My book The Making of Modern Economics has just won the Choice Book Award for Outstanding Academic Title for 2009. Choice is the reviewing journal for academic libraries. I was delighted by this surprise announcement, especially for a 2nd edition!

Winner of 2009 Choice Award for Outstanding Academic Title

Some of the unique characteristics of The Making of Modern Economics:

1. A major critique of Karl Marx’s theories of capitalism, labor, imperialism and exploitation, and why most of his predictions have utterly failed. (Many former Marxists report that that this chapter alone converted them to the free market.)
2. Two chapters on Keynes and Keynesian economics, what one economist has called “the most devastating critique of Keynesian economics ever written.”
3. Five full chapters on the Austrian and Chicago schools of free-market economics. It is the only one-volume history of economics written by a free-market economist (all previous histories had been written by socialists, Keynesians and Marxists).
4. How Keynes saved capitalism — from Marxism!
5. Over 100 illustrations, portraits, and photographs.
6. Provocative sidebars, humorous anecdotes, even musical selections reflecting the spirit of each major economist.

Choice Review: “With a supreme, lively blend of economics and sociology, Skousen has magnificently managed to put flesh, blood, and DNA on the skeleton of economics in this survey of great economic thinkers. This new work is must reading for economists who want to acquire professional depth and richness. Essential. All economics collections and all levels of readers.”

Description: Here is a bold, updated history of economics–the dramatic story of how the great economic thinkers built today’s rigorous social science. Noted financial writer and economist Mark Skousen has revised this popular work to provide more material on Adam Smith, Marx, and Keynes, and expanded coverage of Joseph Stiglitz, “imperfect” markets, the financial crisis of 2008, and behavioral economics.

Available in hardback and paperback on Amazon.com.

Other quotes about The Making of Modern Economics:

“Mark’s book is fun to read on every page. I have read it three times, and listened to it on audio tape on my summer hike. It deserves to stay in print for many decades. I love this book and have recommended it to dozens of my friends.” — John Mackey, CEO/President, Whole Foods Market

“I champion Skousen’s new book to everyone. I keep it by my bedside and refer to it often. An absolutely ideal gift for college students.”– William F. Buckley, Jr., National Review

“Mark Skousen has emerged as one of the clearest writers on all matters economic today, the next Milton Friedman.” –Michael Shermer, Scientific American

“Both fascinating and infuriating….engaging, readable, colorful…”–Foreign Affairs

“Provocative, engaging, anything but dismal.”–N. Gregory Mankiw, Harvard University

“Lively…amazing…good quotations!” –Journal of Economic Perspectives

“One of the most original books ever published in economics.”–Richard Swedberg, University of Stockholm

“Lively and accurate, a sure bestseller. Skousen is an able, imaginative and energetic economist.” — Milton Friedman, Hoover Institution

“Having no previous interest in economics, I was honestly surprised to find your book so captivating.” –Haila Williams, Production Manager, Blackstone Audio Books

“Skousen gets the story ‘right’ and does it in an entertaining fashion, without dogmatic rantings.” –Peter Boettke, George Mason University

“One of the most readable ‘tell all’ histories of the 20th century.”–Richard Ebeling, Hillsdale College

“I couldn’t put it down! The musical accompaniments for each chapter are a wonderful touch. Humor permeates the book and makes it accessible like no other history. It will set the standard.”–Steven Kates, chief economist, Australian Chamber of Commerce

“The most fascinating, entertaining and readable history I have ever seen. I highly recommend it for translation abroad.”–Ken Schoolland, Hawaii Pacific University

“My students love The Making of Modern Economics! Mark Skousen makes the history of economics come alive like no other textbook.”– Roger W. Garrison, Auburn University.

“It’s unputdownable!”–Mark Blaug, University of Amsterdam

“Skousen is the only economist I know who I can understand. He writes for the common man!” — Dr. Laurence Hayek, U. K.

