Perspective – Liberty Magazine – May 2009

Brother, Can You Spare a Decade?
by Mark Skousen

Few things other than a New Deal can be more painful than an economic depression. But few eras were more vital and enjoyable than the private side of the last one.

One of the rare books in my financial library is “I Like the Depression,” by Henry Ansley, the “Jackass of the Plains.” This amusing little volume was published by Bobbs-Merrill in 1932, and the price was a buck fifty.

Ansley, a newspaperman from Amarillo, Texas, described a prosperity in the 1920s that wasn’t that great. He burned candles at both ends, became a financial hotshot, and ultimately overextended himself. Then the depression hit: “Good-by twin beds, frozen salads, indigestion, credit and swelled head. Hail to the old-fashioned nightgown, buttermilk, sow bosom [a kind of food], comfort and cash.” He lost his job but found happiness by rediscovering leisure, friends, and neighborliness. Hard times taught him the value of a dollar and not to take things for granted: “My dog is my pal again; my wife my lover and my Dad my advisor.”

Ansley’s book was never a bestseller, but it started me thinking. Can the worst of times also be the best of times? The history books are replete with the evils of the 1930s — soup lines, bank closings, Hoovervilles, dustbowls, bear markets, demoralizing despair. It’s all been retold countless times, in such books as Milton Meltzer’s “Brother, Can You Spare a Dime?,” John Steinbeck’s “The Grapes of Wrath,” and most recently Amity Shlaes’s “The Forgotten Man.” The Great Depression brought us Nazi Germany, the New Deal, Keynesianism, and, some say, World War II.

Not surprisingly, everyone from Wall Street to the halls of Congress is worried that the current recession will turn into the dreaded D, and has seized on desperate rescue measures. But was the Great Depression all bad? Did anything good come out of the 1930s? I started doing some research and was amazed to find a bright side to the gloomy ’30s — a lower cost of living, great new inventions and other technological advances, new forms of entertainment, more sports and reading, and a return to sober social behavior.

Start with leisure. Henry Ansley describes the free time he had during the depression. Indeed, millions of Americans had a lot more leisure time. Before the depression, almost everyone worked a six-day week. In the 1930s, the five-day work week became commonplace. “Spread the work!” was the rally cry. By 1937, wage earners in 57% of all manufacturing companies enjoyed a five-day week. Saturday was now a free day, and the Saturday rush hour was replaced by the Friday rush hour.

As a result, there was a tremendous increase in sports and leisure-oriented jobs. People began getting out into the sun and open air and taking a greater interest in golf, tennis, skiing, roller skating, and bicycling. Softball became a national pastime; by 1939, there were nearly half a million teams and 5 million players of all ages throughout the country. Expensive private club golf courses withered, but inexpensive public courses grew. Miniature golf was all the rage in the early ’30s. Bobby Jones became the first and only person to win the Grand Slam of golf in 1930. And black athletes became national idols for the first time, Joe Louis in boxing and Jesse Owens in track and field.

Americans traveled more. House trailers became a very big business. Camping, canoeing, and other inexpensive outdoor activities increased in popularity. People took their cameras with them, and photography became a craze of remarkable dimensions. Americans took tons of pictures with their small German cameras. Life and Look — big, glossy picture magazines — became popular.

Dancing, all the rage in the ’20s, continued to rage in the ’30s. Americans would dance their way out of the depression! Young people everywhere danced the swing, the jitterbug, and the boogie woogie to the music of Benny Goodman, Tommy Dorsey, and Louie Armstrong.

Indoors, parlor games such as bridge and the ingenious “Monopoly” were popular. People read more, and circulation at local public libraries increased. Kids loved comic books, especially “Superman,” the world’s first comic book superhero. Books “condensed” by Reader’s Digest saved time and money. There was an intense interest in epic novels — Pearl Buck’s “The Good Earth,” A.J. Cronin’s “The Citadel,” Margaret Mitchell’s “Gone with the Wind” — as well as such how-to books as Dale Carnegie’s “How to Win Friends and Influence People.” (1937, with 17 printings right away).

In the same year, Lin Yutang, the Chinese-American Taoist, published “The Importance of Living,” which was to become especially popular among libertarians. It encouraged Americans to stop worrying and start “letting go.” One chapter was entitled “The Art of Loafing.” “I am quite sure,” Lin wrote, “that amidst the hustle and bustle of American life, there is a great deal of wistfulness, of the divine desire to lie on a plot of grass under tall beautiful trees of an idle afternoon and just do nothing.” Whether fortunately or unfortunately, in their own opinion, millions of Americans got to live Lin’s upbeat message of idleness.

New Entertainments

Idleness — and its companion, entertainment. People wanted to forget their troubles, and radio and motion pictures provided an escape. Radio really came of age during this period, with up to 80 million listeners on some evenings. There was a lot more to radio than FDR’s fireside chats. It was the way to hear worldwide news bulletins, good music, and such half-hour comedies as “Amos ’n’ Andy,” the first syndicated program, and “The Jack Benny Show.” In the late 1930s, NBC was carrying broadcasts of symphony orchestras, especially its own orchestra, conducted by the immortal Arturo Toscanini, to 10 million listeners every week. And who can forget the night of Sunday, October 30, 1938, when Orson Welles broadcast his version of H.G. Wells’ “The War of the Worlds”?

Hollywood blossomed during the ’30s. In one decade, the motion picture industry went from silent films to talkies in Technicolor. Films brought the American public together as never before. Gary Cooper, Fred Astaire, Ginger Rogers, Katharine Hepburn, John Wayne, Mickey Rooney, and Clark Gable were welcome alternatives to Adolf Hitler, Benito Mussolini, Josef Stalin, and other demagogues of the era. Many considered Shirley Temple a gift from God during the gloomy de-pression. The motion picture event of 1938 was the first full-length animated cartoon, Walt Disney’s “Snow White.” The same year saw one of the first films in Technicolor, the blockbuster “The Adventures of Robin Hood,” starring Errol Flynn. A burst of classic award-winning films came out the next year, including “The Wizard of Oz,” “Mr. Smith Goes to Washington,” and the greatest of all epic films, “Gone With the Wind.”

The ’30s was the era of the first great horror films, “Frankenstein,” “Dracula,” “Dr. Jekyll and Mr. Hyde,” and “King Kong.” For a dime, Americans could go to the Saturday matinee and see double features of cowboys, adventurers, and gangsters. The silver screen brought us science fiction, serial thrillers and the Singing Cowboy (Gene Autry). The theater was filled with humor — Laurel and Hardy, W.C. Fields, the Three Stooges. Americans would laugh their way out of the depres-sion! There were reasons why Chicago economist Robert Lucas, Jr., called the 1930s “one long vacation.”

New Technology

Alvin Hansen and other Keynesian economists developed their “stagnation thesis” in the late 1930s, arguing that the United States was indefinitely stuck in an economic rut. They claimed that there was no new technology, no new frontier to drive the American economy. They ignored the tremendous economic progress that took place throughout the depression — the invention of plastics, artificial fibers, plywood, the 2-cycle diesel engine, and lighter, tougher steels.

Ernst Ruska and Max Knoll invented the electron microscope in 1932. Howard Armstrong created FM radio in 1933. Wallace Carothers manufactured nylon, and Robert A. Watson-Watt discovered radar in 1935. Hans Pabst von Ohain developed the jet engine in 1937 and the first jet airplane in 1939. Chester Carlson originated xerography in 1938. Igor Sikorsky made the first practical helicopter in 1939. Several people, including Philo T. Farnsworth and Isaac Shoenberg, developed television in the 1930s. CBS and NBC began broadcasting TV during this decade.

Manufacturers weren’t idle in getting new technology to market. New household products included electric mixers, pop-up toasters, vacuum cleaners, refrigerators, and irons. For the first time, consumers enjoyed sliced bread and packaged frozen foods. Union Pacific came out with fancy new streamlined, air-conditioned trains. Mass-market automobiles could now accelerate to 60 mph, carrying passengers along new highways with underpasses and cloverleafs. The dirigible, a new form of air transportation, appeared in 1936 (but disappeared with the fiery destruction of the Hindenberg a year later). The Douglas DC3 came out in 1936, traveling at 200 mph, compared to the 1932 passenger airplane speed of 110 mph. Coast-to-coast travel in overnight air sleepers was now possible. New ocean liners, such as the Queen Mary, appeared in a crowded New York harbor. Everyone came to witness the building of the 102-story Empire State Building and the Rockefeller Center (the only skyscraper group to rise in the 1930s). And who could not marvel at the Golden Gate Bridge, opened to traffic on May 28, 1937?

Social historian Frederick Lewis Allen, author of “Only Yesterday” (1931), a bestselling history of the 1920s, summed it up best when he wrote in a sequel, “Since Yesterday” (1940), “the American imagination was beginning to break loose again.” At the end of the decade, the New York World’s Fair had as its theme “The World of Tomorrow.”

Society and Economics

The depression brought about a change in American social trends. People attended church more. Many retreated from the sexual revolution of the roaring ’20s. The mood was more somber and prudent, even after Prohibition was repealed in December 1933. (By the end of the decade, Alcoholics Anonymous was founded.) There was greater approval of marriage and family life. The divorce rate dropped sharply, by 23% from 1929 to 1932, though so did the marriage rate and the birth rate — possibly because marriage and children cost money.

Not all economic news was bad. The most favorable statistic was the decline in the cost of living. During the period 1929–32, retail prices dropped by an average 24%, wholesale prices by 31%, farm prices by 51%, and raw commodity prices by 42%. Of course, wages, salaries, dividends, and other forms of income declined as well, but for those who kept their jobs and held onto their assets, the loss of nominal income was offset by sharply lower prices for all consumer products. “Everything was all right in those years,” said a woman quoted in Amity Shlaes’ book, “but only if you had a job.”

Unemployment reached 25% and higher in some regions at the depths of the depression, causing enormous hardship for millions of Americans. But see it in another light: three out of every four people were employed in the worst parts of the depression. Total employment rose after 1932, reaching 90% by the end of the decade. In a sense, the Democrats were right: happy days were here again!

Businesses adjusted to the new deflation by downsizing, cutting costs, and implementing labor-saving devices. Even the farming industry mechanized. By 1936, despite persistent unemployment, real national output had nearly recovered to pre-depression levels. Auto sales exceeded all previous years except 1928–29. The steel industry was operating at close to capacity. Even the building industry was climbing briskly. Miami was having its best season since the collapse of the Florida land boom. The race tracks were crowded, lavish debutante parties flourished in the big cities, and the night clubs were full.

