Adrián Ravier, a professor of economics at Francisco Marroquin University in Guatemala and the National University of La Pampa in Argentina, has just completed a major interview with me on my life and contributions to economics, finance and the freedom movement.  It will appear in the third volume of “LA ESCUELA AUSTRIACA DESDE ADENTRO: Historias e ideas de sus pensadores,” edited by Adrián Ravier and to be published later this year by Union Editorial in Spain.

Please click here for the entire interview.

Dear Friends of Freedom,

I’m happy to report that FreedomFest 2011 was another rip-roaring success. With highlights featuring Senator Rand Paul, Judge Andrew Napolitano, John Mackey (CEO, Whole Foods) and Peter Thiel (founder, PayPal), among many others, the nearly 3,000 attendees had non-stop opportunities to learn, discuss and generate new ideas on liberty and freedom.

We also had the premiere of the Anthem Film Festival, with over 30 films screened. Winners and awards are listed on the Anthem Film Festival website. These narrative and documentary films had terrific messages, strong storylines and interesting concepts that you don’t want to miss. Check out the website. And be sure to part of the Anthem Film Festival next year!

Please see this youtube video, produced by Reason.tv (which was there for the entire conference, conducting fascinating interviews), entitled “What We Saw at FreedomFest” for a nice recap of the conference.

Likewise, you’ll have a chance to view several of the exciting sessions, thanks to C-SPAN’s Book TV. Starting this Saturday, July 30, you can see FreedomFest on C-SPAN Book TV! For more information, go to http://www.booktv.org/Schedule.aspx

If you have never attended FreedomFest before, please consider joining us next year, when we celebrate the Wild West at FreedomFest 2012, July 11-14, at Bally’s in Las Vegas. (Just think 7-11 in Vegas!) And to all our regular attendees, we look forward to meeting up with you once again in Vegas for FreedomFest. Meanwhile, keep protecting our liberties…stay free!

Cheers, AEIOU,
Mark Skousen
Producer, FreedomFest
www.freedomfest.com

BETWEEN CHICAGO AND VIENNA: INTERVIEW WITH MARK SKOUSEN

Mark Skousen is an American economist, investment analyst, newsletter editor, college professor and author of more than 25 non-fiction books.

AR: Professor Skousen… Thank you for this opportunity to let us know a little more about yourself. Please, explain the context in which you grew up in Portland, Oregon.

Yes, I grew up in Portland, a great intellectual environment (Reed College, a hotbed of radical thinking, was nearby). It forced me to always be informed and ready to defend my beliefs in economics, politics and religion. My two older brothers, Royal and Joel, as well as my high school friends, constantly challenged me to debate and learn new things.

AR: I have read that your father was an FBI agent. Is this a key to understand why you have been interested in economics and politics since such a young age?

Primarily politics. Like my better-known uncle, W. Cleon Skousen, my father was an FBI agent and a lawyer involved in the anti-Communist movement and gave speeches through the Northwest on politics and the communist threat. We subscribed to publications such as “National Review” and “The Freeman” and attended events and anti-communist rallies.

AR: Was your father a libertarian? Did he introduce you to the Austrian tradition of ideas?

No, he was a strict social conservative, and most of his books in his library were written by William F. Buckley, Jr., Barry Goldwater, Fred Schwartz, Phyllis Schlafly, J. Edgar Hoover, and the like. He did have a copy of Ludwig von Mises’s “Human Action” on his shelf, so I was familiar with his name, although Austrian economics did not really capture my imagination until I read Murray Rothbard’s “America’s Great Depression,” “Man, Economy and State,” and “What Has the Government Done to Our Money?”

Economics did not become a topic of focus until I took a class in the subject in my senior year in high school. It was taught so badly that I knew I could do better and suddenly I could think of little else. My interests have always been eclectic, and economics interested me intensely because it covers my other interests in mathematics, history, finance, politics and writing. My interest was so intense that I got a B. A., M. S., and Ph.D., all in economics.

AR: Some authors do not like to be called “Austrian”, “Monetarist”, “Keynesian” or “Marxist”. Are we right if we say that you are an Austrian Economist?

I used to be of the opinion that we should all be simply “good economists” as Milton Friedman and Lionel Robbins preached, and not compartmentalize ourselves into various schools. If economics is an objective science, we shouldn’t divide ourselves in various camps, or even “left“ or “right,” terms that create more heat than light. We should all be searching for the truth, no matter what the source. Nevertheless, over time I’ve come to appreciate the biases and advantages of each school. Monetarists focus on the importance of money and the competitive marketplace; Keynesians on consumption, government spending, and institutions; Marxists on labor and management relations; and Austrians on capital and the structure of production. One can learn a great deal by studying the focal points of various schools that otherwise would be missed. But of all the schools, I’ve always found Austrian school to be the most rewarding.

AR: You have been working in the Austrian tradition for a long time, writing books and articles, teaching and giving conferences everywhere. You have even organized FreedomFest. Why? What have you found in this tradition that was absent in other schools of thought?

My first introduction to economics in college was through the popular Keynesian textbook written by Paul Samuelson, and his defense of deficit spending, the welfare state, and his anti-saving mentality (“paradox of thrift”) was a turnoff, contradicting everything I had been taught as a social conservative Mormon, and so I was immediately looking for alternative models.

I was first attracted to writings of Milton Friedman, having been introduced to the Chicago school by Professor Larry Wimmer at Brigham Young University (my alma mater) in the 1960s. Wimmer got his Ph. D. under Friedman. I was especially interested in “Capitalism and Freedom.” While I found Friedman’s writings refreshing and convincing, he could not answer all my questions and doubts about Keynesian macroeconomics and the business cycle.

It was then that I discovered Murray Rothbard in the early 1970s, and was smitten by “America’s Great Depression” and his magnum opus, “Man, Economy and State.” I even read the latter on my honeymoon in 1973 (though I didn’t get far). Here were  all the answers about economic theory and policy. I was also quite taken with his booklet, “What Has the Government Done to Our Money?” It finally revealed the mystery of money. To this day, I consider Rothbard’s booklet as powerful a polemic as Marx’s and Engel’s “Communist Manifesto.”

The Austrians definitely have the upper hand when it comes to discussions of money and banking, the business cycle, the structure of production, and how the economy works. I found their macroeconomics far more sophisticated and satisfying than the standard Keynesian and Monetarist models.

However, I should add that since the Seventies, I have regained a great deal of respect for the Chicago tradition, especially their approach of looking at the data and testing various theories in micro and macro economics. Today I consider myself having one foot in the Austrian school and one foot in the Chicago school. But if I lean toward any one school, it is Austrian.

AR: You have received your Ph.D. in Economics and Monetary History from the George Washington University. How was that experience? What have you learned from mainstream economics?

It was a traditional mainstream Ph.D. program, although it did not emphasize advanced mathematics as much as other schools at the time. The professors focused more on theory, history and statistics than mathematical modeling, which I found attractive. I learned a great deal from John W. Kendrick, Arthur E. Burns, and Robert Grossfarb, among others.

They gave me plenty of leeway, and in fact, they let me chose as my dissertation “The Economics of a Pure Gold Standard,” which was heavily Rothbardian — and it sailed through with few changes. I believe I’m the only economist to write a “no compromise” Ph.D. dissertation on the 100% gold standard. At the end of my dissertation committee oral, I was asked, “You don’t really believe in a pure gold standard, do you?” Not surprisingly, Rothbard always loved my dissertation, which has been published and gone through four editions so far (published currently by the Foundation for Economic Education).

