches the basic principles of liberty. I urge you to buy a copy, available from Laissez Faire Books, 800/326-0996, or www.laissezfaire.org, for only $14.95 plus S&H. See why it has already been translated into 20 languages! Schoolland is a modern-day Jonathan Swift and Frederic Bastiat combined.

Schoolland will receive the award at the FEE national convention in May—$2,000 plus a 1-ounce American Eagle gold coin minted in 2001.

December 2001
PERSONAL SNAPSHOTS
Forecasts & Strategies

by Mark Skousen

“A noble man cannot be lost in a crowd.” — Maori Saying

I just returned from my 25th appearance at the New Orleans Investment Conference. I know hundreds of you have been to this classic “granddaddy “of seminars. There’s a reason why this investment conference has lasted so long. Jim Blanchard, the founder, wanted to bring together investors who not only wanted to preserve their capital, but also cared about their country. As he used to say, “What’s the point of being a millionaire if you are on the Titanic?” His conferences always mingle solid investment advice with a hefty dose of sound money and free-market ideas. Last month we heard from Milton Friedman and John Stossel, among other giants in the freedom movement.

Jim was first and foremost a teacher (he used to teach high school in New Orleans), and he wanted his subscribers and conference attendees to know that inflation and the ups-and-downs of the economy were caused by government, not capitalism. He urged his followers to read Ayn Rand’s novels (he named one of his children Anthem!) He was one of the original goldbugs, and he devoted his entire career to the cause of liberty and sound money. In the early 1970s, he formed the National Committee to Legalize Gold. Because of Jim’s untiring efforts, in 1974 it once again became legal for Americans to own gold. Jim saw gold ownership as a fundamental human right, a hedge against government mismanagement.

Jim was also an entrepreneur who turned a $50 investment into a $115-million precious-metals coin business. He started the Blanchard group of mutual funds. He used his profits for many good causes, and his love of liberty led him to support pro-freedom forces and anti-Communist causes in Africa and Europe.

Finally, Jim overcame personal tragedy. He was nearly killed in an automobile accident at age 17 and was unable to walk. But his handicap only spurred him on. He became a powerful figure for liberty, entrepreneurship and sound money.

Tragically, Jim died of a heart attack in 1999 at age 55.His family issued a formal notice with the sentence: “James U. Blanchard III was a man who accomplished much against great odds, and changed more people’s lives than he ever knew.”

How to Honor Jim’s Life: The Blanchard Scholarship Fund

Since Jim’s untimely death, I’ve often wondered how we — untold numbers of friends and followers who were inspired by Jim’s example — honor our friend ’s memory. When I became the president of the Foundation for Economic Education (FEE), I thought of a way to honor Jim ’s life: to create the James U. Blanchard III Memorial Scholarship Fund. The scholarship fund will help teach students all over the world the principles of sound money and free markets. To qualify to become a Blanchard Scholar, students will be required to write an essay on inflation, sound money, entrepreneurship, limited government and other topics Jim advocated. Once chosen, Blanchard scholars will qualify to attend a weeklong course at FEE headquarters in Irvington-on-Hudson, New York, on free-market economics. We hold several of these seminars each summer (go to www.fee.org for the current schedule). Typically, it costs about $1,000 to pay for one student at a weeklong FEE seminar, including room and board, tuition, books and materials, and airfare. But through the generous support of the Blanchard Scholarship Fund, students will be able to attend and learn about the freedom philosophy. And their lives will be changed forever.

Jim, by the way, was a strong supporter of FEE, and read regularly the monthly magazine, The Freeman (now called Ideas on Liberty). He was a friend of Leonard Read, the founder of FEE. And FEE, by the way, is one of the few free-market organizations that favors a gold standard. It’s a perfect match.

So far the response has been incredible. Friends everywhere have come forward and made contributions. Will you join us? You can make donations by check, credit card, securities or other assets. All donations to the Blanchard Fund are tax deductible through the Foundation for Economic Education, which is an IRS-approved 501(c) 3 educational organization.(Rick Rule, one of my recommended brokers, has offered at no charge to assist anyone who wishes to donate stock — him at Global Resource Investments at 800/477-7853). For more information on FEE, go to our website, www.fee.org. Send your donation to: The Foundation for Economic Education, 30 South Broadway, Irvington-on-Hudson, New York 10533. For donations by credit card, call 800/960-4FEE (4333). Be sure to designate “Blanchard Scholarship Fund,” which will be kept as a segregated account. Thank you!

P.S. Any donation above $100 will receive a complimentary one-year subscription to our flagship monthly publication, Ideas on Liberty. You’ll love it!

November 2001
PERSONAL SNAPSHOTS
Forecasts & Strategies

by Mark Skousen

“It was a time for every man to stir.” — Thomas Paine

Westchester County, New York, where I now reside, is full of American heroes. Two are buried in Sleepy Hollow cemetery — Carnegie, the steel magnate (highlighted last month) and Samuel Gompers, the great labor leader. Another hero is Thomas Paine (1737-1809), the revolutionary writer, who owned a farm in New Rochelle. Paine is famous for writing Common Sense, the anonymous pamphlet that galvanized Americans into revolution in 1776. I read it as a teenager one summer and was overwhelmed by the candid, powerful case he made for separation from England. But there were actually three revolutions in 1776 — political revolution declared on July 4 by Thomas Jefferson’s Declaration of Independence; an economic revolution propelled by Adam Smith’s magnum opus, The Wealth of Nations (published on March 9,1776); and a cultural/religious revolution as expressed in Edward Gibbon’s best-seller, The Decline and Fall of the Roman Empire (the first volume published on February 23,1776). Thus, 1776 was a year of wonders.