For bulls and bears alike, the 1930s was the most fantastic period in stock market history. Stock prices collapsed between 1929 and 1932, losing an average 88%, but industrial, rail, and utility stocks all shot up from their lows in the summer of 1932, anticipating the end of hard times. Few bull markets have ever equaled the rocket performance of the summer of 1932, when the rails tripled within eight weeks and the utility averages doubled. Wall Street went on a rampage for the next four years. The Dow rose 67% in 1933, 4% in 1934, 38% in 1935, and 25% in 1936. After a sharp 32% correction in 1937, the market re-sumed its upward trend until war broke out in Europe in September, 1939. There were also plenty of speculative opportunities on the long side of gold and other natural resource stocks during the ’30s. In sum, the bulls, not just the bears, had plenty of chances to make money in the 1930s.

There’s an old saying, “It is the irritation in the oyster that forms the pearl.” The Great Depression was an irritation that most people didn’t expect. A few people couldn’t take the hard times and jumped out of windows, but most responded to the challenge. Adversity often demonstrates the virtue and creativity of humankind. Bad news often creates good news and opportunities to learn and advance. The 1930s were no exception.

Mark Skousen is the author of Economic Logic, now available in its second edition.

Suggestion – Liberty Magazine
The Necessary Evil
by Mark Skousen

Today libertarians spend most of their time lamenting the consequences of big government. And rightly so. Today government is less a defender of freedom and more a Hobbesian leviathan that undermines prosperity. When we do talk about limited government, it is often seen solely as “a necessary evil.”1 Too much government and the economy chokes. Too little, and it cannot function. Is there a Golden Mean?

George Washington best summarized the libertarian view: “Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master.”2 So it is with some trepidation that I suggest that societies or countries may not have enough good or legitimate government. In the never-ending battle against big government, it might be well to consider what constitutes “good government” to see how far we have strayed from the proper role of the state.

Each year the Fraser Institute publishes their Economic Freedom of the World Index (see www.fraserinstitute.org), which measures five major areas of government activity in more than 100 countries: size of government, legal structure, sound money, trade, and regulation. The most surprising thing about the study, according to its author James Gwartney, a professor of economics at Florida State University, is the importance of legal structure as the key to maximum performance for an economy. “It turns out,” he told me in a recent interview, “that the legal system — the rule of law, security of property rights, an independent judiciary, and an impartial court system — is the most important function of government, and the central element of both economic freedom and a civil society, and is far more statistically significant than the other variables.”

Gwartney pointed to a number of countries that lack a decent legal system, and as a result suffer from corruption,insecure property rights, poorly enforced contracts, and inconsistent regulatory environments, particularly in Latin America, Africa, and the Middle East. “The enormous benefits of the market network — gains from trade, specialization, expansion of the market, and mass production techniques — cannot be achieved without a sound legal system.” 3

The Proper Role of the State

Milton Friedman identifies the legitimate roles of the state: “The scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow- citizens: to preserve law and order, to enforce private contracts, to foster competitive markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally.” 4

Adam Smith suggests that this “system of natural liberty” will lead to a free and prosperous society. As Smith declares, “Little else is required to carry a state to the highest degree of opulence from the lowest level of barbarism, but peace, easy taxes, and a tolerable administration of justice.”5

The division between the positive and negative role of government can be represented visually. In the diagram on the next page, we have on the vertical axis “socio-economic well-being”: some general measure of the quality of life in a free and civil society. For empirical studies, economists might want to use changes in real per capita income, but this may be too confining. On the horizontal axis we have “government activity.” At point O, we have zero government, and as we move along the horizontal axis, the size and scope of government activity increase. The ultimate extreme is the totalitarian regime, which institutes “total government,” though I would hesitate to label this “100% government,” since no government can control all activity.

Too Little vs. Too Much Government

My thesis is that as a society moves from zero government to point P, economic well-being increases to peak performance. Then, as it adopts a larger and less necessary government, its growth diminishes, and can even turn negative if government becomes too burdensome and controlling. Looking at the left side of the mountain, point O (zero government) to P (optimal government) constitutes “too little” government. For example, a nation may spend too few of its resources on personal protection, property control, and government administration. Here we see how increasing the size and scope of government activity initially leads to increased well-being, as measured by individual freedom and prosperity. Point P represents the right amount of government and the optimal amount of expenditure necessary to fulfill its legitimate functions.

This is the ideal of the minimalist state. Any point to the right of P represents too much government, when the central authority becomes a burden rather than a blessing. I’ve drawn it as a gradual downward slope, so that the more bad government a country adopts, the greater the decline in performance, even to the point X where government is so large and so intrusive that it results in the destruction of economic and social well-being, which is probably worse than the costs of anarchy.

Quantifying the Right Amount of Government

Can we quantify P, the optimal size of government? Several economists have attempted to determine the ideal level of government spending as a percentage of GDP. In the1940s, Australian economist Colin Clark said that the maximum size of government should not exceed 25% of GDP. Anything higher would hurt economic growth.6 Professor Gerald W. Scully, of the University of Texas at Dallas suggests that the tax rate ought not to exceed 23%.7 World Bank economists Vito Tanzi and Ludger Schuknecht analyzed 17 countries during the period 1870 to 1990 and concluded that public spending in newly industrialized countries should not exceed 20% and in industrialized countries not more than 30%.8 Is optimal government (point P) the same for every country?

This would make an interesting study, but I suspect that differences in culture and socio-economic circumstances suggest that some nations require more government than others. As Benjamin Franklin states, “A virtuous and laborious [industrious] people may be cheaply governed.”9 And a lazy, dishonest people must be expensively governed.

Graph

Optimistically, I would think that if all nations were featured together on the diagram above, the various points P would constitute a fairly narrow mountain range. Almost every country in the world today is to the right of Point P, and could grow faster and enjoy a higher quality of life by reducing the size and scope of government. Countries from China to Ireland to Chile have demonstrated how dramatically the economy can improve by cutting back the state. I’m sure even Hong Kong, #1 in the Fraser Institute’s study in terms of performance and freedom, could benefit from some improvements by scaling back some types of government services.

According to the latest surveys of economic freedom by the Fraser Institute and Heritage Foundation, countries on average are becoming more free, and not surprisingly, the world’s economic growth rate is rising.10 After noting that government represents 40–50% of GDP in most developed nations, Tanzi and Schuknecht conclude, “we have argued that most of the important social and economic gains can be achieved with a drastically lower level of public spending than what prevails today.”11

Two Case Studies in Little or No Government

Are there any examples of countries to the left of point P, that have too little government? The United States suffered from too little government under the Articles of Confederation, which was the basic law of the land from its adoption in 1781 until 1789, when they were replaced by the Constitution. The Articles limited the federal government to conducting foreign affairs, making treaties, declaring war, maintaining an army and navy, coining money, and establishing post offices. But it could not collect taxes, it had no control over foreign or interstate commerce, it could not force states to comply with its laws, and it was unable to payoff the massive debts incurred during the Revolutionary War. States were already putting up trade barriers, striking a serious blow to free trade, and the economy struggled. After the Constitution became law, the United States flourished because of improved government finances, protection of legal rights, and free trade among the 13 states.

A modern-day example of too little government is Somalia, located east of Ethiopia and Kenya, where life has been difficult and often dangerous without any central authority since 1991. For example, drivers pass seven checkpoints, each run by a different militia, on their way to the capital. At each of these “border crossings” all vehicles must pay an “entry fee” ranging from $3 to $300, depending on the value of goods being transported. Competing warlords vie for control of the countryside, which has frequently collapsed into civil war. Only an estimated 15% of children go to school, compared to 75% in neighboring states. However, a recent report by the World Bank indicates that an innovative private sector is flourishing in Somalia. This vindicates the Coase theorem, named for economist Ronald Coase, which argues that in the absence of government authority, the private sector will step in to provide alternative services, depending on the transaction costs.12 The central market in Bakara is thriving: all kinds of consumer goods, from bananas to AK-47s, are readily sold; mobile phones proliferate and internet cafes prosper. But with no public spending, the roads and utilities are deteriorating. Private companies have yet to appear to build roads — the transaction costs are apparently too prohibitive. Public water is limited to urban areas, and is not considered safe, but a private system extends to all parts of the country as entrepreneurs have built cement catchments, drilled private boreholes, or shipped water from public systems in the city.

There are now 15 airline companies providing service to six international destinations, and airplane safety can be checked at foreign airports. After the public court system collapsed, disputes have been settled at the clan level by traditional systems run by elders, with the clan collecting damages. But there is still no contract law, company law, or commercial law in Somalia. Sharp inflation in 1994–96 and 2000–01 destroyed confidence in the three local currencies, and the U.S. dollar is now commonly used. Because of a lack of reliable data, neither the Fraser Institute nor the Heritage Foundation’s economic freedom indexes rank Somalia. The World Bank concludes, “The achievements of the Somali private sector form a surprisingly long list. Where the private sector has failed — the list is long here too — there is a clear role for government intervention. But most such interventions appear to be failing. Government schools are of lower quality than private schools. Subsidized power isbeing supplied not to the rural areas that need it but to urban areas, hurting a well-functioning private industry. Road tolls are not spent on roads. Judges seem more interested in grabbing power than in developing laws and courts. Conclusion: A more productive role for government would be to build on the strengths of the private sector.”13

In short, most countries could use less government, but a few countries could use more of the right kind of authority. There is an optimal size and structure of government, and when it is reached, the result is, in the words of Adam Smith, “universal opulence which extends itself to the lowest ranks of the people.”14

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.

Was Benjamin Franklin an indispensable public servant, or a cunning chameleon? A believer, or a heretic? A hard-headed entrepreneur, or an opportunistic privateer? A devoted family man, or a salacious womanizer? An important scientist and inventor, or a hoaxer and self-promoter? The first civilized American, or the most dangerous man in America? Read the article below.

History of Freedom
Liberty Magazine
December 2006

Franklin and His Critics
by Mark Skousen

“Let all men know thee, but no man know thee thoroughly.” — Poor Richard’s Almanac

Was Benjamin Franklin an indispensable public servant, or a cunning chameleon? A believer, or a heretic? A hard-headed entrepreneur, or an opportunistic privateer? A devoted family man, or a sala­cious womanizer? An important scientist and inventor, or a hoaxer and self-promoter? The first civilized American, or the most dangerous man in America?

Probably, he was all of the above. But no matter where you come down on this debate, one thing is clear: Franklin’s stature has increased dramatically since his death in 1790.