AR: And what was your contribution in that dissertation?

It was a history of economic thought about the pure gold standard, as well as a discussion of a silver standard, and its role in society. I tried to show there were strong economic arguments for gold, that monetary gold increased at a rate similar to the monetary rule and that a commodity-based system was not a burden. I was surprised to read that even Mises and Hayek rejected the economic arguments for gold, and only favored gold for political reasons. I also did a comparative study between the gold standard, a monetary rule, free banking, and the current model of central banking under fiat money, pointing out the pros and cons of each.

Ultimately, I came to the conclusion that the search for a monetary nirvana, an ideal or perfect monetary system, remains elusive. Each monetary program has its pluses and minuses. Economists have solved so many problems, but the ideal monetary system has eluded us. On a purely theoretical level, the international gold standard is probably the best of the lot. On a practical level at this point, the best we can hope for is a monetary system that minimizes structural imbalances, and I think it must include gold in some way as a monitoring device and discipline.

AR: You have been connected with most of the great Austrian economists such as Friedrich Hayek or Murray Rothbard. Any experience you would like to share with us?

I knew both of them. I met Hayek two or three times, and was one of the last people to interview him. In 1985, Gary North and I spent three hours with Hayek at his summer home in the Austrian Alps and peppered him with questions about philosophy, history of the early Austrian school in Vienna, and economics. Much of the interview showed up in “Hayek on Hayek,” in the collected works of Hayek (without attribution, strangely enough). Hayek was in delicate health, but loved every minute of the interview.  Afterwards, his wife yelled at us for taking so much of his time. “He won’t be able to do any work for weeks! Get out!” she shouted as she shooed us out the door.

I spent more time with Rothbard in New York, and at conferences sponsored by the Mises Institute, back in the 1980s and early 1990s. He was one of those people who could talk for hours on any subject. It’s like you could never reach the depth of his knowledge.

Around 1980, I commissioned and paid him a handsome sum to write an alternative popular history to Robert Heilbroner’s “Worldly Philosophers.” Heilbroner had an unforgettable title, but his favorite economists were Marx, Keynes and Veblen. We deserved better, so I asked Murray to write the definitive history from an Austrian perspective. He was supposed to write around 12 chapters in 1-2 years, starting with Adam Smith. It turned out to be a much bigger project, a Schumpeterian tome, beginning with the Greeks. I kept encouraging him, but ultimately gave up. The running joke was “Are you to Marx yet?” Adam Smith was supposed to be the subject of chapter 1. Instead it was chapter 16. He finally got to Marx, but then suddenly died of a heart attack in 1995, and the publisher Edward Elgar published two volumes posthumously. Murray planned on writing two more volumes in his exhaustive history, but sadly never got to them.

A few years later, I decided to  write the one-volume Heilbroner alternative myself, calling it “The Making of Modern Economics” (ME Sharpe, 2001).

AR: “The Structure of Production” (New York University Press, 1990) was your first academic book, and sometimes is described as a classic of modern Austrian macroeconomics. What can the reader find in that book?

“Structure of Production” has been viewed an the underground bible of supply-side economics; a revival of Say’s law; a tool for financial analysis; and most importantly, as an Austrian advance over the standard Keynesian and monetarist Weltanschauung.

I firmly believe that during our short sojourn in life, we should concentrate on advancing and improving upon the works of others. Why spend time in an activity that others are already carrying on satisfactorily? I saw a need to improve upon Hayek’s masterful macroeconomic model found in “Prices and Production” (1931). The Austrians needed an up-to-date macro model that countered the Keynesian and Monetary models in vogue today. I thought that Hayek’s triangles were a good starting place, but they were entirely theoretical, which was one reason it didn’t catch on. In my work, “The Structure of Production” (NYU Press, 1990), I attempted to modernize Hayek’s triangles into a universal four-stage model of the economy (resources, production, distribution, and final output) that could be integrated into national income statistics and could be tested empirically.

In addition to the universal four-stage model of the economy, the book introduces a new aggregate statistic, Gross Domestic Expenditures (GDE), which attempts to measure total spending in the economy. I show that GDE can easily be integrated into textbook national income statistics such as GDP. See below for the diagram 4-stage model of the economy, and the relationship between GDE and GDP.

The current macro model is Keynesian in nature and starts with final output (GDP), which creates distortions about the economy, overemphasizing consumption at the expense of saving and investment. My “Austrian” model creates the proper balance between the “make” economy and the “use” economy. Using GDE, I discovered that consumer spending represents only about 30% of the US economy, not 70% as is commonly reported. For more detail, see my recent article: http://www.thefreemanonline.org/columns/consumer-spending/

I’ve incorporated the 4-stage model and GDE in my own textbook, “Economic Logic” (Capital Press, 2000, 2010), and hopefully it will be adopted eventually in all textbooks. But as Max Planck once said, “science progresses funeral by funeral.”

I also seek to advance the Austrian theory of the business cycle with my introduction of Aggregate Demand Vectors (ADV) and Aggregate Supply Vectors (ASV).

It took me nearly 10 years to write the book, and it’s only now getting some recognition. New York University Press recently released a paperback edition, with a new introduction (2007). I see it was recently translated into Polish.

AR: If I am not wrong, Rothbard had read that book. Did he give you any comments? What does he thinks about so many graphs?

Murray read the entire manuscript and offered numerous suggestions. I think he recognized the breakthrough nature of my work as an Austrian advance in macroeconomics. He has some doubts about my use of graphs, but ultimately endorsed the book, and it was carried for many years by the Mises Institute.

I firmly believe that if we don’t encourage graphics and statistical work in Austrian economics, we will never get accepted by the mainstream textbook community. I wrote my textbook “Economic Logic” in order to demonstrate how it could be done without sacrificing theoretical purity. I was amazed that it could be done. And yes, there are lots of graphs and statistics in my textbook.

I remember the story Larry Wimmer told me. In the 1960s he attended a FEE seminar in New York, and when he tried to draw a supply and demand curve on the blackboard, he was severely reprimanded by the hard-core Misesians. I hope we’ve gotten beyond that kind of Misesian Puritanism. (As far as I’m aware, Mises drew only one graph in all his books, one in “Socialism”).

AR: What do you think about Capital Based Macroeconomics developed in “Time and Money” by Roger W. Garrison?

Professor Garrison is a creative genius and his book offers a significant advancement in Austrian macroeconomics. He has lots of graphs! I especially like the way he integrates and contrasts the Austrian triangles with the Keynesian cross. Absolutely brilliant. I’ve used his book in my classes at Columbia University.

AR: Why do you think that most of the mainstream economists do not pay attention to the Austrian Theory of Capital and the Austrian Theory of Business Cycles?

They are still caught up in Keynes’s law (demand-side management) rather than Say’s law (supply-side management). Until the most recent financial crisis (2008), the mainstream macro models were deemed sufficient to explain the business cycle. For Keynesians, it was the deficiency in either aggregate demand (like the Great Depression) or aggregate supply (as in the case of the Stagflation of the 1970s); for the Monetarists, it was monetary disequilibrium (tight money in the Great Depression or easy money in the 1970s). Both the Keynesian and Monetary models downplayed the impact of asset bubbles because when these asset bubbles collapsed, they only had a micro effect on the economy. So for years, the Austrian model of structural imbalances was ignored.