The Age of Paine: A Supporter of Free Enterprise and a Hater of Taxation

Even more amazing, Tom Paine spoke out in favor of all three revolutions. In Common Sense, published on January 9,1776, he made the greatest case for political independence ever penned. “Government even in its best state is but a necessary evil; in its worst state an intolerable one …Nothing can settle so expeditiously as an open and determined declaration of independence.” He coined the name, “United States of America.” He hated the King and the privileged aristocracy that went with it. He referred to the idle nobility as “no-ability.” What mattered most to Paine was a man’s productivity, not his pedigree. Paine was also an unrepented follower of Adam Smith and laissez faire capitalism.

In The Rights of Man (1791) he defended individualism, property, business enterprise and Jeffersonian democracy. He favored a world in which political and social place would be determined by talent, merit and hard work — reliant individuals. He defended the rich and the businessman. His one villain: government. The invisible hand of merchants, manufacturers and bankers create a wholesome civil society; but the “greedy hand of government” oppressed and taxed citizens at home and waged war abroad. He was obsessed with taxation, a symbol of tyranny and corruption. Finally, Paine’s social and religious philosophy was in keeping with Gibbon’s. He favored free thought and freedom of religion, and was opposed to a state religion. He was an outspoken critic of slavery. He was cursed as an atheist and an infidel based on his sharp criticisms of the Bible in The Age of Reason (1794),but he was in fact a deist who strongly believed that “the hand of providence has …accomplished the independence of America.”

The Spirit of Paine Lives On

Some of the stirring words of Tom Paine seem modern to me. After the war on terrorism began, I thought of his words: “These are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph.” Long live the spirit of Tom Paine. That spirit lives on at the Foundation for Economic Education (FEE). I urge you to subscribe to our monthly publication, Ideas on Liberty.The cost is only $30 a year for 12 issues. To subscribe, call 914/591-7230. Ideas on Liberty would also make a great holiday or birthday gift.

UPDATE

Foreign Affairs, the premier establishment journal, loves AND hates my new history, just as it goes into a second printing! The October/September issue of Foreign Affairs calls The Making of Modern Economics “both fascinating and infuriating.” On the positive side, the book is “engaging, readable, colorful and entertaining,” on the negative side, it’s “credulous, disingenuous and tendentious.” My kind of review! Love it and hate it! I ’m also happy to report that the first printing is sold out and a second printing is now available from M.E. Sharpe Publishing, 800/541-6563. Be sure to mention you are a subscriber to Forecasts &Strategies, and you pay only $49.95 for the hardback and $24.95 for the paperback, plus S&H, a considerable bargain over the retail prices.

November 2001
From the President’s Desk
Ideas on Liberty

by Mark Skousen

“Individualism, private property, the law of accumulation of wealth, and the law of competition . . . are the highest result of human experience, the soil in which society, so far, has produced the best fruit.” —ANDREW CARNEGIE’

A few days after my move to New York, I paid my respects to an icon of capitalism, Andrew Carnegie (1835-1919), whose tombstone is appropriately located only a few miles up from FEE headquarters, in Sleepy Hollow Cemetery. In three ways, Carnegie reflects the spirit of FEE—he was a fierce defender of free-enterprise capitalism; he gave generously to good causes; and he worked hard for the cause of world peace and democracy. All three are in short supply in today’s uncertain world of regulatory state capitalism, welfarism, and terrorism.

As a joint creator (along with J. P. Morgan) of U.S. Steel, the first billion-dollar corporation in the world, Carnegie was a successful entrepreneur who benefited humanity by offering cheaper and better steel with which to build a modern world. He would reject the “robber baron” title. Capitalism was not a device to enrich the rich at the expense of the poor, as the Marxists contend; “Capitalism,” he said, “is about turning luxuries into necessities.” He started out as a poor Scottish immigrant, a classic Horatio Alger hero. He liked to be different; his favorite advice to young men was, “Attract attention.”

For Carnegie, there were in the world other values than those of the business culture: he loved books, and became friends with intellectuals, writers, and statesmen such as Herbert Spencer, Mark Twain, and William Gladstone. He was intensely competitive, even glorying in beating his friends in golf. In business, he drove down the cost of steel, even as he improved the quality. “Cheaper and better” became the American way. “Watch the costs, and the profits will take care of themselves,” he explained.2 He made no apologies for his ruthless competitive spirit, which he justified as a Darwinian form of “survival of the fittest” and as a fulfillment of Jesus’ parable of the talents. Like an old-fashioned Hank Rearden in Ayn Rand’s novel Atlas Shrugged, Carnegie wasn’t merely an apologist for anarchic individualism; he was its celebrant.

Carnegie objected strenuously to the “progressives” who favored socialism and communism over individualism. “To those who propose to substitute Communism for this intense Individualism, the answer therefore is: The race has tried that. All progress from that barbarous day to the present time has resulted from its displacement.”3

“The Man Who Dies Rich Dies Disgraced”

Following his retirement in 1901, the Man of Steel did not live it up with ostentatious mansions, limousines, and hundred-dollar cigars, which Thorstein Veblen labeled “conspicuous consumption” of the idle rich. Carnegie spoke of the millionaire’s duty to live a “modest” lifestyle, shunning extravagant living and administering his wealth for the benefit of the community. To do otherwise, he warned, would encourage an age of envy and invite socialistic legislation attacking the rich through progressive taxation and other onerous anti-business regulations.

Carnegie practiced what he preached, giving away over $350 million in his lifetime. One of his first acts after U.S. Steel went public was to put $5 million into a pension and benefit plan for his workers. He was careful in his philanthropy, avoiding at all costs “indiscriminate charity.” He disdained the conventional practice of accumulating wealth solely to be bequeathed to heirs, which he regarded as “sterile” and even “perverse” if it resulted in profligate living. Instead, he spent millions building 2,811 public libraries, donating 7,689 organs to churches, and establishing Carnegie Hall in New York and the Carnegie Institution in Washington. He financed technical training at the Carnegie Institute of Technology and established a pension fund for teachers through the Carnegie Foundation for the Advancement of Teaching. I cannot help but think that were he alive today, he would be a major donor to FEE!