A recent AOL poll ranked him after Washington as America’s most admired founder. None of the others (Jefferson, Adams, Madison) even came close. This year, the nation celebrates Franklin’s 300th birthday with fanfare: two commemorative coins by the U.S. Mint, four stamps by the U.S. Postal Service, and a national exhibit that is making its way around the country. A bevy of biographies has been published, and most of the books are laudatory. H.W. Brands identifies Franklin as “the first American . . . who is perhaps the most beloved and celebrated American of his age, or indeed of any age.”1 Michael Hart ranks him as “the most versatile genius in all of history” — the most multi-dimensional of the founders as businessman, scientist, writer, and politician.2 Joyce Chaplin identifies Franklin as one of only two scientists in the world who have achieved “international icon” status (the other is Einstein).3

Many consider Franklin the cultural father of American capitalism, because of his emphasis on self-education, industry, and thrift. And Gordon Wood argues that Franklin was second only to Washington as America’s “necessary man,” the man who single-handedly raised 34 million livres (equivalent to $14 billion in today’s money) to finance the war of the revolution. Washington won the war at home, but Franklin won the war abroad: “He was the greatest diplomat America has ever had.”4

I was privileged to be part of the Franklin celebration when, last April, I was invited to speak at the First Day Issue Ceremony in Philadelphia for the four commemorative stamps honoring Franklin as a printer, scientist, postmaster, and statesman. I’ve been an admirer of this versatile genius since reading his “Autobiography,” which is rightly regarded as America’s first “how to” self-improvement book, championing the virtues of industry, thrift, and prudence. Over the years I’ve collected dozens of other books on him, including the voluminous edition of his “Papers” compiled and edited by Yale University Press. It was while reading through the “Papers,” now approaching 38 volumes, that I came up with the idea of completing the “Autobiography.” These memoirs end abruptly in 1757, just as Franklin is about to embark on his career as an international political figure. He lived another 33 years as colonial agent, revolutionary, signer of the Declaration of Independence, America’s first ambassador, and delegate to the Constitutional Convention. In going over the “Papers,” I realized that it might be possible to gather together the autobiographical passages from his letters, journals, and essays, and complete his story, all in his own words. The result was “The Compleated Autobiography by Benjamin Franklin,” published this year by Regnery.

Yet I have sometimes wondered whether my admiration of Franklin was misplaced, and how, if at all, his ideas could be defended.

Among libertarians, there is a great deal of animosity toward wise ol’ Dr. Franklin. Just last month, for example, I came across an article called “Benjamin Franklin Was All Wet on Economics,” written by a college student for the Mises Institute website. The author focused on Franklin’s labor theory of value and his support of paper money.

No doubt the philosopher was seriously misguided on a number of important issues. Yet, if we are willing to take a broad view of his economics, a case can be made that even in this area he was a sound thinker. Actively involved in the creation of the three major documents of American government (the Declaration of Independence, the Articles of Confederation, and the Constitution), Franklin was an advocate of a limited central government. “A virtuous and laborious people may be cheaply governed,” he declared. He was a disciple of Adam Smith and free trade, and was enamored of the laissez-faire policies recommended by the French physiocrats (Turgot, Condorcet, et al.). His are the admirable sayings: “Laissez nous faire: Let us alone. . . . Pas trop gouverner: Not to govern too strictly.”5

Franklin was certainly no Keynesian. He defended the rich and worried about how incentives for the poor would be affected if the state adopted a welfare system. He was no Malthusian, either. He opposed a minimum wage law and wrote in favor of free immigration and fast population growth. He rejected any form of state religion or mandatory religious oaths and demanded that slavery be abolished in the new nation — in 1789. And he learned by sad experience (through the careers of his son and grandson) that public service is less rewarding than private business. His ideas on foreign policy anticipated George Washington’s farewell address by nearly 20 years. In 1778 he stipulated that “the system of America is to have commerce with all, and war with none.”6

Granted, he was no anarchist. In economics, he did favor paper money and a “real bills” doctrine of expanding the money supply beyond specie, though “no more than commerce requires.”7 He believed that easy money would facilitate trade. During the American revolution he justified the runaway inflation of paper “Continentals” as an indirect way for all Americans to pay for the war, although he begged Congress to improve the creditworthiness of the United States by 2006

paying interest in hard currency. He was a strong supporter of Hamiltonian-style central banking and an investor in the Bank of North America. His likeness on the $100 bill — the highest denomination of an irredeemable American paper currency — would greatly please his vanity.

He argued that the state should be actively engaged in the free education of youth and other public services, and in dispelling the ignorance represented by public fads and superstitions. From several sources, it appears that he was in league with Jefferson in emphasizing “life, liberty, and the pursuit of happiness” as the goal of government, downplaying John Locke’s inalienable right to property. Property, he wrote, is purely a “creature of society” and can be legitimately taxed to pay for civil society. He was quite critical of Americans who were unwilling to pay their share of society’s “dues.”8

None of this is likely to endear Franklin to libertarian theorists, and it hasn’t. Among them, the leading detractor has been Murray Rothbard, who in his four-volume history “Conceived in Liberty” describes Franklin as “perhaps the most over inflated [leader] of the entire colonial period in America.” At every turn in the history of the American revolution, Rothbard deprecates Franklin’s achievements and accentuates his peccadilloes. He finds in the sly Dr. Franklin “a sinister, subversive devil . . . an opportunist par excellence . . . cunning . . . fawning . . . meddling . . . opportunistic hedonist . . . ”9

According to Rothbard, Franklin was a warmonger, a Tory imperialist, and a speculator with his “cronies” who engaged in a “pattern of plunder of the American taxpayer” during the war. His Albany Plan was far more than an innocent way to unify the nation; it was a deliberate attempt to create a “central super government.” Franklin comes off almost as badly as the “deep-dyed conservative” Washington, who is characterized as a fumbling, inept general who sought to “crush liberty and individualism” among his soldiers and impose a “statist” army.10

Rothbard would have preferred as American commander “the forgotten hero,” the “brilliant, gifted” Charles Lee, champion of “liberty and guerrilla war.” And instead of Franklin as envoy to France, Rothbard would have selected the “estimable liberal” Dr. Arthur Lee.11 Never mind the fact that other historians uniformly describe Arthur Lee as a “bilious” and “cantankerous” patriot who hated America’s French allies and accomplished little himself. Rothbard also likes Thomas Paine, promoter extraordinaire of the American cause — while ignoring the fact that Paine’s mentor was none other than Benjamin Franklin, and that Franklin was a lifelong supporter of Paine’s ideas. What did Paine see that Rothbard couldn’t?

Rothbard never explains the way in which somehow, by July 1776, the “Tory imperialist” suddenly became the “radical revolutionary” and co-conspirator of John Adams and Thomas Jefferson. Indeed, Franklin was one of the first of the founders to call for independence. As early as 1771, he observed that the “seeds are sown of total disunion” between England and her colonies. In 1775, he drafted a resolution to Congress to dissolve “all ties of allegiance” with a country that had failed to “protect the lives and property of [its] subjects,” adding: “It has always been my opinion that it is the natural right of men to quit, when they please, the society or state, and the country in which they were born, and either join with another or form a new one as they think proper.”12Furthermore, Franklin (like Rothbard) appears to have been an advocate of natural rights: “I am a mortal enemy to arbitrary government and unlimited power. I am naturally very zealous for the rights and liberties of my country, and the least encroachment of those invaluable privileges is apt to make my blood boil.”13 No modern libertarian could have said it better. It is surprising that modern libertarians should fail to give Franklin credit for the “radical” and “libertarian” Pennsylvania Constitution written in 1776 and endorsed by him throughout his lifetime. And what about his critical role in raising military and financial aid in France? This is what we receive from Rothbard’s witty but poisoned pen: “The wily old tactician Franklin proved to be a master at the intricacies of lying, bamboozling, and intriguing that form the warp and woof of diplomacy. Moreover, the old rogue was a huge hit with the French, who saw him as the embodiment of reason, the natural man, and bonhomie.”14 Rothbard is deadly silent about Franklin’s thrill of victory and Arthur Lee’s agony of defeat when it came to fundraising for the American cause.

Unfortunately, the only biography that Rothbard recommends is Cecil B. Currey’s “Code Number 72: Ben Franklin: Patriot or Spy?”, which accuses Franklin of being a double agent for the British. (Carl Van Doren’s “Benjamin Franklin” [1938] is the most comprehensive work in the field, and quite different in its conclusions from Currey.) Currey is a tough-minded researcher but ignores the evidence that doesn’t fit his agenda. “I have not . . . pretended to write a ‘balanced’ picture of Franklin (for I have focused on his shadows).”15 Currey put together a sizeable amount of circumstantial evidence that while Franklin was ambassador to France he played both sides of the conflict. “The story involved treason, breaches of security, lackadaisical administration, privateering, misplaced truth, war profiteering, clandestine operations, spy apparatus, intrigue, double-dealing.” Today we know that Franklin and Adams were surrounded by spies, including one of their secretaries, Edward Bancroft. “A cell of British Intelligence was located at Franklin’s headquarters in France, and Benjamin Franklin — covertly perhaps, tacitly at least, and possibly deliberately — cooperated with and protected this spy cell operating out of his home in France from shortly after his arrival in that country until the end of the war.”16

It is true that Franklin loved England before he loved France. He lived in London for nearly 20 years and considered it home, more even than Philadelphia. His son William was so enamored with the British Empire that he remained a loyalist throughout the war, thus giving rise to the rumor that his father was a double agent. In France, Franklin met with British agents and listened to their offers of honors, emoluments, and bribes. He did little to hide his activities and papers from alleged spies, whether French or British. And, yes, he was identified clandestinely as “Number 72.”

But it is also clear that Franklin broke with his son and was so bitter about being deserted “in a cause where my good fame, fortune and life were all at stake” that they never reconciled. Currey is correct that the British had a code number for Franklin, but the French also had a code for him (“Prométhée,” the Greek god who brought fire from heaven). The British had code numbers for almost everyone, including Washington (“Number 206”). And British and French spies were so common that Franklin simply ignored them. Again, it’s important to look at the big picture. If indeed Franklin was playing both sides of the war, would he have worked so enthusiastically to obtain essential aid from France? If you buy Currey’s argument, you could just as easily make the argument that Arthur Lee and even John Adams were traitors, because both seemed to make every effort to insult the French and sabotage Franklin and his fundraising efforts. Practically every historian today agrees that without Franklin, the French would not have given the financial and military support necessary to win the war at Yorktown.

Nevertheless — and this demonstrates the influence of Rothbard in libertarian circles — when Gary North devoted the 1976 bicentennial edition of his “Reconstructionist” journal to a symposium on Christianity and the American Revolution, he chose only one historian to write “The Franklin Legend,” Cecil Currey. Today Currey’s book is out of print, and for good reason. Franklin clearly switched from loving the British Isles to hating the Crown and its ministers. He considered the War for Independence “the greatest revolution the world has ever seen” and a “miracle in human affairs.”17

But let’s consider some other historians’ attacks on Franklin. Tom Tucker wrote an entire book (“Bolt of Fate” [2003]) contending that Franklin’s famous kite experiment was faked, that it was one of Franklin’s hoaxes. His evidence? Franklin didn’t write about the kite story for years, and the only detailed account was written by his friend Joseph Priestley, some 15 years after the event. Yet according to Priestley, Franklin dreaded the ridicule of performing an unsuccessful experiment in public, so he used his son William as his only witness — and William never denied the kite test, even after he and his father had become estranged.