Then along came the real estate bubble and collapse in the most recent financial crisis, and for the first time, economists had to pay attention to the macro effects of an asset bubble (real estate and mortgage securitization) that collapsed and impacted the entire monetary system. So now the profession cannot ignore asset bubbles any longer, and the Austrian theory of the business cycle can no longer be ignored. The Austrian theory is the only macro model that focuses on the structural imbalances created by below-natural interest rates and easy money, so I expect more and more economists will pay attention to it.

AR: Am I wrong if I say that even today most of the Austrian Economists still do not understand the meaning and the complexity of the structure of production?

Austrian macroeconomics is a sophisticated theory that has challenged even the best economists. Most economists desire simple, predictable models, and that’s difficult to achieve in the Austrian model with various stages of production and consumption, the structure of interest rates, and changes in savings rates, monetary policy, and technological development. I discuss a variety of scenarios using the Austrian model in “The Structure of Production” (see chapters 7-9).

I must admit I was shocked and disappointed that an Austrian economist of such stature as Walter Block would question the value of Hayek’s triangles in a recent article. It’s bad enough that Friedman and the Chicago school consider Hayek’s capital theory “obtuse and confusing,” but for Austrian economists to question it is a sad commentary on the state of Austrian economics today. Hopefully, these criticisms won’t undermine the good work that Roger Garrison and others have done to advance Hayek’s macroeconomics.

AR: Your second academic book was “Economics on Trial” (Irwin McGraw Hill, 1991). What was your contribution there? What were the lies, myths and realities?

Here again I tried to do something new, i.e., review the top ten textbooks in economics at the time, including Samuelson’s “Economics,” and categorize their sins of omission and commission. I noted how they were all pretty much Keynesian in their approach, using Aggregate Supply and Demand, perfect competition, etc. They were largely anti-saving, pro-progressive taxation, and pro-government/welfare state in their macroeconomics.

I uncovered some pretty dumb statements by textbook writers, which got some publicity, such as:

“While savings may pave the road to riches for an individual, if the nation as a whole decides to save more, the result may be a recession and poverty for all.” — William Baumol and Alan Blinder (1988)

“It is difficult to conceive of government bankruptcy when government has the power to create new money by running the printing presses!” — Campbell McConnell and Stanley Brue (1990)

“The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” — Paul Samuelson and William Nordhaus (1989)

The latter statement came out right before the Berlin Wall collapsed and was especially embarrassing to the Nobel Prize winning economist Paul Samuelson.

But my book isn’t entirely about sins of commission. I urged the profession to focus more on savings and economic growth (using the Asian boom as a good example) rather than the business cycle and distribution of wealth and income, and that it should look to the “next economics,” one that focuses on capital and growth — i.e., the Austrian model of Mises, Hayek, and Schumpeter. I also championed the return of Say’s law, with its emphasis on saving, investment, productivity, entrepreneurship and other aspects of the supply side as the keys to economic growth and higher living standards.

I’ve received a number of letters from readers suggesting I update “Economics on Trial.” I do think the profession has made some improvements, especially by focusing on the classical model more than the Keynesian model in the most recent textbooks (Mankiw’s textbook leads the way in this respect), but it still needs to replace the defective AS-AD in macro and the perfect competition model in micro. I’ve replaced both with better Austrian-style models in “Economic Logic,” and I encourage economists of all stripes to look at my new approach in pedagogy.

AR: Some of your books deal with the History of Economic Thought. If you have to make a list of the five most important books that have influence your own thinking on the field, what would they be?

The reason I commissioned Murray Rothbard to write a contra-Heilbroner history was out of frustration with all previous histories of thought. They were all written by either Keynesians, Marxists or socialists. One exceptional work was “The Enterprising Americans,” by John Chamberlain, an economic journalist, but it was far from complete.

In writing my on one-volume history, I benefited significantly from several recent “tell all” biographies on John Stuart Mill, Karl Marx, Alfred Marshall, Thorstein Veblen, Max Weber, Joseph Schumpeter, John Maynard Keynes, Ludwig von Mises, Friedrich Hayek, and Milton Friedman, among others.

I also like Albert Hirschman’s “The Passions and the Interests” and Mark Blaug’s “Not Only an Economist,” and his two volume work “Great Economists Before Keynes” and “Great Economists After Keynes.” Blaug is the foremost historian of economic thought, and he has recently said some positive things about the Austrians.

Of course, I found Rothbard’s two volume history of economics useful. Another helpful textbook is Ekelund’s and Hebert’s “History of Economic Theory and Method” (1990) — a graduate level text that is comprehensive, fair and balanced.

AR: Let me jump for a moment to your “The Making of Modern Economics” (M. E. Sharpe Publishers, 2001, 2009). Let´s start with your first chapter. Is it correct to conclude that “All started with Adam” Smith? What about Cantillon or Turgot?

Obviously, there were “pre-Adamites,” as I call them. But Adam Smith’s “Wealth of Nations” was the first real “fat” book that attempted to bring together the full body of theory and history of economic life, far more than any theoretical treatises of Cantillon, Turgot, or even Aristotle, Thomas Aquinas, and the Spanish scholastics. In many ways, Smith’s two-volume tome was the beginning of modern political economy. As George Stigler said, “You can find it all in Adam Smith.” Well, not quite, but it was the start of something big.

AR: By the way, what do you think of Rothbard´s criticism to Adam Smith?

When I first started writing “The Making of Modern Economics” in the late 1990s, I was still quite infatuated with everything Rothbardian, including his surprising critique of Adam Smith. According to Rothbard, Smith was a plagiarist who “originated nothing that was true, and whatever he originated was wrong.” That’s quite an indictment of the Scottish philosopher celebrated by almost all free-market economists, including Rothbard’s teacher Ludwig von Mises. Mises wrote a glowing introduction to “The Wealth of Nations” edition published by Regnery, calling it a “marvelous” and “great” book that brought together “the ideology of freedom, individualism, and prosperity, with admirable logical clarity and in an impeccable literary form.”

Who was right, Rothbard or Mises? There was only one way to find out. I decided to read the entire 1,000-page “Wealth of Nations,” page by page and cover to cover, and come to my own conclusion. Two months later, I put the book down and said to myself: “Murray Rothbard is wrong and Mises is right.” Adam Smith has written a grand defense of the invisible hand and economic liberalism.

My change of heart completely transformed my history. Suddenly, “The Making of Modern Economics” had a plot, an heroic figure, and a bold storyline. Adam Smith and his system of natural liberty became the focal point from which all economists could be judged, either adding to or distracting from his system of natural liberty. After coming under attrack by socialists, Marxists and Keynesians, the invisible-hand model of Adam Smith was often left for dead but revived from time to time and revised and improved upon by the French, Austrian, British, and Chicago schools, and ultimately triumphed with the collapse of the socialist central planning model in the early 1990s (although it is again being tested by the ongoing financial crisis).