Finally, Carnegie devoted the rest of his life to promoting world peace and democracy. He was convinced that the United States surpassed Europe economically in part because Europe was constantly embroiled in wars with its neighbors while the United States largely avoided such conflicts. He campaigned against imperialistic entanglements with other nations and in favor of peaceful arbitration as a means to end conflicts. He was a passionate believer in democracy, universal suffrage, and equality of opportunity through free public education. But he opposed equality of property or ability, and argued that all citizens had the right to choose their own occupation and had the right to earn income in any amount and spend it as they wished. He expressed distaste for royalty, aristocracy, and any form of state religion.

The Spirit of Andrew Carnegie Lives at FEE

Today I am happy to report that the world has a goodly share of modern-day Andrew Carnegies. As the new president of FEE, I have had the pleasure of becoming aware of these unique men and women of the business world who have not only added value to the global economy through their entrepreneurial efforts, but have sacrificed time and money to promote FEE and its mission. For example, last week Larry Reed, president of the Mackinac Center for Public Policy and a FEE trustee, told me about a FEE donor who spent half his life sponsoring FEE seminars on free-market economics in his hometown, often at considerable personal sacrifice of time and financial resources. Another individual, on hearing that a FEE student seminar might have to be canceled due to a lack of attendees, arranged for several dozen students to attend. The seminar turned out to be a great success. Hundreds of other FEE supporters have arranged conferences, raised funds, and distributed copies of Ideas on Liberty to their friends and acquaintances. And with your help we are planning many new programs to spread the gospel of FEE and to “attract attention,” as Andrew Carnegie would advise.

When barbaric terrorists destroyed the Twin Towers at the World Trade Center a symbol of global capitalism and individual creativity, and built with Carnegie steel—I was heartened to read how thousands of private business leaders stepped forward and provided $200 million in financial aid to rebuild the area. I salute them for being living examples of FEE’s gospel of peace, prosperity, and freedom.

1. Andrew Carnegie, The Gospel of Wealth and Other Timely Essays (Cambridge: Harvard University Press, 1962 [1900]). p. 19.
2. Michael Kiepper and Robert Gunther, “Andrew Carnegie,” in The Wealthy 100 (New York: Carol Publishing Group. 1996). p. 31.
3. Carnegie, p. 18.

October 2001
PERSONAL SNAPSHOTS
Forecasts & Strategies

by Mark Skousen

“The business career is a stern school of all the virtues. The business man pursues fortune.”— Andrew Carnegie

After moving to New York last month to become the president of the Foundation for Economic Education (FEE), I took the opportunity to pay my respects to an icon of capitalism, Andrew Carnegie (1835-1919). His body is buried only a few miles up from FEE headquarters in Sleepy Hollow cemetery. In three ways, Carnegie reflects the spirit of FEE — was a fierce defender of free-enterprise capitalism, he gave generously to good causes, and he worked hard for the cause of world peace and democracy.

“CAPITALISM IS MORE NOBLE THAN COMMUNISM “

As a joint creator (along with J.P. Morgan) of U.S. Steel, the first billion-dollar corporation in the world, Carnegie was a successful entrepreneur who benefited humanity by offering cheaper and better steel with which to build a modern world. He rejected the “robber baron “title. Capitalism was not a device to enrich the rich at the expense of the poor, as the Marxists contend; “Capitalism,” he said, “is about turning luxuries into necessities.” He started out as a poor Scotch immigrant, a classic Horatio Alger. He liked to be different; his favorite advice to young men was, “Attract attention.”

For him, there were other values in the world than just those of the business culture: He loved books and became friends with intellectuals, writers and statesmen such as Herbert Spencer, Mark Twain and William Gladstone. He was intensely competitive, even glorying in beating his friends in golf. In business, he drove down the cost of steel, even as he improved the quality. “Cheaper and better ” became the American way. “Watch the costs, and the profits will take care of themselves,” he explained in his book, The Gospel of Wealth, first published in 1900. He made no apologies for his ruthless competitive spirit, which he justified as a Darwinian form of “survival of the fittest “and as a fulfillment of Jesus ’s parable of the talents. Like an old-fashioned Hank Reardon in Ayn Rand’s novel, Atlas Shrugged, Carnegie wasn’t merely an apologist for anarchic individualism; he was its celebrant. Carnegie objected strenuously to the “progressives “who favored socialism and communism over individualism. He said communism had been tried, and failed.

“The Man Who Dies Rich Dies Disgraced.”

Following his retirement in 1901,the Man of Steel did not live it up with ostentatious mansions, limousines and hundred-dollar cigars, which Thorstein Velben labeled “conspicuous consumption “of the idle rich. Like The Millionaire Next Door, Carnegie spoke of the millionaire’s duty to live a “modest” lifestyle, shunning extravagant living and administering his wealth for the benefit of the community. To do otherwise, he warned, would encourage an age of envy and invite socialistic legislation attacking the rich through progressive taxation and other onerous anti-business regulations.

Carnegie practiced what he preached, giving away over $350 million in his lifetime. One of his first acts after U.S. Steel went public was to put $5 million into a pension and benefit plan for his workers. He was careful in his philanthropy, avoiding at all costs “indiscriminate charity.” He disdained the conventional practice of accumulating wealth solely to be bequeathed to heirs, which he regarded as “sterile” and even “perverse” if it resulted in profligate living. Instead, he spent millions building 2,811 public libraries, donating 7,689 organs to churches, and establishing Carnegie Hall in New York and the Carnegie Institution in Washington. He financed technical training at the Carnegie Institute of Technology, and established a pension fund for teachers through the Carnegie Foundation for the Advancement of Teaching. I cannot help but think that were he alive today, he would be a major donor to FEE!