Another assault on Franklin is embodied in “Runaway America” (2004), by David Waldstreicher, who argues that Franklin masked his true feelings about slavery, and that he was a slave trader and slave owner in an age of supposed freedom and equality. Here again the author ignores or downplays contrary evidence, such as the fact that in 1763 Franklin visited the Negro School of Philadelphia, which he helped establish, examined the students, and discovered “a higher opinion of the natural capacities of the black race . . . Their apprehension seems as quick, their memory as strong, and their docility in every respect equal to that of white children.”18 Franklin was never much of a slaveholder — compared, for example, to Washington or Jefferson — and the few slaves he held as servants were freed in London before he returned to America in 1775. Two years before he died, he became president of the Philadelphia Society for the Abolition of Slavery and helped introduce legislation in Congress to abolish slavery once and for all. Franklin has been blamed for abandoning his devoted wife, Deborah, and becoming a lecher in London and France. There is plenty of evidence to support a charge like this. He wrote several risqué bagatelles, such as “Advice to a Young Man on the Choice of a Mistress,” and “The Speech of Miss Polly Baker,” which defends a single mother who was prosecuted for the fifth time for having an illegitimate child. Franklin himself had a “natural” son, William. In his “Autobiography” he confessed that, as a young man, his “hard-to-govern’d passion of youth” led him into “intrigues with low women.” (This paragraph was censored in grade schools until the early 20th century, when, presumably, it was realized that children no longer understood what this usage of “intrigues” might mean.) Carl Van Doren says that “he went to women hungrily, secretly, and briefly.”19

In 1730, Franklin entered into a common-law marriage with Deborah Read, whose husband abandoned her without a divorce. Together they raised William and had two children of their own: Franky, who died of smallpox at age four, and Sally, who cared for Franklin in his final years. Despite all the rumors, there is no hard evidence that Franklin sired any other illegitimate children. He settled into a faithful relationship with his wife in Philadelphia and focused on his printing business.

The relationship changed in the last 18 years of their marriage, when they lived separate lives. But he did not by any means abandon her. When he was made a colonial agent in 1757 and moved to London, he begged her to come with him, but she had a mortal fear of crossing the ocean and repeatedly refused. “I have a thousand times wished my wife with me, and my little Sally,” he wrote from London. Over time, they drifted apart emotionally, corresponding largely about mundane household matters and local gossip. Claude-Anne Lopez, a Franklin expert, notes that “it strains credulity to imagine that so vigorous a man was never unfaithful in all that time.”20

Deborah died in late 1774, when Franklin was still in London. Two years later, as a widower, he was back in Europe. The French lionized the American ambassador, who developed a considerable friendship and correspondence with several beautiful French women, including Madame Brillon, who was an artist and musician, and the wife of a diplomat. Their relationship supposedly never went beyond friendship, although Franklin admitted to a friend, “I sometimes suspected my heart of wanting to go further.”21 Their letters are intimate and flirtatious, and fun to read. (See chapter 6 of “The Compleated Autobiography.”) He considered flirtation a legitimate “amusement” and refuge from a grueling schedule of diplomacy. Gossip spread about him and Madame Brillon. Her husband once found them kissing; they played a game of chess in her bathroom; she sat on his lap at a dinner party attended by John and Abigail Adams, puritans who were “disgusted” by Franklin’s behavior. Jefferson observed that “in the company of women . . . he loses all power over himself and becomes almost frenzied.”22 One of his critics wrote this ditty:

Franklin, though plagued with fumbling age,

Needs nothing to excite him,

But is too ready to engage,

When younger arms invite him.23

The old doctor was 70 years of age when he arrived in France in 1776. During his long stay he suffered severely from gout and kidney stones. Sometimes he could hardly walk. It is doubtful that he fulfilled his sexual fantasies in any meaningful way. As historian Robert Middlekauff suggests, “Reading his correspondence of this period and remembering what we know of his physical condition, we might conclude that Franklin’s sex life was very much like Jane Austen’s novels — all talk and no action.”24

Franklin was often criticized by contemporary Christians for his heretical religious views. He was not a churchgoer, and had doubts about the divinity of Jesus. But he believed in God. A deist for most of his life, he supported a pragmatic religion that favored good works and charity more than simple faith and hope. And by “good works,” he said, “I mean real good works, works of kindness, charity, mercy, and public spirit; not holiday-keeping, sermon-reading or hearing, performing church ceremonies, or making long prayers, filled with flatteries and compliments, despised even by wise men, and much less capable of pleasing the Deity.”25 Franklin is justly famous for engaging in innumerable civic and charitable causes throughout his adult life — and into the afterlife, by means of his perpetual fund, established in his will, for the benefit of young tradesmen in Boston.

But to return to the heart of libertarian concerns about Franklin, it can be said that, in many ways, he was America’s first champion of free enterprise. Economists of the “Austrian” school, who have been so influential on modern libertarian thought, would be pleased with his emphasis on entrepreneurship, industry, and thrift. Eugen Böhm-Bawerk and Max Weber recognized his genius, and so did American capitalists Andrew Carnegie and Thomas Mellon, who were deeply influenced by the “Autobiography.” Franklin anticipated the incredible material and technological progress that America has made in the centuries since its founding. An incurable optimist, he was always bullish on America, and life in general. At the end of the War for Independence, he predicted, “America will, with God’s blessing, become a great and happy country.” The United States, he said, is “an immense territory, favored by nature with all advantages of climate, soil, great navigable rivers and lakes . . . [and] destined to become a great country, populous and mighty.” More importantly, he told potential immigrants that the country “affords to strangers . . . good laws, just and cheap government, with all the liberties, civil and religious, that reasonable men can wish for.” (He underlined the word “cheap.”)26

What were his politics? Franklin was opposed to a strong central executive. In his original draft of the Articles of Confederation, he proposed twelve members of the executive instead of one president, to disperse political power. He opposed public “offices of profit.” As Bernard Fay concludes, “They [Congress] were directly opposed to Franklin’s philosophical tendency, which might be summed up in this formula: the least government possible is the greatest possible good.”27

Certainly he was no social libertarian, despite his image as a libertine and free thinker. While he is famous for reading books in the nude, frequenting the salacious Hell-Fire Club in London, and flirting with French ladies in Paris, he wrote stern letters to his daughter Sally chastising her for wanting to wear the latest fashions while a war was going on, and he refused to buy his grandson Benny a gold watch while in France. He dressed plainly and constantly preached economy. He always promoted frugality and industry in both public and private life. Readers might be surprised by his attack on the growth of taverns in Philadelphia upon his return from England in 1762. Though a defender of free speech, he railed against scurrilous newspaper reports.28

There is nothing special about this side of Franklin. His distinctive contribution is not found in his lectures on the more conventional virtues but in his openness to the new, entrepreneurial, can-do spirit. He lambasted privileged public offices and aristocracies of birth, and told European immigrants that “in America, people do not inquire concerning a stranger, What is he? but What can he do?”29

He illustrated what an individual could do by doing it himself, helping to finance good causes with his own business profits. He was civil-minded early in his career, involving himself with the nation’s first fire company; the nation’s oldest property insurance company; and Philadelphia’s own hospital, library, and militia. All were created with mostly private funds. “America’s first entrepreneur may well be our finest one,” concludes John Bogle, founder of the Vanguard family of mutual funds.30

Like all the founders, he had his share of foibles. How should one weigh his mammoth achievements against his inscrutable flaws? Before you make up your mind, I suggest you spend a few days reading Franklin’s own accounts of his life. You may see a different Franklin from the man his critics and I have described.

Libertarians are not used to winning. They prefer being in the minority. They figure that if they are victorious, they must be compromising their principles. That may be what galled Murray Rothbard: Franklin was so damned successful as a scientist, businessman, and diplomat. To libertarians, it may help to know that he wasn’t always successful. He had his share — and perhaps more than his share — of enemies. Here’s his philosophy about his critics: “As to the abuses I have met with, I number them among my honors. . . . The best men have always had their share of this treatment . . . and a man has therefore some reason to be ashamed when he meets with none of it. Enemies do a man some good by fortifying his character. I call to mind what my friend good Rev. Whitefield [the famous evangelist] said to me once: ‘I read the libels writ against you, when I was in a remote province, where I could not be informed of the truth of the facts; but they rather gave me this good opinion of you, that you continued to be useful to the public: for when I am on the road, and see boys in a field at a distance, pelting a tree, though I am too far off to know what tree it is, I conclude it has fruit on it.”31

Now that’s a saying that all libertarians can appreciate.

Notes

1. H.W. Brands, “The First American: The Life and Times of Benjamin Franklin” (Doubleday, 2000), jacket.

2. Michael H. Hart, “The 100: A Ranking of the Most Influential Persons in History,” 2nd ed. (Kensington, 1992) 516–17.

3. Joyce E. Chaplin, “The First Scientific American: Benjamin Franklin and the Pursuit of Genius” (Basic Books, 2006) 1.

4. Gordon Wood, “The Americanization of Benjamin Franklin” (Penguin, 2004) 196.

5. “The Compleated Autobiography, by Benjamin Franklin,” compiled and edited by Mark Skousen (Regnery, 2006) 189, 300.

6. “Compleated Autobiography” 148.

7. “Compleated Autobiography” 357.

8. “Compleated Autobiography” 298–99.

9. Murray N. Rothbard, “Conceived in Liberty” (Arlington House, 1975) 2.64, 67, 172; 3.273; 4.358. My disagreement with Murray Rothbard on his assessment of Franklin, as well as Adam Smith, does not diminish my admiration of Rothbard’s tremendous contributions to economics, including “America’s Great Depression,” “Man, Economy, and State,” “Power and Market,” and “What Has the Government Done to Our Money?”

10. Rothbard, “Conceived in Liberty” 4.359, 4.43–44.

11. Rothbard, “Conceived in Liberty” 3.218, 4.34–35.

12. “Compleated Autobiography” 65, 120.

13. “Compleated Autobiography” 80.

14. Rothbard, “Conceived in Liberty” 4.232–33.

15. Cecil B. Currey, “The Franklin Legend,” Journal of Christian Recon­struction (Summer 1976) 143.

16. Cecil B. Currey, “Code Number 72: Ben Franklin, Patriot or Spy?” (Prentice Hall, 1972) 12, 266.

17. “Compleated Autobiography” 130–32.

18. “Compleated Autobiography” 26. Waldstreicher ignores this passage.

19. Carl Van Doren, “Benjamin Franklin” (Viking Press, 1938) 91.

20. Claude-Anne Lopez and Eugenia W. Herbert, “The Private Franklin: The Man and His Family” (Norton, 1975) 26–27.

21. “Compleated Autobiography” 162.

22. Quoted in “Benjamin Franklin: The Autobiography and Other Writ­ings,” ed. Kenneth Silverman (Penguin, 1986) 206.

23. Hugh Williamson, “What Is Sauce for a Goose Is Also Sauce for a Gan­der” (1764).

24. Robert Middlekauff, “Benjamin Franklin and His Enemies” (University of California Press, 1996) 115–16.

25. “Compleated Autobiography” 387.