“Mark Skousen has a genius for explaining complex issues in a clear way and connecting ideas. He is the Henry Hazlitt of our time.” –Steve Mariotti, President, NFTE

“Mark Skousen is a great economist, great philosopher, great entrepreneur, and great friend. He should win the Nobel in economics.” — Steve Forbes

Available in hardback and paperback on Amazon.com.

“This was the best FreedomFest yet.  Congratulations!” –John Mackey, CEO, Whole Foods Market

Highlights of FreedomFest 2009:

• Nearly 1700 people attend this year’s FreedomFest (21% increase)
• More than 200 register at the door
• All Star Prediction Panel forecasts more pain ahead
• Charles Gasparino, CNBC’s #1 reporter, calls for abolishing the SEC
• Las Vegas Mayor steals show at Trial of the Century
• Liberty Editors Conference is SRO
• Amazing “mathemagician” is this year’s mystery speaker
• Five historic figures inducted into the Free Market Hall of Fame
• Steve Forbes attends all 3 days and dances to the music of the Beatles
• Sing a libertarian version of John Lennon’s “Imagine”
• Media coverage by C-SPAN, LA Times, Reasontv, Newsmax, and more!

Dear Friends of Liberty,

One attendee called this year’s FreedomFest a “phenomenon.”  Over 100 speakers, 95 exhibitors and 1700 attendees showed up at “the world’s largest gathering of free minds” July 9-11, 2009, at Bally’s Events Center in Las Vegas — a record turnout, 21% increase over last year.  (This number does not include several hundred supporters of Ron Paul’s Campaign for Liberty who attended FreedomFest on Friday and Saturday.)

They attended some 150 sessions on geo-politics, the economy, investments, philosophy, science & technology, art & literature, and healthy living.  As June Arunga said, “FreedomFest is a festival of ideas — exciting, new, and refreshing.”

John Mackey calls it “The Trade Show for Liberty.”  Mark Mullins (Fraser Institute) identifies it as “the new Mecca for libertarians.”  I see it as the “focal point for free thinkers,” where independent thinkers and free minds break away from their busy schedule to come together once a year to learn, network, socialize, and re-energize their spirits.

The fight for freedom has never been more apparent since the end of the cold war.  As one attendee put it, “This is THE year to attend FreedomFest, when our freedoms and financial assets are threatened more than ever.”

Given the deep recession and uncertainty this nation faces, I was surprised by the record turnout.  According to a local Las Vegas business leader, FreedomFest was the only conference this year with higher attendance.

Many more will see the Friday general sessions on C-SPAN (to be aired soon).

Attendees came from every state of the union, and as far away as Australia, Japan, Argentina, and Kenya.  Dozens of students took advantage of the $99 student discount rate.

You could feel the electricity as soon as you walked into the Exhibit Hall and the giant Laissez Faire Bookstore, run by Jim Peron and Jim Elswood.

One attendee told me, “FreedomFest changed my life and my entire way of thinking.”

I learned a lot myself as a moderator, speaker, and attendee.  For every one who comes, FreedomFest is a personal creation, because so much is going on that no two people experience it the same way.  As Jerry Cameron says, “It’s like having access to all the greatest intellectual food in the world and you just couldn’t eat fast enough to sample it all!”

Many buy the CDs of the entire conference every year just to keep up. (The first thing I do when I arrive is sign up for all the recorded sessions.  If you are so inclined, check out the list of audioCDs here, or call 1-866-254-2057 to order by telephone.)

The program was huge, with over 150 speeches, panels and debates. “Liberty Watch” published the entire program in its July issue. I recommend you subscribe to this top quality libertarian publication. Go to http://www.liberty-watch.com.

The World Economic Summit:

“The financial crisis is not over!”

The first day of the conference, entitled “Clear and Present Danger,” was devoted to the on-going financial crisis.  Many of the financial sessions were standing room only.  Charles Gasparino, CNBC’s #1 reporter, was our first keynote speaker.  He told the audience not to depend on the government to protect their wealth from losses or fraud.  “The SEC has failed to uncover a single major scandal in the past 30 years,” he said.  “It should be abolished.”