Granted, Smith made numerous mistakes in his classic work, such as his crude labor theory of value, his attack on landlords, and his failure to recognize marginal subjective values, but French, British, Austrian and Chicago economists have done a great job improving upon the House that Adam Smith Built without destroying his fundamental system of natural liberty, and his policy prescriptions, which were largely libertarian (the classical model of limited government, free trade, balanced budgets, and sound money).

I noticed that Murray Rothbard largely ignored the strong libertarian language found in “The Wealth of Nations” and overemphasized marginal statements by Smith that were pro-government or anti-market. His attack on Smith reminds me of free-market critics who take the same parenthetical statements in Smith’s writings and make him into some kind
of social democrat. Both are wrong. Mises had the right attitude when it came to Adam Smith. Smith established the “keystone” of the market economy.

By the way, “The Making of Modern Economics” has been my most successful academic book, having been translated into five languages, including most recently a fine Spanish volume published by Union Editorial through the good support of Professor Jesus Huerta de Soto. It also won the Choice Book Award for Outstanding Academic Title in 2009. Choice is the official organ of the academic libraries in the United States. It has been adopted by dozens of history of thought classes around the United States and the world. Roger Garrison uses it at Auburn, and he tells me that the students love it. I do hope your readers will check it out either the English or Spanish edition.

AR: What do you mean saying that “Marx madness plunges economics into a New Dark Age”? Can we see in the future a revival of Socialism?

That’s my famous chapter 6 in “The Making of Modern Economics.” Marxism-Leninism has done so much harm in the world that I wanted my views unmistakably clear about Marxist doctrine and policies. This chapter has been translated into many languages and has converted many Marxists around the world into free-market advocates. The latest edition has a section of “liberation theology” that has been so popular in Latin America.

AR: In “The Big Three in Economics” (M. E. Sharpe, 2007) you talk about Adam Smith, Karl Marx and John Maynard Keynes. Was Keynes the saver of capitalism?

During the 1930s and the Great Depression, Marxism was all the rage on campuses, threatening to undermine democracies around the world. Students, academics and government officials were searching for a more moderate alternative, and rejecting laissez faire, they discovered in Keynes a “middle of the road” alternative in big government and the welfare state. If Keynes hadn’t come along, the West might have fallen into a Marxist state. Now our challenge is to dig out of the pit that Keynes has put us into.

In “The Big Three,” I came up with the idea of the totem pole of economics, ranking economists from top to bottom, rather than the pendulum approach, where economists are linked to the left, middle and right. As Ronald Reagan once said, “There’s no left or right, only up or down.” Of the big three, I rank Adam Smith on top, Keynes below him, and Marx is low man on the totem pole. I commissioned a Florida woodcarver to create the Totem Pole of Economics, which I display in my home.

AR: Are we living today a Return of the Master?

Sadly, yes. Whenever the world faces a financial crisis or downturn in the economy, the political leaders turn to the Keynesian policies of activist deficit spending, easy money, and the welfare state. As a result, we are facing an unprecedented sea of red ink in the fiscal budgets of the West. As Mises said years ago, “We have outlived the short-run and are suffering the long-run consequences of [Keynesian] policies.”

AR: Let´s talk about “Vienna and Chicago: Friends or Foes?” (Capital Press, 2005). What do you think are the four areas where both schools dissent?

You mean dissent from each other? My book looks primarily at their major differences in methodology, monetary policy, the business cycle, and antitrust.

But they also agree on many points. Both the Austrian and Chicago schools see no value in heavy deficit spending to stimulate a typical recovery. Milton Friedman demonstrated years ago (and most recently confirmed by Harvard’s Robert Barro) that the deficit spending multiplier is close to zero. The two schools also oppose any tax increases during a recession.

One area they likely disagree is in monetary policy during a recession: Chicago economists argue that the money multiplier is significantly positive and can generate a faster recovery than doing nothing. The Austrian school is opposed to any effort to reduce interest rates below the natural rate or to artificially pump up the economy through easy money during a downturn. That can only have negative consequences down the road.

AR: The first big question is why do you think that Chicago has an advantage on methodology versus the Austrians? What about the Austrian traditional criticisms?

Chapter 4 of “Vienna and Chicago” deals with the debates over methodenstreit. Like most economists and, I might add, more and more Austrians, I reject the Misesian a priori view that theories can’t be confirmed or tested looking at historical data. One must always be cautious, but I found that one can learn a great about the value of a theory by looking at the evidence, and often studying history can reveal new theories that were previously overlooked. Stagflation is a case point. It was discovered in Austrian business cycle theory only after it appeared historically.

I reject both the “theory only” approach of the hard-core Misesians and the “history only” approach of the hard-core institutionalists. We need both theory and history to find out the truth. I’m glad to see more empirical testing of theories in the Austrian academic journals. It’s the only way Austrian economics is going to get any attention by the profession.

AR: The second big question is why do you think that Chicago has an advantage on sound money versus the Austrians? Why would a central bank system with a monetary rule be better than a free banking system?

It’s a matter of practical policy. I’m willing to give free banking a try, because I have a great deal of faith in free markets, but I doubt if the public or the legislatures are willing to take such risks. Name me a country in the world who is willing to give up central banking and adopt a free-banking regime? Even Hong Kong has a central bank or monetary authority (the Hongkong Bank). A return to the classical gold standard is also unlikely at this stage. Gold is playing a more important role, but only as a reserve asset and monitoring device. I think it’s much more likely that a central bank will adopt a monetarist rule of increasing the money supply (M2) at a steady rate than adopting free banking (no reserve requirements, giving banks the right to print their own money, etc.).

AR: What were those friendly debates you had with Professor Friedman?

Over a twenty year period, up until the time of his death (2006), I engaged in quite a few friendly fights with Milton Friedman, primarily over paper money vs. the gold standard and Austrian theory of capital and the business cycle. I keep in my wallet Milton Friedman’s torn up $20 bill as proof of one such incident in New Orleans in the late 1990s. I also challenged Friedman at a Mont Pelerin Society meeting in Vancouver on his cure (“print more money”) for Japan’s economic ills. I tell these stories and more in an article I wrote on the subject for “Liberty” magazine in late 2007: http://www.mskousen.com/2007/09/my-friendly-fights-with-dr-friedman/

AR: In the annual meeting of the Mont Pelerin Society that took place in Guatemala in 2006 I remember you gave a lecture. At the end I was allow to ask a question, and that was, “Would you accept an end to the Fed?” I thought your answer would be, Yes, but it wasn´t. Can you explain why?

I’d like to see the Fed replaced by either a computer (Friedman’s monetarist rule) or an international gold standard, or a competitive free-banking system, but it’s not likely to happen in our lifetimes. The humorist Will Rogers once said, “There have been three great inventions since the beginning of time: the fire, the wheel, and central banking.” Every developed nation has a central bank, and every developing country is adding one. Public choice economics suggests that having a monetary authority is simply too seductive and powerful to give up. Even Friedman’s simple proposal of replacing the Fed with a computer that automatically increases the money supply equal to real GDP hasn’t been adopted, because the governments want to be able to intervene at times during a crisis and inject liquidity at a faster pace than real GDP. They don’t have the faith that you and I have that capitalism will right itself and overcome these unpredictable crises. They want to maintain the power to manipulate interest rates and the supply of money and credit. They are too power hungry to give it up. They aren’t willing to accept the discipline of an international gold standard. Nor are they willing to try free banking. It’s too risky for them. So we talk all we want about what ideally we’d like to see, but it’s not likely to happen any time soon.