26. “Compleated Autobiography” 290.

27. Bernard Fay, “Franklin, Apostle of Modern Times” (Little, Brown, 1929) 504.

28. Some libertarians are critical of Franklin for opposing the notorious “outlaw” John Wilkes, a defender of free speech who was imprisoned for libeling the king of England in 1768, and the “drunken mad mobs” supporting “Wilkes and Liberty.” This is another case of Franklin’s so­cial conservatism before the American Revolution. Interestingly, after the war, Wilkes’ sister and mother came over to America and stayed at Franklin’s home in Philadelphia. See “The Compleated Autobiogra­phy” 59–62, 349.

29. “Compleated Autobiography” 292.

30. John Bogle, Introduction, “Benjamin Franklin: America’s First Entrepre­neur,” by Blaine McCormick (Dallas: Entrepreneurial Press, 2005).

31. “Compleated Autobiography” 44–45.

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.

Published in January, 2001, issue of Liberty Magazine:

THE TROUBLED ECONOMICS OF AYN RAND
by Mark Skousen

“No creator was prompted by a desire to serve his brothers…”

–Howard Roark, The Fountainhead (1994:710)

Ayn Rand, author of the celebrated Capitalism: The Unknown Idea, is honored almost universally as the fountainhead of market capitalism, an impassioned proponent of reason, individualism, and rational self-interest.

There is much to praise in Ayn Rand’s novels and writings, especially her uncompromising defense of freedom and her unrelenting denunciations of collectivism. No one has written more persuasively about property rights, the right of an individual to safeguard his wealth and property from the agents of coercion. Her novels The Fountainhead and Atlas Shrugged have probably done more than any other works of fiction to vindicate and honor the glories of “making money.”

Yet in reading her novels and writings, I was surprised to learn that her work often portrays a strange, distorted view of the money-making process. In a perverse way, her model of business may even give aid to the cause of the enemies of liberty–by giving capitalism a bad name.

Consumer Sovereign in The Fountainhead

Take, for example, Howard Roark’s philosophy toward his architectural work in The Fountainhead. In the beginning, Roark indicates that he chose architecture as a profession because he loves his work. He seeks to set the highest standards of excellence. He tries to be creative. All of these traits are to be admired.

But then Roark denies a basic tenet of sound economics–the principle of consumer sovereignty. When the dean of the architectural school tells Roark, “Your only purpose is to serve him [the client],” Roark objects. “I don’t intend to build in order to serve or help anyone. I don’t intend to build in order to have clients. I intend to have clients in order to build.” (1994:14) This bizarre, almost anti-social, attitude sounds like a perverse rending of Say’s Law, “supply creates its own demand,” or the statement made in the film Field of Dreams, “If you build it, they will come.” But supply only creates demand if the supply can be sold to customers; and people come to a new baseball field only if they want to play or watch. Supply must satisfy demand, or it becomes a wasted resource.

Now I have no problem with an architect who tries to set new standards of design, just as I would applaud entrepreneurs who seek to invent a new product or design a new process. Such actions are often highly risky and financially dangerous, and are often met with derision at first. Ayn Rand rightly points out that they are a major cause of economic progress. History is full of examples of “men who took first steps down new roads armed with nothing but their own vision.” (Rand 1994:710)

But the goal of all rational entrepreneurship must be to satisfy the needs of consumers, not to ignore them! Discovering and fulfilling the needs of customers is the essence of market capitalism. Imagine how far a TV manufacturer would get if he decides to build TVs that only tune into his five favorite channels, the consumer be damned. It wouldn’t be long before he would be on the road to bankruptcy.

Rand Denies the Essence of Business Enterprise

In short, Howard Roark’s conviction is irrational and contradicts a basic premise of Rand’s Objectivist philosophy. For Roark, A is not A. He wants A to be B–his B, not his customer’s A. Thus, Ayn Rand’s ideal man misconceives the very nature and logic of capitalism–to fulfill the needs of customers and thereby advance the general welfare. As Ludwig von Mises writes in his book, The Anti-Capitalist Mentality, “The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way. Wealth can be acquired only by serving the consumers.” (1972:2) Apparently Howard Roark doesn’t believe in consumer sovereignty. As he states in his final court defense, “An architect needs clients, but he dos not subordinate his work to their wishes.” (1994:714) Really?

Talk to any architects about The Fountainhead. Yes, they will tell you that there are a few self-centered, highly-egotistical, elitist Howard-Roark types in architecture who can get away with making monuments to their egos at their client’s expense. Frank Lloyd Wright, an architect Rand deeply admired, may be one of them. But the book’s thesis is entirely unrealistic in the everyday world of commercial building. Occasionally a client values more the notoriety of living in a home built by a signature designer than getting what he really wants, but not many. Almost all of Rand’s scenarios are extreme and idealistic, a strategy that works to sell novels, but does violence to all sense of reality. Normally architects work closely with the client and make numerous changes in order to fit the client’s needs.

Compromise is a necessary element to a successful completion of a project. And this consumer-oriented approach is true in all areas of capitalistic production. An architect or producer of any product who acts like Roark in The Fountainhead is likely to be out of work. Roark’s fate is even worse–he is guilty of his crime, blowing up a much-needed housing project rather than permit the slightest alteration in his designs. The jury may have exonerated him, but the market punishes his kind of behavior.

Ironically, Ayn Rand herself compromised in the making of the movie “The Fountainhead.” She insisted that only Frank Lloyd Wright would design the models for the film, but her demand was later rejected due to Wright’s outrageous fee. In the end, the models were done by a studio set designer. Rand called them “horrible” and “embarrassingly bad.” But the film was made and released. (Branden 1986:209) Oh, the agonies of dealing with other people!

The fact that Howard Roark represents the ideal man in Ayn Rand’s novel and the fact that she denigrates other characters in The Fountainhead who “compromise” with client’s demands suggest that Ayn Rand is philosophically in denial when it comes to comprehending the nature of business. She denies the very raison d’etre of capitalism–consumer sovereignty.

Assault on the Common Man

In this sense, Ayn Rand is not much different from other artists and intellectuals. Artists often bash the capitalist system. They hate the idea of subjecting their talents to crass commercialism and the crude tastes of the common man. Yet Ludwig von Mises chastised this snobbish attitude in The Anti-Capitalist Mentality: “The judgment about the merits of a work of art is entirely subjective. Some people praise what others disdain. There is no yardstick to measure the aesthetic worth of a poem or of a building.” (1972:75) Mises adds that only through economic progress — the creation of surplus wealth — has the level of taste and art been raised to meet the criteria of the more sophisticated artist. “When modern industry began to provide the masses with the paraphernalia of a better life, their main concern was to produce as cheaply as possible without any regard to aesthetic values. Later, when the progress of capitalism had raised the masses’ standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty.” (1972:80)

The Flaw in Atlas Shrugged

This brings us to the fatal flaw in Atlas Shrugged. Rand’s basic plot violates the whole rationale of business’s existence–constantly working within the system to find ways to make money. There will never be a Galt’s Gulch, where the world’s greatest entrepreneurs isolated themselves from the rest of the world. There will never be enough principled business leaders to fight the system. The business world does not typically attract ideologues and true believers; it attracts people primarily interested in money making by whatever means. They wouldn’t give John Galt the time of day. As Mises states, “There is little social intercourse between the successful businessmen and the nation’s eminent authors, artists and scientists…Most of the ’socialites’ are not interested in books and ideas.” (Mises 1972:19) Ayn Rand admired Mises, but apparently she didn’t learn much from his writings. Pity.

Altruism Vs. Selfishness

Howard Roark’s diatribe against consumer sovereignty is undoubtedly a way to introduce Rand’s philosophy of selfishness. There are two extremes here: The philosophy of those who serve and satisfy themselves only, and the philosophy of those who believe that they should strive at all times to serve and sacrifice for others. Rand labels the latter “altruism.” In The Virtue of Selfishness, she opines, “Altruism declares that any action taken for the benefit of others is good, and any action taken for one’s own benefit is evil.” (Rand 1999:80) Obviously, Rand protests against altruism and espouses the opposite extreme. As Francisco d’Anconias tells Dagny Taggart in Atlas Shrugged: “Don’t consider our interests or our desires. You have no duty to anyone but yourself.” (Rand 1992:802) No sacrifice, no altruism, just pure egotistical selfishness.

The Adam Smith Solution

The founder of modern economics, Adam Smith, takes a different approach by trying to incorporate both concepts in his “system of natural liberty.” Smith and Rand are in agreement about the universal benefits of a free capitalistic society. But Smith rejects Rand’s vision of selfish independence. He teaches that there are two driving forces behind man’s actions–in his Theory of Moral Sentiments, he identifies the first as “sympathy” or “benevolence” toward others in society, while in his Wealth of Nations, he focuses on the second, “self interest,” the right to pursue one’s own business. Smith believes that as the market economy develops and individuals move away from their community, “self interest” becomes a more dominant force than “sympathy.” But both are essential to achieve “universal opulence.” (Smith 1965:11)

Adam Smith is famous for making a statement that sounds Randian in tone: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” (Smith 1965:14) But this statement is often taken out of context. Smith’s self-interest never reaches the Randian selfishness that ignores the interest of others. On the contrary, in Smith’s mind, an individual’s goals cannot be fully achieved in business unless he appeals to the self-interest of others. Smith says so in the very next sentence: “We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” (Ibid.) Moreover, he writes earlier on the same page, “He will be more likely to prevail if he can interest their self-love in his favour….Give me that which I want, and you shall have this which you want, is the mean of every such offer.” (Ibid.) Smith’s theme echoes his Christian heritage, particularly the golden rule, “do unto others as you would have them do unto you.” (See Matthew 7:12)

Perhaps a true capitalist spirit can best be summed up in the Christian commandment, “Love thy neighbor as thyself.” (Matthew 22:39) Adam Smith and Ludwig von Mises would undoubtedly agree with this creed, but apparently Howard Roark and John Galt — and their creator — would agree with only half. And that’s a great tragedy for the greatest novelist of the 20th century.

References

* Branden, Barbara. 1986. The Passion of Ayn Rand. Doubleday.
* Mises, Ludwig von. 1972 [1956]. The Anti-Capitalist Mentality. Libertarian Press.
* Rand, Ayn. 1992 [1957]. Atlas Shrugged. Dutton Books.
* Rand, Ayn. 1994 [1943]. The Fountainhead. Penguin Books.
* Rand, Ayn. 1999. The Ayn Rand Reader, ed. by Gary Hull and Leonard Peikoff. Penguin Books.
* Smith, Adam. 1965 [1776]. The Wealth of Nations. Modern Library.