“Democracy Means That Privilege Shall Cease.”

Finally, Carnegie devoted the rest of his life to promoting world peace and democracy. He was convinced that the United States surpassed Europe economically in part because Europe was constantly embroiled in wars with its neighbors while the United States largely avoided such conflicts.(If the U.S. must maintain a high defense budget to eradicate terrorism, it could severely retard economic growth.) He was a passionate believer in democracy, universal suffrage and equality of opportunity through free public education. But he opposed equality of property or ability, and argued that all citizens had the right to choose their own occupation and had the right to earn income in any amount and spend it as they wished. He expressed distaste for royalty, aristocracy and any form of state religion.

The Spirit of Andrew Carnegie Lives at FEE

Today I am happy to report that the world has a goodly share of modern-day Andrew Carnegies. As the new president of FEE,I have had the pleasure of becoming aware of these unique men and women of the business world who have not only added value to the global economy through their entrepreneurial efforts, but have sacrificed time and money to promote FEE and its mission. For example, last week Larry Reed, president of the Mackinac Center for Public Policy and a FEE trustee, told me about a FEE donor who spent half his life sponsoring FEE seminars on free-market economics in his hometown, often a considerable personal sacrifice of time and financial resources. Another individual, upon hearing that a FEE student seminar might need to be canceled due to a lack of attendees, stepped up and arranged for several dozen students to attend. The seminar turned out to be a great success. Hundreds of other FEE supporters have arranged conferences, raised funds and distributed copies of our flagship publication, Ideas on Liberty, to their friends and acquaintances. And with your help we are planning many new programs to spread of the gospel of FEE and to “attract attention,” as Andrew Carnegie would advise.

How to Help FEE

I am developing some new ways to help FEE teach Americans and the rest of the world the simple but powerful principles of economics. One goal is to dramatically increase the circulation of Ideas on Liberty. If you haven ’t subscribed yet, you should —$30 for a 12 subscription to: Foundation for Economic Education, Irvington on Hudson, New York 10533, telephone 914/591-7230. We are also spending money to create a top-notch interactive website at www.fee.org. We are planning special seminars on “Fast Track Executive Economics Courses “at various investment conferences (Money Shows, New Orleans, Atlanta, etc) to explain the basics of the roller-coaster global economy. Plus we’re expanding our student and business seminars to teach future generations the benefits of the free market. If you give $100, you become a “Friend of FEE “and will receive many benefits. I look forward to hearing from you.

Ideas On Liberty
Economics on Trial
July 2001

by Mark Skousen

“We must raise and train an army of fighters for freedom.”
—F. A. Hayek

Frequently students or parents approach me at investment or economics conferences with the question, “Can you recommend an undergraduate or graduate program in free-market economics?” With the explosive interest in a degree in economics, it’s imperative that students get a topnotch education.* In my experience, if students aren’t exposed early to the principles of Adam Smith and Ludwig von Mises, it is often difficult for them to shed the philosophies of John Maynard Keynes, Karl Marx, and other interventionsts later on.

Here in the United States most colleges and universities have a goodly number of “neoclassical” economists with a free-market bent. (There are a number of “free market” colleges and universities in Latin America, Europe, and Asia, a topic I shall pursue in a future column.) The American schools include the University of Virginia; the University of California, Los Angeles (UCLA); Florida State University; and the University of Chicago. However, anyone pursuing a degree in economics from these institutions will need to be well-versed in advanced mathematics in order to understand the professional language. As New York University Professor Mario Rizzo wrote me, “Contemporary economics has become a branch of applied mathematics.”

Graduate Schools in Austrian Economics

Fortunately, there’s a growing number of schools that specialize in Austrian economics. The best-known program is located at New York University, ranked as one of the top 20 economics departments in the country. The Austrian Economics Program, under the tutelage of Israel Kirzner, David Harper, and Rizzo, has been functioning at NYU since the days of Mises. The Austrian course work attracts students from around the world.

NYU also offers a weekly Austrian Economics Colloquium and an annual summer course held at FEE. (Go to www.econ.nyu.edu/dept/austrian.) However, it should be noted that the NYU program is small, and most of the teachers there are non-Austrian.

George Mason University (in northern Virginia) is also attracting undergraduate and graduate students who want to specialize in Austrian economics, although Professor Peter Boettke, who also edits The Review of Austrian Economics, says that “what makes GMU particularly attractive are its affiliated fields of Public Choice, history of thought, and constitutional economics.” Boettke and Karen Vaughn teach the Austrian theory of the market process; Richard Wagner offers a course in institutional economics; and Walter Williams serves as chairman of the department. (Go to www.gmu.edu/departments/economics.) The Institute for Humane Studies is also located at GMU (www.theihs.org).

Another graduate Austrian program that is gaining prominence is at Walsh College of Accountancy and Business Administration in Troy, Michigan (near Detroit). Walsh College (www.walshcol.edu) specializes in business degrees—in marketing, management, finance, and economics. Under the direction of Harry Veryser, the school now offers a two-year bachelor’s degree and a master’s degree in economics. The entire faculty consists of free-market economists, with a special emphasis on Austrian economics. Students are assigned books and readings by Mises, Hayek, Henry Hazlitt, Wilhelm Ropke, Paul Heyne, and me, among others. Walsh’s program is impressive.