Other speakers throughout the conference included Steve Forbes, Larry Kudlow, Congressman Ron Paul, bestselling author Tom Woods (“Meltdown”), and John Fund.  Rick Rule (Global Resource Investments) moderated a panel on energy, telling attendees to expect oil & gas supplies to be tight in the future.  I gave a special 3-hour pre-conference seminar on “EconoPower:  Seven Power Tools for Investors, Managers, and Citizens” that was well attended.

In the “All Star Prediction Panel” last year, all the participants (Peter Schiff, Bert Dohmen, Fred Foldvary, Dennis Slothower) warned attendees about the impending crisis while the media was painting a rosy picture.  What were our prognosticators saying this year?  They remained pessimistic and recommended staying heavily in cash, gold, or foreign stocks.  Some are still shorting the market.  Bert Dohmen, editor of the highly-acclaimed Wellington Letter, remains bearish, adding as an example, “How can a company like Boeing stay in business when they have received only one major order so far this year?”  His breakout session attracted a large crowd.

Author Charles Murray (American Enterprise Institute) was more optimistic in the long run.  In his luncheon address, he spoke of three factors that will work in favor of liberty — technology that liberates individuals from centralized institutions, a coming moral crisis among social democrats, and rediscovery of the role of freedom in imbuing life with meaning.

The Trial of the Century: Free-Market Capitalism on Trial

What caused the 2008 crisis: free-market capitalism or bad government policies?  Friday night was the “big event” with defending attorney Steve Moore (Wall Street Journal Editorial Board) taking on prosecuting attorney Jeff Madrick (Emmy-award winning author of “The Case for Big Government”), with star witnesses Steve Forbes, Charles Gasparino, John Mackey, and Doug Casey.

Colorful Las Vegas Mayor Oscar Goodman was the Judge, and he stole the show with his irreverent remarks throughout the trial.  What a showman.  (He’s the former criminal defense attorney for the mob in Las Vegas!)  The ending took everyone by surprise (see the C-SPAN coverage to find out what happened).  The entire audience gave the judge and everyone involved a long standing ovation.  (Thanks to estate planning attorney Jeff Verdon for arranging for Mayor Goodman to come.)  As one attendee, Brandon Bond, said, “I’ve been attending these kinds of events for 30 years–and this one was the best ever!”

Another attendee enthused, “The Trial of the Century was so good it should be made into a Broadway play!”

Steve Forbes and John Mackey Attend All 3 Days

Steve Forbes has caught the vision of FreedomFest and makes a point of staying all three days.  At a luncheon on Friday, he spoke about his penetrating new book “Power Ambition Glory,” which applies Greek and Roman history to today.  He also appeared on several panels and spoke at the gala Saturday night banquet.

John Mackey, CEO of Whole Foods Market, is also a big fan who attends the entire conference.  He appeared on the always popular Libertarian Entrepreneurs Panel (with Newsmax president Chris Ruddy; Rick O’Donnell, president of the Acton Foundation for Entrepreneurial Excellence; and successful New York money manager Donald Smith).  In the debate between “Randian vs. Conscious Capitalism,” he noted significant differences between his philosophy of “conscious capitalism” and that of Ayn Rand.  “Randian capitalism is all about making profits; conscious capitalism is about seeking a greater purpose.”

John also spoke to a SRO audience about the “Whole Foods Longevity Diet:  How to Live to be 100 and Avoid Heart Disease, Cancer, Obesity, and Diabetes.”  John is a vegan.  Based on the findings of a group of health experts, he recommended reducing or eliminating meat and diary products from one’s diety, and emphasizing fruits and vegetables.  He surprised everyone when he said, “The more vegetables you eat, the more you lose weight.”  And according to John, eating vegetables and fruit is the least expensive diet.