Memoir — LIBERTY

By Mark Skousen

The Island of June

If you’re feeling the need of real relaxation,
In a climate that’s lazy, a perfect vacation,
Away from the snow and the slush that annoys you,
Away from the worries and cares that destroy you,
Try Nassau, the Island of June.

There are bluest of seas at your door to enthral you,
With no sudden temperature changes to gall you,
And laziness comes on you, quietly stealing
Along with a cheerful, a ‘world’s all right’ feeling,
In Nassau, the Island of June.
-’A Song of Nassau” by Fred Winslow Rust

I am near the end of a two-year adventure in the Bahamas, and I am finally getting a chance to put down my thoughts about this marvelous “island of June”…But before I get into that, will you excuse me? It’s Saturday in late November, and the sky is a cloudless blue and the temperature is 80 degrees, and my family is beckoning me to take them to Cabbage Beach on Paradise Island. Be back in a couple of hours…

Well, I’m back. The turquoise blue water and white sand are beautiful and refreshing. After living in the Bahamas for two years (1984-85), I have gotten tired of a few things, but I have never tired of the sparkling beauty of blue skies, warm breeze and turquoise waters calling me when I awake. It really makes the day pass quickly.

Most Frequently Asked Questions

As a financial writer, perhaps the most frequent question I have heard for the past two years is, “Why did you move to the Bahamas?”

The answer is not as simple as saying, “To relax on a boat every day,” to quote an acquaintance from England who moved to the Bahamas some time ago. That’s not what I want out of life anyway. I didn’t move to run away from work and responsibility, although I’ve been accused of that. If life was always carefree relaxation, how could you really enjoy relaxing? You can’t rest if all you do is rest every day.

Bertrand Russell wrote a little essay called “In Praise of Idleness,” in which he says that the “morality of work is the morality of slaves, and the modern world has no need of slavery.” There is some virtue to his vice. I think he really means to be in praise of “leisure,” for the “wise use of leisure…is a product of civilization and education…The modern man thinks that everything ought to be done for the sake of something else, and never for its own sake.” If you break out of the workaholic syndrome, you can achieve “happiness and joy of life, instead of frayed nerves, weariness, and dyspepsia.”

You can rejuvenate your life if you want to. I’m convinced that there is a deep clandestine desire inside everyone to break out of the day-to-day routine of modern society, the nine to five job, the same old television shows and football games, the same friends, relatives and acquaintances. Something is missing in your life, and you feel it. Most people never do anything about it, but it remains a mystique.

My wife Jo Ann and I decided to make a change, hoping for the better. We had lived in Washington, D. C. for a dozen years, and we were tired of the same old routines. It’s hard to put my finger on the problem. But we felt we were in the rut of city living, the rut people get into no matter what their career. Looking back, I think one of the problems was Washington itself–I don’t think it’s a real city. It’s just a political city, like Brasilia. Financial colleague Doug Casey calls Washington the “Death Star.” He too has left Washington.

We thought that it was extremely important for us and our children to experience new cultures and peoples. Having lived outside the U.S. before, I had come to the realization that Americans often live sheltered and provincial lives, with little exposure to other languages, musical forms, and philosophies. We also wanted to move for reasons of health. Our 4-year old daughter, Lee Ann, had caught pneumonia the past year during one of those bitter cold winters in the East, and our youngest son, Todd, was chronically ill, partly because of the cold. We wanted to move to a warmer climate.

Financial and Tax Advantages

There was of course a financial motivation. I wanted to give an international flavor to my financial writings, and I knew that the best way to achieve it was by moving abroad. Nassau, the capital of the Bahamas, is a major financial center, with hundreds of international banks.

What about taxes? They, too, were an important consideration, but I certainly didn’t leave the country because I had to. The tax burden was becoming a real drain on me, as it is for every financially successful American. Taxes were running (ruining?) my life. It seemed that no matter what financial decision I made, whether buying a new home or investing in the stock market or some new venture, the overriding concern was the tax implications. By Christmas-time every year I would have spent my last dime on tax shelters. I was always broke by the end of the year. I’m sure you know the feeling.

Then, I started realizing that I was digging a hole that was getting deeper and deeper. I found myself writing checks this year for last year’s pension contributions or last year’s income taxes! I figured that sooner or later it was going to catch up with me. And most of the tax shelters I had invested in turned sour–they were far riskier than I had bargained for. Putting more money down the tax shelter rathole wasn’t the answer. Working longer hours, being more “productive,” and therefore earning more money was one solution, but I could only determine that it would result in bad health, a workaholic attitude, and a detrimental family life.

Fortunately Congress came to the rescue. In 1980, it passed enlightened and long-overdue tax relief for Americans working abroad. It exempted the first $80,000 in earned income from Federal income taxes and permitted further deductions for housing expenses. This still meant filing U.S. tax forms, but at least expatriates could be free from most U.S. taxes, unless they earned more than $80,000 (the exemption was reduced to $70,000 in 1986). This is not to say that Americans living abroad can live “tax free.” Not at all. They are still subject to foreign levies, which are sometimes worse than those of the U.S. That was the primary reason for the legislation in the first place, to avoid “double taxation.

The Bahamas offered an intriguing alternative. They have no income tax at all or any tax on investments. This is especially advantageous to foreigners, because it means they have no disincentives to make more money. In fact, the British, Canadians, Germans and other nationalities I met there not only don’t pay any income tax to the Bahamas or their native land, but also don’t have to file any tax forms in their home country. They had complete financial freedom! Only Americans are subject to taxation (above $70,000 a year) and filing based on their worldwide income. I looked with great envy upon my fellow expatriates in the Bahamas.

This is not to say that nobody pays any taxes at all in the Bahamas. Far from it–there are huge import duties (averaging 42%), making the cost of living there at least 50% higher than in the U.S. or Europe. Overall, I would say that I saved some money, but it would be grossly inaccurate to say that I lived “tax free” in the Bahamas. From a financial point of view, I wouldn’t recommend that people move to the Bahamas unless they can make at least $50,000 a year in earned income. (And it has to be “earned” income in order to qualify–you have to be working abroad, not retired and living on your investments and “unearned” income. Needless to say, I don’t agree with the odd and wrong-headed distinction between “earned” and “unearned” income. Obviously, congressmen making this idiotic distinction have no idea of the work involved in earning “unearned” income.)

After realizing the financial advantages of working abroad, I was surprised not to see more Americans living in the Bahamas, especially writers, who don’t need a work permit. The Americans I did meet usually worked for a bank or U.S. company. I also met a fair share of tax exiles, who were there because they couldn’t go back to the U.S. without facing criminal or tax fraud charges.

Nassau, the capital city of the Bahamas, has a population of nearly 200,000. Its climate is practically ideal year round, except perhaps in the summer when it’s too hot and humid. It is a major financial center, with many Swiss, Canadian and British banks downtown. People from Canada, Britain, and the United States come to live there. The school for our children appeared to be excellent. The airport has a half dozen flights daily to Miami, or to other destinations–New York, Atlanta, Chicago, or London. Within half an hour, I could be in Miami, thence taking off to Los Angeles, or some other destination.

We considered several locations before we decided on the Bahamas. Canada was intriguing and culturally attractive, but its weather was worse than Washington’s and its taxes perhaps more burdensome. Although many Americans had chosen Mexico in the past because of its low cost of living and ideal climate, it was out of the question because of safety, both personal and financial.

We strongly considered England as a home base. London is the greatest city in the world, with its cultural, social, financial and historical background. With proper planning, British income taxes could be avoided. If it weren’t for England’s poor weather and the long distance from the United States, we probably would have moved there.

We finally chose the Bahamas.

New Year’s Eve Arrival!

We arrived in Nassau on December 31, 1983. I’ve never been more welcomed to a new home in my entire life. When we arrived at the Nassau airport, we were escorted to our newly rented house by Mike Lightbourn, our real estate agent and one of the finest people I have met. He loaned us his second car for two weeks while we got settled. Within a matter of minutes of arriving at our new home, we were greeted by two Americans who knew we were coming. Then we were invited to have dinner by some other newly found friends. In fact, that week we must have had a half-dozen invitations for dinner.

At 3 a.m. on the first night, we went downtown to view the famous annual New Year’s “Junkanoo” celebration. We saw hundreds of black Bahamians dressed up in colorful costumes dancing to the heavy beat of “Goombay” and “Reggae” music. It’s similar to Mardi Gras in New Orleans or Rio, except that it occurs on the mornings of Christmas and New Year’s, the only two days of the year that the Bahamian slaves were allowed to take holidays. The festival lasts for hours, but we stayed for about 90 minutes.

Relaxing in the sun and walking along the sandy beaches were almost heaven. It was an incredible feeling to know that this new warmth was ours, not for a week, as with most American vacationers, but for months, or years.

Our home, called Far Cry, was a refreshing change. Everyone in the family found it exciting. It was an estate on the beach with a large old house, a guest cottage, and gardens and fence surrounding. The main house was an old Bahamian-style two-story home. Each room was spacious and had high ceilings. The house was right on the seashore, so the breeze was constantly blowing and kept the place cool. Each room had a ceiling fan, which we ran during the day and at night when sleeping. We were concerned at first when we found out it didn’t have air conditioning, but we soon discovered that we didn’t need it, as long as the breeze and fans were going. The only time we felt we needed air conditioning was when the electricity went off (which happened all too often) or when we were in the car (which fortunately was air-conditioned).

The main house upstairs had four large bedrooms and a spacious balcony overlooking the sea. Jo Ann and I spent many hours on the balcony, together or separately, watching the sailboats and the moods of the sea and the clouds above. I bought a hammock when I was in Costa Rica and set it up on the balcony–the kids liked it, and Jo Ann used to read books while swinging in it.

Downstairs, there were a large living room and dining room, and an old-fashioned kitchen (too old fashioned for Jo Ann’s taste–no dishwasher, no electric disposal, etc.).

The living room looked out onto the beach and the dock. The outside of the house was decorated with palm trees and fruit trees (including bananas that taste better than you will ever taste in the States, and a special kind of cherry tree that was a natural treat throughout the year). The gardens bore a wide variety of tropical flowers, and dozens of harmless lizards that entertained the kids for hours. Our Haitian gardener did a marvelous job (almost all the gardeners and maids on the island are illegal immigrants who are generally known to be better workers than the Bahamians).

We had a small but adequate swimming pool–so refreshing and alluring that we must have spent hours poolside throughout the day. We were at first afraid of having a pool because Todd was not yet two and couldn’t swim, but after a few months, it became clear to us that the Bahamas would be only half the fun if you didn’t have a cool refreshing pool. Todd was in danger twice, once when he fell into the pool and once when he fell off the dock into the ocean, but both times we were close enough at hand to save him. My only recurring nightmare was the possibility of Todd somehow drowning. (Since then he has become a good swimmer.)