The Expanding Austrian Universe

With the Ludwig von Mises Institute (www.mises.org) next door, Auburn University (www.auburn.edu/business/economics) has attracted a large number of students over the years. The most prominent Austrian economist on campus is Roger Garrison, author of the new advanced macro text Time and Money. Garrison teaches the main course in macroeconomics. (Leland Yeager, former Ludwig von Mises Professor of Economics at Auburn, is now retired.) Unfortunately, Auburn recently discontinued its Ph.D. program. There are a goodly number of colleges offering solid undergraduate courses. Two mainstays are Hillsdale College in Michigan and Grove City College, near Pittsburgh. Grove City College (www.gcc.edu) no longer has Hans Sennholz as chairman of the department, but Hans indicates that the school is still free-market oriented, and John Moore, the president, is an economist. Hillsdale College (www.hillsdale.edu/dept/economics) has several free-market professors, the most well-known being Richard Ebeling, who runs the annual Ludwig von Mises lecture series. Hillsdale also houses the Mises library.

I should also mention Northwood University, an associate- or full-degree business school with campuses in Midland, Michigan; West Palm Beach, Florida; and Cedar Hill, Texas. Founded by Gary Stauffer and Arthur Turner in 1958, Northwood stresses free-market and Austrian economics. (Go to www.northwood.edu.)

In California, there are two universities with an Austrian bent. Santa Clara University, under the guidance of Daniel Klein, offers the Civil Society Institute (www.scu.edu/csi), which involves a weekly colloquium, lectures series, and “coffeehouse” for libertarian ideas. Other prominent members of the faculty are Laurence Iannaccone, Henry Demmert, Fred Foldvary, and David Friedman. Charles Baird, labor economist and Ideas on Liberty columnist, is the co-chairman of the department at California State University at Hayward (www.sbe.csuhayward.edu) and director of the Smith Center for Private Enterprise Studies. According to Baird, half the tenure-track economists there are “unabashedly free-market.”

Lawrence H. White, a specialist in free banking, was recently appointed the first F A. Hayek Professor of Economic History at University of Missouri-St. Louis (www.umsl.edu/divisions/artscience/economics). According to his colleague David C. Rose, “a number of economists are either outright Austrian or are very sympathetic to the Austrian school and free market ideals.”

If you want year-round sunshine, you can always come to central Florida and take one of my courses in investments, history of thought, or Austrian economics at Rollins College in Winter Park, Florida (near Orlando). (See www.rollins.edu.)

Austriae est imperare orbi universo!

*See Jon E. Hilsenrath, “In Hot Pursuit of Economics Ph.D.s—Short Supply and Big Demand Mean Young Graduates Are Courted Like Royalty,” Wall Street Journal, February 20, 2001, p. B1.

Ideas On Liberty
Economics on Trial
June 2001

by Mark Skousen

“The circle had come right round; it was as though Keynes had never been.”
-Robert Skidelsky1

“Textbooks have to be rewritten in the aftermath of each scientific revolution.”
-Thomas S. Kuhn2

In his third and final volume on John Maynard Keynes, Robert Skidelsky comes to the shocking conclusion that the Keynesian revolution was temporary, that Keynes’s General Theory was really only a “special” case, and that “free market liberalism” has ultimately triumphed. This is all the more amazing given that Lord Skidelsky has spent the past 20 years of his professional career studying Keynes and resides in Keynes’s old estate, Tilton House. Few scholars would have the guts to repudiate the theory of the man they adore.

It’s even tougher for old dogs to learn new tricks, and that refrain applies to Paul Samuelson, the “American Keynes” who introduced millions of students to the “new economics” of the master. He continues to hang his hat on the Keynesian cross, even as he publishes the 17th edition of his world-famous textbook. The pedagogical paradigm keeps shifting further toward the classical model of Adam Smith, and as each edition of Economics moves in that direction, Samuelson resists the change. He cites his mentor more than any other economist; only Keynes, not Adam Smith or Milton Friedman, is measured as a “many-sided genius.” His textbook still begins macroeconomics with the Keynesian model, even though most other textbook writers have adopted Greg Mankiw’s method of starting with the long-run classical model.3 According to Samuelson, Adam Smith’s invisible-hand doctrine-that laissez-faire behavior maximizes social welfare-”holds only under very limited conditions.”4 On the final page (755) of his massive textbook, he renders “two cheers to the market, but not three.”

Two Cheers for Hayek and Friedman

Having reviewed all 17 editions of Samuelson’s magnum opus, I conclude that his textbook has gradually shifted, albeit grudgingly, from one cheer to two cheers for the market. Much of this improvement is due to Yale’s Bill Nordhaus, his co-author since 1985. (He writes the entire text now, which Samuelson then reviews.)

What’s new about the latest edition? More free-market economists are cited, including Julian Simon, Ronald Coase, James Buchanan, Arthur Laffer, Robert Mundell, and Gary Becker. Samuelson and Nordhaus devote an entire page (41) to F.A. Hayek and Milton Friedman, “guardians of economic freedom.” They recommend Hayek’s The Road to Serfdom and Friedman’s Capitalism and Freedom, saying, “All thoughtful economists should study his arguments carefully.”

In chapter 2, “Markets and Government in a Modern Economy,” the authors highlight the benefits of globalization and the importance of property rights, noting that Russia and other former communist nations have suffered because of a failure to enforce “the legal framework.”

They also add an entire new page on the issue of lighthouses as public goods. For years Samuelson used the lighthouse as a prime example of market failure; only government could build and operate lighthouses. Several years ago I chided Samuelson for ignoring Ronald Coase’s famous essay, “The Lighthouse in Economics,” which proved that the Trinity House and other lighthouses in England were built and owned by private firms that imposed tolls on ships docking at nearby ports.5

Now, finally, Samuelson and Nordhaus have responded to Coase’s challenge in the 17th edition (pp. 37—38). They admit that privately operated lighthouses existed in England, but then point to the east coast of Florida as a case where “there were no lighthouses until 1825, and no private-sector lighthouses were ever built in this area.” According to Nordhaus, the only response to shipwrecks was a thriving private “wrecking” industry that charged high fees for “saving lives and cargo.” Nordhaus goes on to note that lighthouses have become obsolete, replaced by the satellite-based Global Positioning System, a service provided by the government.