The $100 Trillion Zimbabwe Dollar vs. the American Eagle Silver Dollar

There were lots of sessions for investors, entrepreneurs, and retirees.  In one of the tax planning sessions organized by Vern Jacobs, international tax attorney Marshall Langer spoke to a SRO crowd about “Saving Lots of Taxes by Moving to Another State or Country.”  When asked the crowd which part they were interested in, Langer was surprised that 90% said they were more interested in moving “offshore.”

Investing in gold and silver was as popular as ever.  In the closing panel, I showed a $100 trillion Zimbabwe dollar bill and asked the panelists, “Are we headed toward hyperinflation in the United States?”  David Boaz (Cato Institute), Steve Forbes, and Richard Viguerie didn’t think so, but Peter Schiff and Doug Casey thought it was a real possibility with the government bent on out-of-control spending and entitlements (Scott Tips of the National Health Federal and Michael Tanner of Cato warned attendees about the dangers of nationalized health care).

Rick Rule, president of Global Resource Investments, offered guidance in investing in mining and natural resource stocks in several well-attended sessions.  Other investment specialists included Frank Trotter (Everbank) on the future of the US dollar (not good), Keith Fitz-Gerald on what Chinese insiders are buying now (Taiwan stocks), Van Simmons (David Hall’s Rare Coins) on the benefits of private collecting….Lou Petrossi on finding good money managers, Martin Truax on income investing, Jon Nadler (Kitco) on investing in gold, Paul Wigdor (Superfund) on beating the market with futures, Michael Checkan (Assets Strategies International) on currencies and precious metals, Peter Zipper on banking in Belize, and Adrian Day on foreign markets.  Joe Bradley (Investors Hotline), Gary Alexander, Ron Holland, and Jon Golding served as moderators.

Peter Schiff, president of EuroPacific Capital and author of the bestseller “Crash Proof,” was adamant that investing in foreign stocks and commodities was the best way to go, and that investors should “get out of the dollar.”

I suggested that the US government could readily shift to a sound money system by circulating its own gold and silver bullion coins.  I held up a American Eagle silver dollar, and gave one to each of the panelists.  I told the audience that the silver dollar is our symbol of sound money and freedom, and encouraged each attendee to buy one from the coin dealers in the exhibit hall to keep as a good luck piece, a tip, a gift, or a nice bonus to employees.

Douglas R. Casey, chairman of Casey Research, was controversial as usual.  His luncheon speech on “My Misadventures in the Third World” included an update on his efforts to privatize a small country and take it public on the New York Stock Exchange.  He said it’s now a real possibility.

Estate and tax planning is always a major topic at FreedomFest, with experts Jeff Verdon, David T. Phillips, Joe Gandolfo, Vern Jacobs, Marshall Langer, and Bill Black, among others.

Conservative marketing guru Floyd Brown led a 4-session series on powerful techniques in email, blogging, and other new media, with the world’s most successful experts. Richard Viguerie (American Target) spoke on “Magnify Your Business or Resign!”; Craig Huey on 16 strategies for business owners; and Marsha Friedman on her new book, “Celebritize Yourself”…and Nathan Tabor on “Building a Political Following on Twitter, Facebook and Blogosphere.”

Chris Ruddy (Newsmax) also moderated a popular panel, carried on C-SPAN, called “The Future of Conservatism,” with Richard Viguerie (American Target), Jon Utley (American Conservative), Tom Phillips (Eagle Publishing), and Tom Fuente (California Republican).

Sacred Text Project:  A Muslim Makes the Case for Pacifism!

Attendees had the unique opportunity to hear sessions by Jewish Mel Hecht, Christian minister Joseph Fuiten, Muslim Aslam Abdullah, Sikh Gurucharan Khalsa, and BYU Professor Dan Peterson shed light on their sacred scriptures, and then debate the role of religion in a no-holds-bar roundtable with Michael Shermer, editor of Skeptic magazine and Scientific American.  Abdullah, director of the Islamic Center of Nevada, made the case for a peaceful coexistence with Muslim neighbors, and all the panelists seemed to be in a forgiving mood at FreedomFest.