AR: I always remember Joseph Schumpeter starting his “Capitalism, Socialism and Democracy” (1942, p. 61) with a profound insight: “What counts in any attempt at social prognosis is not the Yes or No that sums up the facts and arguments which lead up to it but those facts and arguments themselves. They contain all that is scientific in the final result.” Are we wrong if we conclude that Chicago´s arguments are not scientific?

The Chicago school has definitely adopted a more pragmatic approach to economics, i.e., what works or what is predictable, as described in Friedman’s famous and controversial article on methodology. I think we need to use more logic and empirical studies to test our theories and knowledge. We can learn from both. For example, for years technical chartists used “guaranteed” formulas for making money in the stock market, but I was always skeptical of their logic. Eventually, they collapsed.

An old Wall Street saying applies to these fights between the Austrian and Chicago schools on theory and history: “In the land of the blind, the one-eyed is king.”

AR: What about Robert Lucas, Thomas Sargent, Robert Barro and “Rational Expectations?” Why did you ignore this New Classical Economists in your history of economic thought book?

I don’t think I did ignore them. I cover them in several chapters of my book, although not in any detail. See chapters 13, 15 and 17, inter alis.

AR: In your “EconoPower” (Wiley & Sons, 2008), you explained “How a New Generation of Economists Is Transforming the World”. Can you make a summarize of your arguments for the reader?

My main argument is that economics has moved from the “dismal science” to the “imperial” science, with economists making inroads into finance (modern portfolio theory, defined contributions plans), business (economic value added, auctions), law (capital punishment), politics (public choice and forecasting elections), history (cliometrics), environmentalism, religion, and even sports. It’s a fascinating broadening of the discipline in the past generation. I’m glad to be a part of it.

AR: There are two other academic books that I would like to talk about here. The first one is “Economic Logic” (Capital Press, 2000, 2010), which includes chapters on macroeconomics and government policy. Is this a new treatise on economics? Is this book better than Mises´s “Human Action,” Rothbard´s “Man, Economy and State” or Reisman´s “Capitalism?”

“Economic Logic” is not a treatise, but a modern-day textbook. I don’t think I can improve upon Mises’s or Rothbard’s magnum opuses, although Reisman’s captivating “Capitalism” is flawed in its defense of the Ricardian cost-of-production theory of value.

I wanted to create an Austrian-style “no compromise” textbook that could be integrated into mainstream economics and be adopted by the profession generally. So it is divided into micro and macro chapters, similar to other textbooks, but there are important additions — in micro, I start with the profit-and-loss income statement and Menger’s theory of the good, which business students can relate to and an important “missing link” in microeconomics. But my textbook is not so radical that it ignores standard microeconomics. By chapter six, I introduce supply and demand, cost analysis, the factors of production (land, labor, capital, and entrepreneurship), and the financial markets.

My macro chapters start with the Austrian 4-stage model of the economy, integrating GDE with GDP and other national aggregate statistics. In my money and banking chapter, I introduce the history of money and the international gold standard before I discuss monetary policy. I also include the pros and cons of Keynesian economics, so students become familiar with this defective macro model, AS-AD, etc.

“Economic Logic” also has a test bank, and we are working on a student manual, so it has everything a professor would want to teaching sound economics at a college level. It has been adopted by a half dozen institutions, including the business school at Universidad Francisco Marroquin, the free-market university in Guatemala.

AR: The second is “The Power of Economic Thinking” (Foundation for Economic Education, 2002). How has economics invaded and transformed politics, finance, history, law, religion and other social sciences?

This book is an earlier version of “EconoPower,” discussed above, a compilation of columns I wrote for “The Freeman” during the 1990s.

AR: What about your “Investing in One Lesson” (Regnery Publishing, 2007). Is that book as clear as Hazlitt lessons were on economics?

I have always been envious of Henry Hazlitt’s classic title, “Economics in One Lesson,” and wanted to create a similar title in finance if I could come up with the “one lesson.” I finally did in 2007 — the one lesson being “Wall Street exaggerates everything: The business of investing is not the same as investing in a business.” I explain why stocks are inherently more volatile than the underlining businesses they represent, and then in the rest of the book, I offer ways to minimize the risks of stock-market investment while increasing the chances of making money.

One reason Wall Street is not the same as Main Street is based on the Austrian concept of stages of production — the stock market is a capital good further removed from final consumption. I’ve written extensively on Austrian theory of finance in “The Structure of Production,” “Economics on Trial,” “Economic Logic,” and an essay for “The Elgar Companion to Austrian Economics,” edited by Peter Boettke.

AR: Can you say a word on Ayn Rand and the fifty years of “Atlas Shrugged?”

I’m both an admirer and critic of Ayn Rand and her philosophy. She articulated better than any other novelist the evils of totalitarianism, interventionism, corporate welfarism, and the socialist mindset. “Atlas Shrugged” describes in wretched detail how collective “we” thinking and middle-of-the-road interventionism leads a nation down a road to serfdom. No one has written more persuasively about property rights, honest money (a gold-backed dollar), and the right of an individual to safeguard his wealth and property from the agents of coercion (“taxation is theft”).

Yet her dogmatic defense of greed and selfishness hurts her cause and has created an apologetic brand of capitalism that is still viewed negatively by the general public. John Mackey, the brilliant CEO of Whole Foods Markets, offers an improved brand of “conscious” capitalism that hopefully will convert business leaders and the general public to a more positive view of free enterprise.

I’ve written an extensive review of “Atlas Shrugged” for the “Christian Science Monitor”:
http://www.mskousen.com/2007/03/atlas-shrugged-50-years-later/

AR: What about Peter Drucker? Is he an Austrian?

Like Joseph Schumpeter, Peter Drucker grew up in Austria along with Mises and Hayek, but is considered an enfant terrible of the Austrian school. He became the world’s most celebrated management guru, and his management style was definitely Austrian, with his emphasis on economy, thrift, creative destruction, and entrepreneurship. He was critical of Keynesian economics, but was not a true believer like Mises. He thought that laissez faire capitalism was defective. But rather than endorse big government, he endorsed big business as the ideal social institution.

AR: You have been the President of the Foundation for Economic Education (FEE) between 2001 and 2002. How was that experience?

It was a great experience that ended too quickly. My goal was to bring back the glory days of FEE and make it a household name like Cato or Heritage. I planned a series of events, including FEE’s first national convention in Las Vegas, which attracted over 850 attendees, and a promotional campaign to increase ten fold the circulation of “The Freeman.” I also engineered the acquisition of Laissez Faire Books. Lastly, I invited America’s mayor Rudy Giuliani to speak at our annual Liberty Ball and leased the large Hilton Hotel ballroom in New York that holds more than 2000 people.

But my plans were cut short when Rudy Giuliani proved to be a controversial choice, and I wasn’t especially adept at fundraising in my first year. I guess the board wanted someone who didn’t rock the boat and spent more time quietly raising money than creating new programs and expanding old ones. Alas, I lasted only a year as president. I’ve had a successful career in marketing, but I don’t think I was cut out to be a fundraiser, and I don’t envy those who have to do it every day.

Still, it was a thrilling time, and I continue to be a supporter of FEE and other free-market think tanks, and invite them to participate in my annual show, FreedomFest, in Vegas. (FreedomFest is a for-profit event — we don’t fundraise.)