In sum, the paradigm in economics has definitely shifted from Keynesianism to classical economics, but the case for complete laissez faire is still raging in the halls of academia.

1. Robert Skidelsky, John Maynard Keynes: Fighting for Britain, 1937-1946 (London: Macmillan, 2000), p. 506.
2. Thomas S. Kuhn, The Structure of Scientific Revolutions, 2d ed. (Chicago: University of Chicago Press, 1970), p. 137.
3. See N. Gregory Mankiw, Principles of Economics, 2d ed. (Ft. Worth, Tex.: Harcourt College Publishers, 2001). I still regard Roy J. Ruffin and Paul R.Gregory, Principles of Economics, 7th ed. (Boston: Addison Wesley Longman, 2001) as the best mainstream textbook on the market today.
4. Paul A. Samuelson and William D. Nordhaus, Economics, 17th ed. (New York: McGraw-Hill Higher Education, 2001), p. 325.
5. Mark Skousen, “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives, Spring 1997, p. 145. Coase’s article appeared in the Journal of Law and Economics, October 1974, pp.357-76.

Forecasts & Strategies
Personal Snapshots
June 2001

By Mark Skousen

Governments are generally reluctant to admit mistakes and to change mistaken policies until much harm has been done. -P.T. Bauer and B.S. Yamey

In Whatever Happened to the Egyptians?, a popular book in Egypt, author Galan Amin raises a good question. Thousands of years ago, Egypt was the birthplace of one of the world’s greatest civilizations, with remarkable advances in architecture, astronomy, mathematics and economics, and the pharaohs ruled the world for centuries.

But today Egypt is a fallen nation. My family and I visited Egypt for the first time last month, and we were appalled. Arriving in Cairo to see the ancient pyramids, we also saw filthy canals, undrinkable water, dire poverty, noisy traffic, teeming millions, incessant vendors and dust everywhere (due to cement factories nearby).

I picked up a copy of a guidebook on what it’s like for a Westerner to live in Cairo. The author, Claire Francy, lists so many shortages that she urges foreign residents to bring the following with them: answering machines, major appliances, computers, modems, printers, telephones, fax machines, cosmetics, flashlights, pantyhose, wines, books in English, clothes and shoes. Yes, shoes. “In a city with nearly as many shoe stores as feet, it is almost impossible to find decent shoes.” Oh, the joys of import substitution laws!

And yet, Egypt has tremendous resources: oil, cotton, some of the best fertile land in the world along the Nile Valley, a first-rate irrigation system, the Suez Canal, and a huge labor force (nearly 70 million and the population is growing rapidly, despite the common practice of female circumcision, which leaves women without sexual feeling but not without children). Yet true unemployment is 20% and underemployment is endemic. Egypt suffers from a huge “brain drain,” with 2.5 million Egyptians working abroad. The nation has illiteracy rates of 66% among women and 37% among men. It imports half of its food. After Israel, this Arab-African nation is the highest recipient of U.S. foreign aid in the world.

Anti-Market Policies

What’s the cause of this demise? The culprit is socialist interventionism in the economy. As one economist states, “The Egyptian economy bears the legacy of economic policies dating from the 1950s which were motivated by concern for equity and assistance to the poor. These policies were characterized by price regulation, subsidization of consumer goods, a dominant public sector and state control.” When Gamal Nasser gained power in 1954, he established a “democratic socialist state” and nationalized everything under the sun (including the local beer company) and dramatically increased government control of the economy. Moreover, under a Napoleonic code, Egypt suffers from a regulatory nightmare of paperwork and bureaucracy.

Fortunately, Nasser’s replacement, Anwar Sadat, began a program of reducing the role of government. After his tragic assassination in 1981, his successor, Hosni Mubarak, has accelerated market policies of privatization and foreign investment, and eliminated price and exchange controls. Yet, even today, 36% of the labor force is employed by the government, and the economy continues to suffer from overregulation and controls.

Egypt has made substantial progress since 1990, when the Fraser Institute ranked it #88 in its Economic Freedom report. Today it is ranked #52. But clearly the Egyptian leaders have a long way to go to fulfill the Koran’s promise of “wealth and children” as the “adornments of this present life.”

Forecasts & Strategies
Personal Snapshots
May 2001

By Mark Skousen

The most dangerous advice you can give a child is “Go to school, get good grades, and look for a safe, secure job.” —Robert T. Kiyosaki, author Rich Dad, Poor Dad

I don’t normally write about the same book twice, but I received so many complaint letters about my attack on Rich Dad, Poor Dad last month that a follow-up is necessary. “I was stunned by your review,” wrote one subscriber. “My impression is very different from yours. Robert Kiyosaki comes off as someone who loves life and still has time for his two young boys fascinated by the world of business. Robert says it is the Rich Dad that has time for him, not the Poor Dad who is too busy climbing the job ladder and the rat race. Robert notes that in today’s volatile world there is no financial security—not by employers or government. You have to fill the void yourself through financial education and business entrepreneurship.”

My response: I have a mixed attitude about the philosophy behind Rich Dad, Poor Dad. In many places, he makes a lot of sense. I agree 100% that too many good people earn too little, spend too much and use their credit cards excessively, causing undue financial hardship and unpaid bills. I agree 100% that not enough time is spent in school educating young people on the virtues of self-discipline, budgeting, thrift, business acumen and entrepreneurship. I agree 100% that too many Americans have adopted a “bash the rich” and an “entitlement” mentality, believing that their company or government owes them a guaranteed life of benefits and security.