In the exhibit hall each morning, Sikh Gurucharan Khalsa led about 30 individuals in yoga exercises.

Big Debates on Wal-Mart, Illegal Immigration, and the Fed

FreedomFest wouldn’t be complete without some great debates.  This year, “Wal-Mart, Good or Bad?” pitted Ohio professor Richard Vedder against anti-Wal-Mart activist Al Norman.  I was surprised to learn that many Wal-Mart employees are paid so little that they are subsidized with Medicaid, low-income housing, and other government welfare.  In “Immigration: Will Mexico Explode?,” Roberto Salinas (Mexico Business Forum) defended his country against Dr. Eric Olsen, a Tucson chiropractor.  In “Fed Up with the Fed?,” Gene Epstein (Barron’s economics editor) and Tom Woods took on Warren Coats (former IMF official) and John Fund (Wall Street Journal); and, as mentioned earlier, John Mackey (Whole Foods) and Michael Strong (FLOW) debated the Objectivists Ed Hudgins and Rob Bradley in “Randian vs. Conscious Capitalism.”

The Liberty Editors Conference is a perennial favorite, and every session was packed, with people hanging out the doors.  Speakers included Stephen Cox, Drew Ferguson, Jim Walsh, Randal O’Toole, David Friedman, and Jo Ann Skousen.  The panels were especially popular — on the Obama administration, the bailout, and a debate on religion and liberty.  There was also a spirited debate on “Anarchy vs. Limited Government,” with me defending limited government against anarchists David Friedman and Doug Casey.   I said that we now have a case study of how well anarchy does, since the African state of Somalia has had no central government since 1991.  (The results are a mix of private services and poor public services, and a deteriorating economy.)  I challenged Friedman and Casey to provide evidence of how utopian countries would deal with (1) disease control, (2) inefficiencies in public transportation and utilities, and (3) the justice system, i.e., how to deal with criminals who refuse to acknowledge private courts.  At one point, I heard David Friedman say that a criminal who refuses to come to court would be “forced” to do so.  That sounds like some form of government to me!

Major Media and Think Tanks at FreedomFest

We had representatives from most of the major financial media at FreedomFest, including the Wall Street Journal (Steve Moore and John Fund), Barron’s (Gene Epstein), and Investors Business Daily (Terry Jones and Michael Ramirez).  Think tanks and freedom organizations were well represented:  Ed Feulner and Teri Ruddy from Heritage: David Boaz, Dan Mitchell, Richard Rahn, and Michael Tanner from Cato; David Nott, Matt Welch, and Brian Doherty from Reason; Larry Reed from FEE; Julian Morris (IPN in London); Robert Enlow from the Friedman Foundation for Educational Choice; Charles Murray from AEI; Byron Scholmach from the Goldwater Institute; John Taylor from the Virginia Institute; and Holly Jackson from State Policy Network (SPN).

Ron Paul’s Campaign for Liberty at FreedomFest

Over 1,200 attendees came to the Bally’s Events Center Friday night, July 10, to hear bestselling author Tom Woods and Congressman Ron Paul update us on the machinations of Death Star (Doug Casey’s name for Washington).  Paul is not optimistic about prospects in Washington, but was buoyed by the strong turnout in Las Vegas.

Unusual Speakers at FreedomFest

There’s always something for everyone at FreedomFest, even for those who don’t care about politics or money.  We had a science fiction mini-series with Jo Ann Skousen on “Fantasy, Science Fiction and Romance,” commenting especially on Mary Shelley’s Frankenstein, and Brian Doherty on Robert Heinlein.  They also participated in a popular panel on libertarian science fiction/fantasy with L. Neil Smith and J. Neil Schulman.