AR: If we take your more than 25 books and all your papers, and ask which is your most important contribution to economics and finance. What would you say?

I can boil down my primary goals to three, all admittedly ambitious:

First, replace Keynes’s macro model with the universal four-stage model of the economy. This my work, “The Structure of Production;” It has application to the financial markets.

Second, write an alternative one-volume history of thought to Robert Heilbroner’s “Worldly Philosophers.” This is my book “The Making of Modern Economics,” which has now gone through two editions.

And third, develop a “no compromise” college-level textbook in economics that rivals Paul Samuelson’s “Economics.” “Economic Logic” seeks to integrate Austrian economics into the mainstream textbooks.

Professor Ken Schoolland has written a paper detailing my attempt to achieve this triathlon, published by the Cobden Centre in the UK: http://www.cobdencentre.org/?s=mark+skousen

Of the three, #2 has been the most successful so far.

AR: Please, tell us the story behind “The Mark Skousen School of Business,” in the Grantham University.

I was surprised as much as anyone when I was told in 2005 that Grantham University, an online university with headquarters in Kansas City, Missouri, was naming their business school after me. Usually you have to be a billionaire or dead to have a school named after you. They want to create a free-market brand of business, finance and management based on my free-market views, since I’ve had experience in all three fields. I have just completed a personal finance course, “Dollars and Sense,” for all the students (15,000 and growing, mainly in the US military), and will be using my “Economic Logic” textbook as the main book for their business students. I’m working closely with them to develop a new business school program for Grantham, and they have high hopes of expanding aggressively around the world.

AR: We can´t finish this interview without comments on FreedomFest.

Thanks for asking. FreedomFest has been a surprising success, rivaling my success as an investment newsletter writer (“Forecasts & Strategies,” which I’ve been writing since 1980).

For years, I thought that the freedom movement, broadly defined, needs to gather together once a year to learn, network, socialize and celebrate liberty, or what’s left of it. But we’ve always been too individualistic, too much like a herd of cats, and we need to come together more to show and feel a unity of support. So when I was president of FEE, we had our first national convention, and it was a big success with 850 attendees.

When I left FEE, I continued the idea by producing FreedomFest, “the world’s largest gathering of free minds.” We meet every July, a week after the 4th, in Las Vegas, the world’s most laissez faire city. It’s a “hot” conference, and we continue to set records every year. This year we had nearly 2400 attendees, with over 200 speakers and exhibitors. All the major think tanks and freedom organizations — Cato, Reason, Heritage, FEE, Goldwater, Adam Smith, PRI, Heartland, ISI, Eagle, etc. — come from around the world, and it’s quite an affair. Steve Forbes and John Mackey (CEO, Whole Foods Market) attend all three days every year and are now our official ambassadors.

I encourage everyone from around the world to join us: www.freedomfest.com.

AR: Can you conclude with some reflections or suggestions to the young students that are reading this interview?

Let me say something controversial. If you want to change the world and the economics profession, learn from the great Austrians at Hillsdale, GMU, Grove City, etc., as an undergraduate, and then apply to the top ivy-league graduate schools (Harvard, Chicago, Princeton, Yale, Stanford, etc.). With your Ph.D. in hand, apply to teach at these top ivy league schools, and if you get a position, start teaching Austrian economics to the next generation of students. Don’t write academic articles for Austrian journals. Write for the top economic journals — AER, JEP, etc. That way the best and the brightest will finally know about Mises and Hayek.

One of my regrets is that I got my Ph.D. at George Washington University, a second-tier graduate program. As a result, I found it difficult to teach at the top schools. I taught two years at Columbia, but that was it.

When I wrote “The Making of Modern Economics,” I decided to have it published by a non-market publisher, M. E. Sharpe. It proved to be a good move, because it has exposed a large group of social democrats to Austrian and Chicago economics.

Back when I got started as a student in the 1960s, there were virtually no free-market textbooks, few free-market economics departments, and only a handful of treatises and publications you could read that introduced your to market principles — Friedman, Mises, Hayek, Rothbard, Hazlitt, and the like. Now there are hundreds of professors, books, think tanks, organizations and conferences to teach free-market principles and the heroes behind the marketplace. I encourage you at attend these seminars and become involved with the various think tanks and websites.

Be sure to check out several resources and think tanks in free-market economics. Every institution has its biases and its favorite writers, and sometimes even suppresses scholars they don’t like. It’s unfortunate but a fact of life in the freedom movement.

I invite you to visit my website at www.mskousen.com and check out my articles and books that may advance your knowledge of free-market economics and finance. I’m also starting an Austrian-oriented business undergraduate and MBA program online at Grantham University, if you are so inclined to pursue a business degree.

AR: Professor Skousen, thank you so much for your time and effort!

Un placer! It was a honor, and I wish you the best of luck in your work and your interviews. And remember, A. E. I. O. U.

Personal Snapshots
FORECASTS & STRATEGIES
December 1999

WHO IS THE PERSON OF THE CENTURY?
by Mark Skousen

Time magazine will decide this month who is its “Person of the Century.” The issue was raised at the New Orleans Investment Conference last month. There I had a chance to meet Stephen Ambrose, author of best-selling books such as D-Day, Undaunted Courage and several presidential biographies. His choice is Dwight D. Eisenhower. According to Ambrose, Eisenhower was the right person to make the decisive decisions in World War II (such as D-Day), and fought to keep America out of war with the Soviet Union in the 1950s.

Ambrose, who was Eisenhower’s official biographer, says that on several occasions during his administration his advisors and members of Congress demanded that he act militarily against Russia. But he refused, saying it would have been a bloodbath and the end of Western civilization. Eisenhower told his advisors, “Soviet communism is a great evil, but it cannot survive our system of democratic capitalism. We must be patient and it will die on its own.” He was eventually proven right.

I certainly think Eisenhower is a better candidate than Franklin Delano Roosevelt, who got us into World War II as a way out of the Depression, and started us on the road to big government with Social Security and other New Deal programs. I think Winston Churchill is a much better candidate as a world leader, and far less divisive.

On the closing panel in New Orleans, newsletter editor Larry Abraham named C. S. Lewis as the Person of the Century for his classic works in defending liberty and moral faith (The Screwtape Letters, Mere Christianity, Chronicles of Narnia). I like Larry’s idea of choosing a person who was a great influence for good in the 20th century, rather than picking political leaders who did a great deal of harm, such as Lenin or Hitler. In this regard, I would definitely choose Winston Churchill over Franklin Delano Roosevelt, or in economics, Friedrich Hayek over John Maynard Keynes.

The Film of the Century

The highlight of this year’s New Orleans conference was spending time with the actor Charlton Heston. My wife, Jo Ann, and I had the chance to have lunch with this famous actor. In his 76 colorful years, he has made the same number of films! My favorite is Ben Hur, which in my judgment is the film of the century. It deservedly earned 11 Academy Awards, more than any other in history.

In his talk, Heston warned us that our liberties are at risk in this era of Big Government. “The government encourages irresponsibility,” he stated. “As citizens, you need to spend the same time and effort defending your freedoms as you do on your investments.” Good advice!