Kiyosaki favors the Rich Dad who sets his own hours and takes his chances in construction, chain stores and restaurants while he dabbles in real estate and penny stocks. He opposes the Poor Dad whose advice is, “Go to school, get good grades and look for a safe secure job.” He calls it “the most dangerous advice you can give a child” because in today’s global world, there’s no such thing as a safe, secure job. “That may be, but it doesn’t mean that you can’t work for several companies during your lifetime. Going out on your own as a capitalist/entrepreneur isn’t your only choice, and frankly, for most people it may not be the best choice.

Not everyone is cut out to be a capitalist/entrepreneur willing to go out on their own and invest in high-risk ventures. Most people prefer to work for a company. That’s fine—there’s no reason to be guilty about being an employee or executive of a big corporation. My advice is to work hard at that job, get up-to-date training, earn those raises, stay out of debt—and save and invest as much as possible. Many of my subscribers fit in this category.

Kiyosaki belittles his real father who had advanced degrees from Stanford and the University of Chicago but never could make ends meet as a school administrator in Hawaii. He was the Poor Dad who had little interest in “making money.” But Kiyosaki’s criticisms are misplaced. His dad’s troubles were not due to his non-pecuniary interests or in his working for the state of Hawaii. Poor Dad simply didn’t live by George Clason’s basic rules of The Richest Man in Babylon: Always save at least 10%, no matter how much you earn. That way you get richer every year, no matter what your lifestyle. Poor Dad could have been Rich Dad without taking any big risk in high-flying businesses or penny stocks. He could simply invest his 10% in index funds or even money market funds.

Who Gets Caught Up in the Rat Race?

I had to laugh when Kiyosaki accused his Poor Dad of getting caught up in the “rat race” of life with bigger homes and higher credit card bills. Believe me, the Rich Dad is also involved in the rat race. When you start your own business, that’s all you can think about. You will work 14 hours a day or more. Time for the kids and spouse? Forget it! Sure, you may show up to see your son play Little League, but more than likely you’ll be on your cell phone talking business. It’s the nature of the beast.

Rich Don’t Pay Taxes? Get Real!

One final comment. Kiyosaki boastfully declares, “The real reality is that rich are not taxed.” They use corporations and other tax breaks to beat the taxman. “It’s the middle class who pays.” That may have been the case a few years back, but not anymore. The rich are paying through the nose these days. Today the top 1% are paying over 30% of the federal income taxes. I know-I’m one of them. Sure, you may reduce your tax burden through corporations, but it’s harder and harder to escape taxes entirely.

In sum: Kiyosaki’s books are fine for self-employed risk-takers (and I’m one of them!). But for those who like working for others, don’t panic. You, too, can be a Rich Dad by following George Clason’s prudent formula, “A part of all you earn is yours to keep.”

Ideas On Liberty
Economics on Trial
May 2001

by Mark Skousen

Adam Smith, that is. Having just completed writing a history of economics,1 I have concluded that, despite the protestations of Murray Rothbard and other detractors, the eighteenth-century moral philosopher and celebrated author of The Wealth of Nations deserves to be named the founding father of modern economics.

The reason: Adam Smith is the first major figure to articulate in a profound way what has become known as the first fundamental theorem of welfare economics: that the invisible hand of competition automatically transforms self-interest into the common good. George Stigler rightly labels Smith’s model of laissez-faire capitalism (Smith never used the phrase) the “crown jewel” of The Wealth of Nations and “the most important substantive proposition in all of economics.” He states, “Smith had one overwhelmingly important triumph: he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interests under conditions of competition.”2

In short, Smith’s thesis is that a “system of natural liberty,” an economic system that allows individuals to pursue their own self-interest under conditions of competition and common law, would be a self-regulating and highly prosperous economy. Eliminating restrictions on prices, labor, and trade meant that universal prosperity could be maximized through lower prices, higher wages, and better products. Smith assured the reader that his model would result in “universal opulence which extends itself to the lowest ranks of the people.”3

Indeed it has. Published in 1776, The Wealth of Nations was the intellectual shot heard around the world, a declaration of economic independence to go along with Thomas Jefferson’s declaration of political independence. It was no accident that the industrial revolution and sharply higher economic growth began in earnest shortly after its publication. As Ludwig von Mises declares, “It paved the way for the unprecedented achievements of laissez-faire capitalism.”4

For or Against Smith

The most amazing discovery I made in researching and writing over the past three years is that every major economic figure—whether Marx, Mises, Keynes, or Friedman—could be judged by his support of or opposition to Adam Smith’s invisible-hand doctrine. Karl Marx, Thorstein Veblen, John Maynard Keynes, and even British disciples Thomas Robert Malthus and David Ricardo denigrated Adam Smith’s classical model of capitalism, while Alfred Marshall, Irving Fisher, Ludwig von Mises, and Milton Friedman, among others, remodeled and improved on Smithian economics.

For example, Keynes is unsympathetic to Adam Smith’s worldview. “It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. . . . Nor is it true that self-interest generally is enlightening. . . . Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately.”5 The basic thesis of Keynes’s magnum opus, The General Theory of Employment, Interest, and Money (1936), is that laissez-faire capitalism is inherently unstable and requires heavy state intervention to survive. Keynesian disciple Paul Samuelson correctly understood the true meaning of Keynes: “With respect to the level of total purchasing power and employment, Keynes denies that there is an invisible hand channeling the self-centered action of each individual to the social optimum.”6 Thus, I conclude that Keynesian economics, rather than its savior, is an enemy of Adam Smith’s system of natural liberty.