In addition to the main house, we had a guest cottage, fully furnished with two bedrooms, a kitchen, maid’s quarters, and a two-car garage. We used it for company and for my office. The guesthouse also had a nice view of both the ocean and the swimming pool, so I could write, read and research and still take a peek at the beauty around me. It was the perfect set-up for the creative writer as long as you didn’t feel like working! Leisure was at my fingertips, and I found myself succumbing to the whim of jumping into my swimming suit (actually most of the time I wore my swimming suit to the office!) and going out sailing or engaging in some other aquatic endeavor.

One Day in the Bahamas

To give you an idea of how I enjoyed living in the Bahamas, I thought I would describe a typical challenging day in the Bahamas:
8:00 — arise, take kids to school
9:00 — exercise, such as basketball, tennis, or running, following by a swim in the pool or ocean.
10:00 — breakfast on the beach terrace with Jo Ann
11:00 — go sailing
12:00 — go downtown and pick up mail, newspapers
1:00 — lunch at poolside with Jo Ann
2:00 – open mail, read newspapers, take nap
3:00 — write newsletter
4:00 — pick up kids from school, play with children
5:00 — call broker, write letters, make telephone calls
6:00 — dinner with family in dining room
7:00 — play cards or other games with family or friends, or rehearse play
8:00 — put children to bed
9:00 — free time to read a book, go to a movie, dancing or to the casino
10:00 — retire exhausted after a rough day
I guess I’m being a bit flippant, though Jo Ann would probably suggest there’s more truth in it than error. One man’s relaxation is another man’s laziness.

Be that as it may, I was able to produce some things: I wrote thirty issues of my newsletter, a 150-page biography of my father, a major updating of one of my books, and a dozen articles for other publications. I also made over a hundred speeches in the United States and around the world, and I wrote hundreds of personal letters. I also appeared, along with other members of our family, in two musical productions for the Nassau Operatic Society. I may give the appearance of leisure, but appearances can be deceiving!

No Television

Before we came to the Bahamas, we decided that we were going to enjoy the benefits of outdoor living and the relaxed atmosphere of the islands. One of the first things we decided was not to have a television. Television is not only a mindless diversion that minimizes physical and mental activity, but also a bad influence on adults as well as children. We left our TV at home, with no regrets.

When something interesting was to appear on TV–the World Series or a special show–we would go on a social outing and visit friends (like Mike Lightbourn’s family) who had a set. It made television much more enjoyable. The Bahamians, of course, are hooked on TV like everyone else, although the national station, channel 13, is awful stuff. You can get the U.S. stations from Miami on a clear day, but most Bahamians buy satellite dishes to catch the hundreds of programs in the States. For a time, it was tempting to get a satellite dish, but I believe you can waste the rest of your life watching other people do exciting things–I wanted to do these things myself and make my own contribution to life.

But you can’t deny children something without offering a good substitute. Fortunately, Far Cry provided tremendous diversions, and the kids often went exploring along the dock, the seashore and a neighboring island they called “Narnia.” We also became avid bookworms. The selection of books available in the Bahamas is not good. I must have bought hundreds of fiction and non-fiction books, usually in the States when I was traveling. Jo Ann would also buy books for herself and the children. The children devoured them at incredible speed. All of us found our interest in reading greatly heightened by the lack of television. I don’t think our “no TV” plan would have worked if we hadn’t had a decent substitute. We hungered for good novels and history and for up-to-date information.

There were quite a few books left in the house when we arrived, but we didn’t find any we wanted to read. Curiously, we found three books right next to each other: The Joy of Sex, then Open Marriage, and finally, Creative Divorce. An appropriate order, we thought.

I thoroughly enjoyed the most famous Bahamian novel, Winds from the Carolinas, by Robert Wilder, a highly thought-provoking story. I recommend that you pick up a copy if you want a novel to read while lounging on the beach in the Bahamas.

My attitude regarding sports changed. I was no longer comfortable with sitting down for several hours and watching a game. I used to spend hours at home watching baseball, football or basketball. But now I would rather be out playing the game myself.

The Bahamas, like most tropical paradises, is conducive to year-around sports activity. I tried a variety of sports to keep in physical shape. I participated in swimming, golf, tennis, water skiing, fishing, skin-diving, parasailing, basketball, softball, soccer, and weightlifting. I played basketball more than anything else. I improved quite a bit, and used to play with some Bahamians at St. Andrews; I was once asked to join the team as the only white player, but my travel schedule kept me from joining. And for the life of me, I couldn’t understand what the coach was saying. Black Bahamians speak English, but the accent is so strong that sometimes it’s difficult to understand.

To keep in shape, I prefer team games rather than individual activity. Rugby and squash are popular in Nassau, but unfamiliar to me, and rugby looked downright dangerous. Many foreigners are runners, but the roads in Nassau are narrow and threatening (I’ve seen runners hit by cars). I would rather run up and down an outdoor basketball court. Sports facilities are antiquated, to say the least. But you can find what you’re looking for if you really want to.

I took up sailing. I bought a used boat–a Force 5 single sailboat built by AMF, a vessel not much larger than a Sunfish but much speedier. Jo Ann and I spent hours out sailing in it two or three times a week–the convenience of having a boat that could be in the water in five minutes made it all worthwhile. (I know millionaires who own big boats, but because of lack of time and convenience, hardly ever use them.) I never became expert in sailing, but I learned to feel the hum of the hull, the warm breeze, the hot sun, and the cool water as I dipped down into the sea and pulled at the rig. I don’t see how others can pass up the small sailboat in favor of the large yachts–there’s such a thrill when you’re sailing so close to the sea. Now that I’m moving away, I often feel the urge to return to the sea on a small sailboat and sail away…

Slow Down, You Move Too Fast

One of the most important lessons I learned in the Bahamas was to enjoy the present. I don’t think I could have I learned the value of true relaxation in Washington, D. C., or any other busy metropolis. It’s so easy to get caught up in events, people and places to go–it’s all part of the business ethic. You can’t enjoy the “now,” you have no time to unwind, you have to look to the future, and what happens next.

We had a number of friends visit us. One of Jo Ann’s friends brought her husband down from Washington. He was constantly on the go–he couldn’t just sit there and relax, play a game with us, read a book, or put his feet in the ocean. He had to talk business; he had to make a deal. Finally, after one night, he contacted someone at a local hotel and took off. I think he cut his “vacation” short and headed home. Needless to say, the Bahamas wasn’t his style. But I wouldn’t be surprised if this man died an early death. I suppose his motto was, “Life is too short–I don’t have time to relax.

Then there are those who boast, “I work hard and I play hard.” These are the super-competitive types. Whether it’s business or a game, it’s push, push, push, and win, win, win. They can’t relax and just let someone else win. No, they have to do their best every time. I had the same problem, and believe me, it’s difficult to overcome. But the Bahamas set the stage for me.

Some famous people have moved to the Bahamas. The “mutual fund king,” John Templeton, lives there. I had a chance to meet with him for several hours, and he is still very sharp, despite his age (in the seventies). He lives modestly. He told me that he and his wife moved to the Bahamas in the mid-1960s, and his investment record actually improved because he was able to see investment trends more clearly by being away from New York and other financial centers. I think my own investment record improved as well–during 1984-85, I turned bullish on the stock market when many analysts and colleagues were timid, and I was also bearish on gold while many gold bugs were bullish.

We also met Arthur Hailey (author of Hotel, Airport, etc.) Unfortunately, the meeting was largely superficial. We learned the lesson that Ernest Hemingway taught, “Never get to know the author of your favorite books.”

Like most of the rich, Templeton and Hailey live on Lyford Cay on the western end of the island. We took a look at it when we first arrived but decided against it because it was too far away from the children’s school and city activity. We didn’t want to be a part of a millionaires’ retirement haven, uninvolved in the community.

Easy Living: for Whom?

Jo Ann, I suppose, would disagree with the title of this little essay. “Easy Living for Whom?” she would ask. I think I started relying too heavily on Jo Ann to do all the domestic chores. She was doing most of the hard work while I was basking in the sun. By the summer of 1984, she had had enough of my “relaxing,” and let me know it. I think it had a beneficial effect on our relationship–it became more of a partnership.

Jo Ann had some problems adjusting to the Bahamas. Sure, they spoke the same language, but not necessarily the same social language. It takes time to get involved with friends and acquaintances, especially when I didn’t have a regular salaried job with a local company. Gradually, over two years, we developed friendships, but it was tough initially. Mike Lightbourn helped by inviting us to some family events, and the local church helped out. We also became friends with the U.S. ambassador and his wife, Mr. & Mrs. Lev Dobriansky. After a year, we were being invited to many social events in the Bahamas.

Jo Ann had trouble writing her financial newsletter, Jo Ann Skousen’s Money Letter for Women. I confess it was mostly my idea to get her to write it, and that was part of the problem. It was more my field than hers. She felt she was always getting involved in my world, but I wasn’t getting involved in her world. Her first loves are music, dance and fiction–far from the world of Wall Street! I had shown some interest in her areas, but not enough.

That was another thing that changed in the summer of 1984. I became involved in many of her interests. I took ballroom dancing lessons in Miami (they weren’t available in Nassau), and we went dancing many times, especially when we traveled together to investment seminars. She has a natural talent for dancing, having danced since a teenager, while I struggled with my steps. I also became a member of the Nassau Operatic Society and acted in two plays, Annie and The Music Man. Jo Ann had previously joined and performed in Oklahoma. Jo Ann encouraged me to participate in the next play, Annie, which stared our 11-year-old daughter, Valerie. She received rave reviews by the local papers, one of which said “she carried the show.”

I even went to “jazz dance” for six weeks–I really felt awkward. I wasn’t too successful at any of these, and it was frustrating. But at least I was learning new things, which is something I did a lot of in the Bahamas. It’s good for the soul–and a marriage!

The Kids at St. Andrews

I think our four children will miss the Bahamas. I don’t think any of them ever came up to me and said, “Dad, I’m bored.” There was so much going on. At home, they could go swimming, fishing, exploring, play badminton, soccer, basketball or other sports, play cards and other games, read, help with the dishes or other chores, and so on.

School was one of our main concerns before we left, but we were luckily able to get into the private St. Andrews School, regarded by most people as the best school in the Bahamas. It had an excellent facility, and all four of our children seemed to enjoy it. Discipline was very good, and the teachers, primarily British, emphasized handwriting far more than American schools do. In practically every way, I considered St. Andrews a better primary school than most I had seen in the United States.

Economic Life

Like any country, the Bahamas has its pluses and minuses. Its standard of living is high compared to that of most Caribbean countries, though it is certainly lower than that of the United States. The roads were constantly in need of repair, the power went out frequently (at least once a week, and often more), and the telephone system left much to be desired. While we lived at Far Cry, it went out a dozen times a year; heavy rain was especially bad for it.