NYTimes columnist and GMU Professor Tyler Cowen answered the question, “Does Capitalism Destroy Culture?”  He concluded that global capitalism actually encourages a variety in products and services, including language and cultural differences.  Missouri history professor Steven Watts spoke on “Fantasyland, Walt Disney, and the American Dream,” followed by “Playboy, Hugh Hefner, and the American Dream”…..and Don Hauptman gave details on Ayn Rand’s famous Playboy interview, based on his purchase of the original documents with Rand’s own hand-written notes.

We also had several sessions on healthy living, including talks by John Mackey, and George and Mimi Murdock.  The Murdocks spoke on “How to Avoid America’s Impending Health Catastrophe,” and recommended the book “The China Study.”

French Canadians Julie Barlow and Jean-Benoit Nadeau spoke on their bestsellers “Sixty Million Frenchmen Can’t be Wrong” and “The Story of French”…..David Wang explained the unusual connection between Confucius and America’s Founding Fathers (especially Franklin and Jefferson)….C-SPAN filmed Alex Green on his new book, “The Secret of Shelter Island”…..FIRE president Greg Lukianoff on “Unlearning Liberty: FIRE on Campus”….Dick Bishirjian (Yorktown University) on the profit potential of “for profit” education….This year we celebrated the 200th anniversary of the birth of two famous individuals, so we had Michael Shermer speak on Charles Darwin, and Hillsdale Professor Tom Krannawitter on “Vindicating Abe Lincoln Against his Libertarian Critics”….Santa Clara Professor Fred Foldvary defended Henry George and his single tax on land….Troy Dayton and John Mackey teamed up to discuss “Should Drugs be Legalized?”….Nelson Hultberg, author of “The Golden Mean,” on the need for a third party….And last but not least, our mystery guest speaker was Harvey Mudd Professor Art Benjamin on “The Joys and Mysteries of Mathematics.”  He held the crowd spellbound, and sold dozens of his books and tapes.

Each Room Dedicated to a Fallen Patriot

Each year we dedicate the rooms at FreedomFest to a free-market leader who has recently passed away. This year the rooms were dedicated to: Sir John Templeton; former Congressman Jack Kemp; Habitat for Humanity founder Millard Fuller; Anti-Communist crusader Fred Schwarz; conservative leader Paul Weyrich; investment writer Larry Abraham; private education enthusiast Marshall Fritz; ISIL founder Vince Miller; coin dealer Burt Blumert; and FEE managing editor Beth Hoffman.

Free Market Hall of Fame at Gala Saturday Banquet

Every night was filled with events at FreedomFest:  On Thursday, Everbank sponsored a speakers dinner and Newsmax an attendees dinner; on Friday, Campaign for Liberty sponsored a Ron Paul reception and program in the Bally’s Events Center.

The capstone of the conference was the gala Saturday night banquet, led by emcee extraordinaire Chip Wood. After CNBC’s Larry Kudlow spoke for 20 minutes on the current state of the nation, five American writers and economists were inducted into the Free Market Hall of Fame:  Henry Hazlitt, Murray N. Rothbard, Rose Wilder Lane, H. L. Mencken, and Booker T. Washington.  After each name was announced, Chip Wood rang the Liberty Bell.  Following the ceremony, Steve Forbes paid tribute to the five inductees.

Then band leader Billy Tragesser led the audience in the singing of the FreedomFest anthem, “Freedom and Gold,” sung to an Irish tune attributed to an old pirate song.

The grand finale was the appearance on stage of the world’s #1 Beatles tribute band, “Yesterday.”  From the first chord of the first song, a large crowd immediately gathered on the dance floor and didn’t quit until an hour and a half later, dancing and singing to the classics of the Fab Four. I’ve never seen anything like it at a libertarian or conservative event.  Even Steve Forbes got out there and did a jig.

Everyone sang along with the band singing a libertarian version of John Lennon’s “Imagine”:

Imagine there’s no taxation
It’s easy if you try
No IRS below us
Above us only sky
Imagine all the people
Living to be free.