Karl Marx went even further. Instead of creating a system of natural liberty, Marx set out to destroy it. Modern-day Marxist John Roemer agrees. The “main difference” between Smith and Marx is: “Smith argues that the individual’s pursuit of self-interest would lead to an outcome beneficial to all, whereas Marx argued that the pursuit of self-interest would lead to anarchy, crisis, and the dissolution of the private property-based system itself. . . . Smith spoke of the invisible hand guiding individual, self-interested agents to perform those actions that would be, despite their lack of concern for such an outcome, socially optimal; for Marxism the simile is the iron fist of competition, pulverizing the workers and making them worse off than they would be in another feasible system, namely, one based on the social or public ownership of property.”7

Adam Smith as a Heroic Figure

By measuring economists against a single standard, Adam Smith’s invisible-hand doctrine, I found a fresh way to unite the history of economic thought. Virtually all previous histories of economics, including Robert Heilbroner’s popular work, The Worldly Philosophers, present the story of economics as one conflicting idea after another without resolution or a running thread of truth. This hodgepodge approach to history leaves the reader confused and unable to separate the wheat from the chaff.

My approach places Adam Smith and his system of natural liberty at the center of the discipline. Think of it as a story of high drama with a singular heroic figure. Adam Smith and his classical model face one battle after another against the mercantilists, socialists, and other enemies of liberty. Sometimes even his “dismal” disciples (Malthus, Ricardo, and Mill) wound him. Marx and the radical socialists attack him with a vengeance and leave him for dead, only to have him resuscitated by the leaders of the marginalist revolution (Menger, Jevons, and Walras) and raised up to become the inspiration of a whole new science.

But the “neo-classical” model of capitalism faced its greatest threat from the Keynesian revolution during the Great Depression and the postwar era. Fortunately, the story has a good ending. Through the untiring efforts of free-market advocates, especially Milton Friedman and F. A. Hayek, Adam Smith’s model of capitalism is re-established and in the end triumphs. As Milton Friedman proclaims, “To judge from the climate of opinion, we have won the war of ideas. Everyone-left or right-talks about the virtues of markets, private property, competition, and limited government.”8

Long live Adam Smith!

1. The Making of Modern Economics (Annonk, N.Y.: M. E. Sharpe Publishers, 2001).
2. George Stigler, “The Successes and Failures of Professor Smith,” Journal of Political Economy, December 1976, p. 1201.
3. Adam Smith, The Wealth of Nations (New York: Modern Library, 1965 [1776]), p. 11.
4. Ludwig von Mises, “Why Read Adam Smith Today,” in The Wealth of Nations Washington, D.C.: Regnery, 1998), p. xi.
5. John Maynard Keynes, “The End of Laissez-Faire,” Essays in Persuasion (New York: Norton, 1963 [1931]), p. 312. Keynes’s speech was given in 1926, a full decade before The General Theory came out.
6. Paul A. Samuelson, “Lord Keynes and the General Theory,” The New Economics, ed. Seymour Harris (New York: Knopf, 1947), p.151.
7. John E. Roemer, Free to Lose (Cambridge, Mass.: Harvard University Press, 1988), pp. 2-3. Note the title, imitative, albeit negatively, of Milton and Rose Friedman’s popular Free to Choose (New York: Harcourt Brace Jovanovich, 1980).
8. Milton and Rose Friedman, Two Lucky People (Chicago: University of Chicago Press, 1998), p. 582.

Forecasts & Strategies
Personal Snapshots
April 2001

by Mark Skousen

“The poor and middle class work for money…. The rich have money work for them.”
—Robert T. Kiyosaki, author, Rich Dad, Poor Dad

Many of you may have read the best-seller, Rich Dad, Poor Dad. The author, Hawaiian-born Robert Kiyosaki, criticizes his own father, a high school teacher, for pursuing a traditional low-risk lifestyle. His “poor” dad advises his son to get a formal education, become a professional, get married and have kids, buy a nice middle-class home, and invest regularly in safe mutual funds and blue-chip stocks for long-term financial security. At one point, he refers to his father as “my socialist dad.”

But Robert is attracted more to his best friend’s dad, a seat-of-the-pants entrepreneur who runs a series of businesses out of his rundown home. His adopted “rich” dad takes a riskier approach—forget about a traditional education and profession. Be a risktaker and a dealmaker! Drop out of school and start your own business. His “rich” dad even advises that a house is a liability that ties up seed capital that could be used in a new business opportunity. This “rich” dad has no time for leisure or sports; his passion is all business and making another deal.

Robert rejects his “poor” dad’s conservative approach in favor of the high-risk adventures of the “rich” dad. He describes the thrill of victory and the agony of defeat going this route. Robert invests in income-producing real estate, business ventures and penny stocks. At one point in his mid-40s, he’s broke and sleeping in his car. But in the end, he reports, it pays off, and now he’s a multi-millionaire and a motivational speaker.

I admire hardworking, self-made entrepreneurs who honestly provide a better product and become rich. But it’s a big mistake to recommend this high-risk approach to everyone. Not everyone is suited to be a swashbuckling adventurer; most in fact are better off working for others and investing in free enterprise through the stock market.

Robert is wrong to criticize his father and his conservative investment strategies. There are many paths to the top of a mountain. Read George Clason’s Richest Man in Babylon.

I also dislike the arrogance and know-it-all attitude of the author. Sometimes he comes across as a jerk. It is simply wrong to suggest that owning a home without a mortgage is a “liability.” Businessmen who always have to make a deal, who can’t relax or enjoy spending time with the family, who can’t go out to dinner without talking business, who don’t enjoy reading, hobbies, or intellectual or spiritual pursuits, are not to be admired, but pitied. Robert Kiyosaki needs to read Lin Yutang’s The Importance of Living (available from Laissez Faire Books, 800/326-0996 or click www.lfb.com). “Those who are too busy can’t be wise.”