What a pleasant conversation we had when I had dinner with Dan Quayle earlier this year. Quayle didn’t dominate the conversation as my wife Jo Ann and I might expect from a former Vice-President; he was gracious and a good listener.

Dan talked about his support for some form of private Social Security accounts for younger workers, under the age of 40.

He also said he was planning to pursue the presidency in the year 2000, but didn’t want to announce that publicly yet. (Quayle quit his bid for the presidency in the 2000 election after the Iowa Strawpoll in 1999.)

Jo Ann and I had met Dan Quayle 10 years earlier at a Howard Ruff conference, and we talked about those days and what Howard was up to these days.

Jim Blanchard and I met privately with Steve Forbes at the 1997 New Orleans Investment Conference. Forbes is planning to make another bid of the presidency in 2000 (which came to pass though he dropped out after low showings in the first round of Republican primaries and caucuses), and we assured him the hard-money movement was behind him 100%.

Like me, he is bullish on US technology, and his formula for “hope, growth and opportunity” can only improve the prospects for America — a flat 17% tax with generous deductions, privatization of Social Security, and sound money.

Speaking of sound money, I presented Steve with a 1880 Morgan silver dollar and he was delighted to see that the date was the year his grandfather, B.C. Forbes, founder of the magazine, was born.

Since this first meeting, I have met with Steve Forbes several times, as he is a huge supporter of FreedomFest. He has attended all three days of the conference two years in a row, participating on panels, giving keynote addresses and listening in on other sessions.

“Showing off waist lines after Rush had dropped 40 pounds!“

I guess my dinner conversation with Rush Limbaugh early in 1998 had quite an impression on the radio talk host celebrity.

During dinner we discussed a variety of economic and political topics, including the Clinton legacy. I told Rush I thought Clinton’s biggest achievement would be the privatization of Social Security.

Needless to say, Rush thought I was crazy. Clinton? Known for privatizing anything?

On the following Monday, Rush talked about our conversation on his radio program, referring to me as “a financial guru from Orlando” and scoffing at my prediction.

But low and behold, I have been vindicated by Rush. In a recent broadcast, Rush again mentioned me (this time as a “financial planner from Orlando.”) It seems that some of the Clinton administration have suggested the privatization of Social Security (like it’s a brand-new concept) could solve the New Deal program’s woes.

Rush’s response? “I guess that guy from Orlando has something there.”

I was Clinton’s Running Mate…For Half an Hour!

In the world of investing, timing is everything. In October, 1996, on a San Diego beach, my timing was excellent — an opportunity to jog and speak with President Clinton.

I had gone out on the beach for a jog. Before I knew it, the President of the United States and his entourage came jogging in front of me.

“Hi! How are you?” Clinton asked with a smile. “I could be better,” I responded, a phrase that speaks volumes about the last four years under Clinton.

Before the opportunity could slip away, I seized the moment. While others watched in amazement, I ran up, shook his hand and asked, “Mind if I join you?” The Secret Service agents were closing in fast, but the president waved his hand. “Fine with me. Let him go.”

For the next half an hour, I had the president’s ear. Boy did I let him have it!

We discussed his 1993 tax hike, which I pointed out had a negative effect on business and charities. While wealthy people can afford to pay higher taxes, sending more money to Uncle Sam means there’s less money to be spent on business, on hiring or for charities.

He seemed to understand, but said he had to do something about the deficit, which ballooned under Reagan supply-side tax-cuts of the 1980s.

“Do you believe in supply-side economics?” I asked. He replied “Yes, tax cuts can increase revenues, as they did under Kennedy. But we must not go overboard.”

We also discussed a reduction or elimination of the capital gains tax. Surprisingly, Clinton said he favored a reduction in capital gains, but only if a “small” alternative minimum tax was included to ensure fairness. Basically, a capital gains tax cut in name only.

Next we discussed problems of Medicare, including the Medical Savings Accounts idea popularized by 1996 and 2000 GOP presidential candidate Steve Forbes, which Clinton said he also supported.

As we finally said good-bye (the Secret Service agents had been pointing at their watches for the last several minutes) I asked Clinton to sign a dollar bill I had in my pocket. “I think it’s illegal, but I’ll do it anyway,” he said.

I had an opportunity to interview famed management guru Peter Drucker in July, 1991 for a Forbes article.

When I asked him about the troubles of big corporations, like IBM and General Motors, Drucker replied that all large companies which emerge as a pioneer in a field eventually mature and face competition. They simply they must decide which size is best. “Elephants have a hard time adapting. Cockroaches outlive everything.”

Drucker alluded to the hidden growing troubles of Japan, due to the large amount of T-bills and real estate they’d invested in the United States and their high capital gains tax.

In the U.S., Drucker didn’t foresee a depression in the 1990s, but did predict a declining number of banks through mergers as the interest-generated revenues of the traditional structure of banking were replaced with service fee-generated revenues.

Finally, when I asked if Keynesianism was finally dead, Drucker replied that he was not anti-Keynesian, but rather non-Keynesian. He surprised me by stating that he felt Keynes was actually ultraconservative politically, believing in abolishing labor unions and maintaining the free-market. Keynes despised American Keynesians.

What did Drucker foresee for the world?
Transnational governments to deal with the environment.
Transnational money to coordinate currencies.
And economic regionalism, less focus on nation-states and more on ethnicity.

I Had Lunch with Milton Friedman

I have been meeting and corresponding with Milton Friedman, today’s most famous economist, for over ten years.

At one point, my contact with him really helped me keep from making a bad investment decision for my subscribers.Many in the investment newsletter business had been warning subscribers of an impending stock market crash due to the fact that M1, the money supply, was declining sharply in 1996.

“Should we sell?” asked my subscribers through letters and phone calls.

I met with Dr. Friedman. He said M1 was too narrow a definition of the money supply and therefore, now out of date. M2, which included money market funds, was much more accurate.

And M2 was rising! In short, there was no “tight-money” policy, and no chance of a serious bear market. I kept my subscribers in the market and they made over 20% or more on my recommended stocks and mutual funds.

On a personal note, several years ago Milton Friedman and I went to the same conference, and I invited him to lunch. After the meal, I grabbed the bill and paid for it. I turned to Milton and said, “So I guess it’s no longer true your refrain, that ‘there’s no such thing as a free lunch!’” To which he replied, “Oh, no, Mark, I had to listen to you for two hours!”

Louis Rukeyser Guest Panel and Celebrating The Retirement Letter’s 25th Anniversary

Lou and I share a laugh over Elaine Garzarelli’s “bullish indicators”

I was a guest panelist on the Louis Rukeyser panel celebrating the 20th anniversary of the InterShow Money Show at Walt Disney World, Florida. The event took place on Saturday evening, February 7, and the other panelists were George Roche, president of Hillsdale College, Charles T. Maxwell, investment manager at Loewenbaum & Co., and Don Rowe, investment newsletter adviser.

Before the panel began, Lou spoke and told a funny story about Elaine Garzarelli, the financial guru. Lou noted that Elaine was famous for being bullish about the stock market and would always being her interviews by saying, “Lou, my indicators have never been more bullish…” Once at a conference before a live audience, Lou said she showed up late on a panel and so, while waiting , Lou said to the audience he was sure she would begin, “Lou, my indicators have never been more bullish…” When she appeared, Lou asked her where she thought the market was headed. Sure enough, her reply began, “Lou, my indicators have never been more bullish…” She wondered why the audience laughed.