Nothing was cheap on the islands. Rent was high by U.S. standards. A simple three-bedroom house in a middle class neighborhood away from the ocean might run $1,000 to $2,000 per month; a nice place on the ocean might run $3,000 to $4,000. Utilities were also expensive, especially for water, which has to be brought to Nassau from Andros Island by barge. Phone calls to the states are about one dollar per minute, and to other countries as much as $4 per minute. But, remember, rent and utilities are tax deductible for expatriates, making the high cost seem more affordable.

You could get virtually anything you could get in the States–for a price. Fresh food, imported from the states, usually cost double or more. Milk was over $4 a gallon! Other food products were usually 50% higher than stateside.

The reason for this is not just transportation costs, which could explain perhaps 10-15% higher prices. The rest was caused by extremely high import duties imposed by the Bahamian government. Because it has no income, investment or sales tax, customs duties are its primary source of revenue (the rest coming from banking fees, a $5 departure tax, etc.) The average import duty is 42%. No wonder the Customs House is the biggest business in the Bahamas! A less competitive environment also means higher prices. For example, even though the duty on clothing is 40%, clothing prices are often 200% higher than in the States. Because of these high prices, many Bahamians go to Miami to do their shopping.

Smuggling is highly profitable and popular, and you see it occurring everywhere–even in front of customs officials at the airport. Bribery of customs officers is frequent.

Five Point Economic Plan for the Bahamas

This economic debacle could be cured if the Bahamian government would adopt a policy of gradually reducing customs duties across the board. They have already done this on a number of items, always with great success. The result would be a tremendous business boom. Competition would increase, prices would drop significantly, and locals would not try to do all their shopping in Miami. Government revenues may not even drop if the increased business means a sharp increase in imports from the United States.

Second, the Bahamas should privatize its public utilities. The standard of living could be greatly improved by having a reliable telephone system, decent roads, uninterrupted electricity, reliable garbage pick-up, competent hospitals, responsive police department, etc. All of these public facilities are state-run at the present time, and run badly. Creating private corporations through the issuance of public shares would go a long ways to relieve declining economic standards in the Bahamas.

The biggest concern we had in the Bahamas was for our safety and health in the case of a personal attack or accident. Our daughter was bitten on the nose by a Doberman pinscher, and we learned first hand how incompetent the public hospitals are: people in the “emergency” section can wait several hours to get help. Our “doctor” told us that surgery was unnecessary–the nose would simply grow back on its own! Finally, in desperation, we flew to Miami, which everyone else does in a real emergency. There’s no reason for this violation of the public trust.

The bus system in Nassau is an excellent example of what could be done. It is private, with several competing companies. It is reliable and cheap, only 50 cents anywhere on the island. Similar efficiencies could be realized in garbage collection, road maintenance, telephones and electricity.

Third, the Bahamian government should rescind its anti-foreign investment rules. The Bahamas desperately needs foreign capital, but it can’t seem to understand why little is forthcoming. Miami is booming, while Nassau is left behind. There are thousands of acres, some with excellent views of the ocean, left empty and undeveloped–by government edict. The Bahamas should do away with laws requiring government approval for foreigners to set up business or buy real estate (laws which have seriously hurt the real estate market). Some industries, such as the hotels, have certain exemptions, but the exemptions should be expanded to stimulate all business activity, not just tourism. The key to getting foreign capital is to establish long-term political stability, a free market atmosphere, and most importantly, the right to own and control business property without government authorization.

Fourth, the Bahamas would be wise to drop its work permit requirements. Work permits, like closed union shops, provide benefits to those who have jobs at the expense of the rest of the country. Efforts to protect some Bahamians only backfire and hurt Bahamians in general. Guaranteeing that jobs are only filled by Bahamians encourages inefficient work–and the Bahamian laborer has a reputation of slothfulness. Waiters are slow and unresponsive. But I don’t blame them–it’s the fault of the work permit law that prohibits foreigners from coming in and competing with them. If this competition were allowed, Bahamians would have to be responsive and efficient or lose their jobs. At the same time, the unit cost of labor would fall, bringing prices down and encouraging an expansion of business activity in other areas.

Fortunately, the Bahamas is still fairly open as far as illegal aliens are concerned. Immigration occasionally engages in a crackdown, but it’s never very effective. Most of the gardeners and construction workers are Haitian, illegally resident. Maids come from all over the Caribbean. Because of the competition, Bahamian maids can hold their own although, admittedly, we went through five maids (from the Bahamas as well as other countries) trying to find a decent worker.

I was happy to learn that writers aren’t required to get work permits in the Bahamas–residency is required if you stay longer than six months, but it’s easy to come and go in the Bahamas as a tourist. (Yes, writers, like the rich, are different! But being a writer doesn’t automatically make you rich.) I traveled frequently while residing in the Bahamas–probably once a month, either to Europe or the U.S. Getting in and out of the Bahamas and the United States was no problem. I didn’t need a visa, or even a passport–just a birth certificate. Bahamas immigration is easy for most foreigners, except perhaps for people from the Caribbean.

The biggest complaint I heard was not about Bahamian immigration, but U.S. immigration. You can’t believe how much the United States is “hated” (a commonly used word by foreigners and Bahamians) because of the power-hungry, arbitrary, abusive, and insulting immigration officers. U.S. Customs and Immigration is located at the Nassau airport, which is quite convenient. But Bahamians and other foreigners are often delayed for lengthy interviews at the airport to make sure they come into the U.S. legally and don’t plan to stay longer than permitted. (Overheard conversation between a U.S. officer and Bahamian: “What is the purpose of your visit?” “To see my relatives.” “How long will you be in the U.S.?” “Four weeks.” “Do you really need four weeks to see your relatives?”) Immigration policy is giving a bad name to America.

Fifth, the Bahamas should adopt the U.S. dollar as its national currency, anti-American feelings notwithstanding. And it should do away with exchange controls. Panama has such a policy, with favorable consequences. The Bahamian dollar is on par with the U.S. dollar (though it sells at a discount in Miami), so the transition would not be difficult. The U.S. is the Bahamas’ major trading partner, and the vast majority of tourists come from the U.S. There are plenty of dollars circulating and really no need for Bahamian dollars.

Of course, adopting a U.S. dollar standard would eliminate the Bahamian government’s exchange control power, but there’s no reason for exchange controls anyway except as a counterproductive economic policy. Bahamians are virtually prohibited from investing outside the Bahamas (for example, investing in the stock market in the United States and other countries)–surely a silly policy that even Britain abolished several years ago. Why should the Bahamian government fear its own citizens investing in the United States–doesn’t that say something about the stability of its leaders? Besides, intelligent Bahamians already know how to circumvent the law. The exchange control law should be abolished. It serves no purpose other than to enhance the power of government officials and let the central bank play games with the local currency.

One thing I commend the Bahamas for is establishing Nassau as a major financial center. Having major banks from Canada, the United States, and Europe has tremendously increased the Bahamas’ prestige and economic power. Having branches of major Swiss banks has done a great deal to create a stable, favorable atmosphere for international business and private banking in Nassau.

Political Crisis in Nassau

It’s sometimes hard for Americans to understand that the history, culture and background of the Bahamians are different from, though in some ways dependent on, our own. The Bahamas is known as a haven for the drug trade. During the American civil war, Bahamians were gunrunners to the rebel South. During Prohibition, they were bootleggers. The illegalities of popular substances and products in the U.S. have made business good in the Bahamas, and that story will never end–despite the best efforts of the Federal bureaucrats in Washington.

While we lived in the Bahamas, the Bahamian government went through a political crisis not unlike Watergate. The Prime Minster, Sir Lynden Pindling, whom we never met personally but saw driving around in his chauffeured Rolls Royce, was accused of protecting drug dealers, taking bribes, and failing to disclose hundreds of thousands of dollars in income. He built a $2 million mansion on a $100,000 salary. The whole affair cast a cloud over the economic and political future of the Bahamas, but so far, Pindling and his majority party, the Progressive Liberal Party (PLP), have weathered the storm. I think there was a lot of truth to the charges, but the Commission of Inquiry set up to examine the evidence concluded in December 1984, that it was circumstantial and the accusations unprovable. The Pindling government won another five-year term in 1987.

In the United States, such bad publicity would surely result in resignation, as it did with Richard Nixon. But the Bahamas is not the United States. The PLP will survive, at least for now. Probably it’s not going to make much difference who runs the government, which is likely to remain middle-of-the-road. As one Swiss banker in Nassau told me, “It doesn’t matter which political party is in office–both parties strongly support this country as a tax haven…without the tax and privacy advantages, the banks would disappear overnight.”

I don’t think there’s much chance of a radical takeover. Such possibilities are just not in the make-up or history of the Bahamian people. Radical communist influence is very small–the socialist Vanguard Party received only 1% of the vote in the last election. The Bahamians are too worldly wise for that to happen. The Bahamas have no generals, no secret police, no political prisoners. The government submits to a general election every five years, and the courts, modeled after the British system, are open to all citizens (although they may not work as well as the British courts).

I highly recommend the Bahamas, from Nassau to the “out islands,” for their ideal climate, aquatic delights, and private bank accounts. I don’t generally recommend getting involved in business or real estate ventures. The business climate still isn’t what it should be. The investment climate is favorable and relatively safe–I recommend particularly the Swiss banks. Foreign banks are prohibited from domestic investing in the Bahamas. Your funds are actually in Europe or the United States under the name of the bank. Foreign banks just act as middlemen, and that they do very well, as efficiently as the banks in New York, London or Zurich. Until economic policy changes in Nassau, I don’t recommend putting your money in the Bahamas, just have it go through the Bahamas.

Why We Left Paradise

If I have painted a rosy picture of the Bahamas, you may be wondering why we left. There are several reasons why we decided not to make Nassau our permanent home. We felt that the medical facilities were inadequate. With four young children who loved exploring, medical care was a constant concern. The Bahamian doctors are fine for routine illnesses, checkups and minor accidents. But in my opinion the hospital facilities are a (high) risk in case of a major threat to life. Frankly, we were extremely wary of the hospital facilities in Nassau, based on our own experience and the horror stories of others.

At times, we were concerned about our safety. Crime is a constant problem in Nassau, especially with the high level of drug use by many Bahamians. So is safety on the roads, which are often narrow, winding, and full of potholes. Traffic accidents are often fatal.

We felt that the Bahamas did not offer adequate education in the upper level high school. When children reach 13 or 14, the Bahamian system concentrates entirely on preparing the teenager for “O levels” and “A levels”, the strict exams which determine whether British students will be allowed to attend college. American parents face a difficult decision. Many parents send their children away to boarding school when they turn twelve, and there are few classmates remaining in the upper school. This was one of our chief reasons for returning to the States when our oldest daughter turned 12–we didn’t want to send her to boarding school!

These caveats aside, our experience in the Bahamas was enchanting, enriching, and unforgettable. I will always look back on my two years in paradise with tremendous nostalgia. And someday I may even return to the island of June.

Liberty – December 1987