After his speech, Lou came over and began his panel. When he came to me, he asked, “So, Mark, where do you think this market is headed?” I replied, “Lou, my indicators have never been more bullish…”

Meeting with Willard Scott at The Retirement Letter 25th Anniversary Celebration

After the Rukeyser panel, I joined Tom Phillips and Pete Dickinson to celebrate 25 years of The Retirement Letter, Tom’s first financial newsletter that he published. (Forecasts & Strategies was second–we celebrated our 20th year in 1999.)

Poking fun of Willard’s “propensity to consume” at The Retirement Letter anniversary dinner

Willard Scott, the famous weatherman on the Today Show, appeared as the celebrity host and told jokes about his age and his financial escapades. I sat next to him at the dinner and we reminisced about living in Washington in the 1970s and 1980s.

I spoke at the Gold Show at the Mirage Hotel, where there were 2,000 people in attendance. My workshop was jammed, but the biggest thrill was appearing on “Larry King Live” as the guest interview.

At first I was told that CNN’s Larry King was going to interview three experts on the mining industry. I was relieved I would have some back-up, since I don’t consider myself a mining expert.

But when Larry arrived, I looked around and saw that there were no other guest interviews, only me. The pressure was on.

Larry warmed up the audience with a few stories, and introduced me, but mispronounced my name.

I went up to the stand and said, “Judging from your mispronounciating my name, you obviously don’t know anything about the mining industry!”

It threw him off guard but he responded with relish. “What’s the mining industry doing to minimize damage to the environment?”

I responded, “Frankly, Larry, nobody here in this audience cares about the environment!”

He said, “I can’t believe that.”

I then turned to the audience and asked, “How many of you think the environment is important?” They responded in unison, “NO!” Then I asked, “How many of you are just here to make a buck?” They yelled loudly, “YES!”

Though it sounded like we were all a bunch of right-wing crazies defending the unfettered free market, the interview was intense, funny and very interesting.

After, Larry said it was a great interview that he really enjoyed. Dozens of attendees came up and told me that my appearance was perfect. “You said everything I’ve always wanted to tell Larry King.”

Questions for Margaret Thatcher

In May 1996, I was able to meet former British Prime Minister Margaret Thatcher at the 50th Anniversary of the Foundation for Economic Education at the Waldorf-Astoria in New York.

We met with Lady Thatcher at a private reception before the main banquet. She did not seem very animated due to jet lag, but then I asked her about her recent visit to Brigham Young University, where she received an honorary degree.

I had read that the Mormon Tabernacle Choir had been there and sang a famous British hymn. However, they left out one verse. Lady Thatcher got up in her acceptance speech and recited the omitted verse from memory.

When I reminded her of the story, she repeated the verse, in front of all in the receiving line.

During the main banquet, where Thatcher was the keynote speaker, I was asked by FEE president Hans Sennholz to ask the first question.

In my question I noted that unemployment in Europe was in double digits and the region was struggling with strong labor unions, regulations and other forms of socialist legislation.

My question: Why have free-market think tanks failed in influencing Europe to move toward free market?

Her answer: She was highly optimistic that the free-market think tanks would still rule the day, and Europe was headed toward an open market as part of the European Union (one currency, single market for labor, capital and money).

Result: Her surprising optimism prompted me to be more bullish on European stocks, which have since then hit all time highs.

“My father’s decision to raise taxes was wrong. One of my first actions as President will be to cut marginal tax rates!”
-Gov. George W. Bush

Last month I met with the front-runner of the Republican Presidential nomination, George W. Bush, at the governor’s mansion in Austin, Texas. I spoke with him at length about his tax policies, and how they might affect investors. He told me that his first priority is to cut marginal tax rates on federal income taxes.

I asked him point blank what he thought of his dad’s decision, after making his famous “Read my lips, no new taxes” pledge, and then raising taxes in 1991. Many political commentators think this reversal cost Bush the election. “It was wrong,” his son said without hesitation. A few minutes later he came back to me and reemphasized the point; “It was the biggest mistake of his political career.”

In essence, Gov. Bush was saying that if he becomes President, he will atone for his father’s sin by reversing his tax policy.

CAPITAL GAINS TAXES, SOCIAL SECURITY

I then asked him about other taxes. He does not favor a further reduction of captal gains taxes. He thinks the 20% rate on long-term gains is already low enough (although he will undoubtedly sign a bill lowering the rate to 15%, which is what Republicans have already passed). His main focus will be to cut the high marginal rates on income taxes. He also told me he strongly favors “improving” Social Security by privatizing it, at least partially. He talked about placing at least two percentage points of each eligible worker’s salary into “personal savings accounts.”

I was delighted how candid he was about Social Security privatization. As you may recall, it took former House Speaker Newt Gingrich three years to admit publicly his support for privatization. The idea, long championed by free-market economists, is now becoming mainstream.

At the governor’s meeting was also Howard Phillips, the conservative gadfly running for president on the U. S. Constitution Party. (The group is even smaller than the Libertarian Party.) Howard walked up to Gov. Bush and brashly asked, “Will you let me in on the debates?” The governor didn’t hesitate: “No ! ” Will Gov. Bush get my vote? Currently I support Steve Forbes, who is more libertarian than Bush. But I think Bush would be far superior to Democrats Bradley or Gore, and is more libertarian than his father.

I had the privilege of meeting Friedrich von Hayek twice. He was a brilliant man.

In 1986, Gary North and I met with Hayek in his summer home in the Austrian Alps.

We discussed what made “Austrian” economists so different from the rest of the economics profession.

He noted that he and Ludwig von Mises, his mentor, had predicted the 1929 Crash and 1930s Depression, while eminent economists John Maynard Keynes and Irving Fisher had not. Keynes and Fisher had not thought there was any inflation in the 1920s — commodity and consumer prices were stable.

On the other hand, the Austrians (Hayek and Mises) always look beyond macro aggregate statistics and break the economy down into “micro” sectors. They noted that there was inflation in the stock market, real estate and industrial sectors.

I was able to use the Austrian model to predict the 1987 Crash and to get my subscribers out of the market six weeks before Black Monday, October 19, 1987 (my 40th birthday!).

The purpose of my two-hour, one-on-one interview with David Rockefeller, the former chairman of Chase Manhattan Bank and the youngest grandson of oil magnate, John D. Rockefeller, Jr., was to learn his assessment of the new global free market economy of the 1990s and beyond.

First, Rockefeller said that despite his top-level connections, he had not anticipated the fall of the Berlin Wall and the collapse of the Soviet Union.

He also expressed deep concern about the banking crisis, which he says is spreading worldwide. “The Japanese banks are not having an easy time as they once had.”

Finally, in his most surprising statement, he revealed he considers himself a follower of the Austrian school of economics. Friedrich Hayek had been his tutor at the London School of Economics in the 1930s.

A plaque at Rockefeller Plaza displays some of David Rockefeller’s grandfather’s beliefs:

“I believe that government is the servant of the people and not their master…that the world owes no man a living, but that it owes every man an opportunity to make a living…that thrift is essential to well-ordered living and that economy is a prime requisite of a sound financial structure, whether in government, business or personal affairs…that character — not wealth or power or position — is of supreme worth…that right can and will triumph over might.”

Amen!