Imagine no politicians.
Telling us what to do.
No forms to fill out for.
And no inflation too
Imagine all the people
Living without Social Security.

You may say that I’m a dreamer
But I’m not the only one
I hope someday they’ll join us
And liberty will have won.

Imagine no regulations.
I wonder if you can
No need for laws to control us
A brotherhood of man
Imagine all the people
Competing in the world

You may say that I’m a dreamer
But I’m not the only one
I hope someday they’ll join us
And liberty will have won.

Next Year’s Big Event:  “Declare Your Own Independence.”

We’ve already set the dates for the 7th annual FreedomFest, which promises to be bigger and better than ever before: July 7-11, 2010, at Bally’s/Paris Resort in Las Vegas.  Just think7-11 in Vegas.

We think next year’s FreedomFest will sell out (we have a maximum capacity of 2000).  So you might want to take advantage of the “early bird” special ($100 off the retail price).

We’ve also planned several other events for the coming year:

• A world class Mediterranean cruise (3 Greek Islands, Israel, Ephesus, Egypt, and Italy).  For details, go to http://www.freedomfest.com/cruise2009.htm

• Our post-Davos World Economic Summit January 31-February 2 at the Atlantis Hotel on Paradise Island in the Bahamas.  For more information, call Tami Holland, our conference coordinator extraordinaire, at 1-866-266-5101, or email her at tami@freedomfest.com.

In liberty, AEIOU,

Mark

Mark Skousen
Producer, FreedomFest
“The world’s largest gathering of free minds”
www.freedomfest.com
7-11 in Las Vegas (July 7-11, 2010)

…What We Have to Celebrate and The Trial of the Century!

We are expecting over 2000 people to come to this year’s FreedomFest. Come join us! You can sign up at Bally’s Events Center in Las Vegas on Wednesday evening 6-8 pm, or come early for my pre-conference “EconoPower” seminar. Register at (866)266-5101 or at www.freedomfest.com.

And you don’t want to miss our Trial of the Century when we put free-market economics on trial…you’ll never guess the line-up we have for the judge, prosecuting attorney and defense lawyer, not to mention the star witnesses!

Las Vegas Mayor the Honorable Oscar Goodman as THE JUDGE
Stephen Moore, WSJ Editorial Board, as THE DEFENSE
Jeff Madrick, Emmy-Award Winning Economist, as THE PROSECUTION
STAR WITNESSES: Steve Forbes, Publisher, Forbes Magazine; Charles Gasparino, #1 Wall Street Reporter on CNBC; John Mackey, CEO, Whole Food Market; Doug Casey, Chairman, Casey Research Advisory.

I got this email from Australian friend Ron Mann today: “FreedomFest is developing into the most effective international free-market gathering and you have me wondering why I spend so much time at ‘lesser events’.”

Either we hang (out) in Vegas, or we all hang separately, to paraphrase Ben Franklin. Our financial freedoms and our financial assets are at stake.

Keep up-to-date about FreedomFest on www.twitter.com @TheFreedomFest or on Facebook!

More details about the conference at www.freedomfest.com.

In liberty, AEIOU,

Mskousen

See the POSTER for the TRIAL OF THE CENTURY!

This April 15 is finding a lot of people taking a good hard look at the economy and the country. I’ve made some controversial observations in a few of my most recent articles. Please take a look!

“Start Your Own Tax Revolt — Without Getting Into Trouble”
Human Events Online
April 15, 2009

“Was the Great Depression Good for Us?”
Human Events Online
April 14, 2009

“Brother, Can You Spare a Decade?”
Liberty Magazine
May 2009

As always, yours in liberty, AEIOU,

Mark Skousen

I’ve compiled a quick list of a few of my recent articles and appearances in the press, addressing the current economic crisis, as well as the growing freedom movement in response to the power-grab currently going on in Washington. Now is the time for a return to the freedom principles of the free-market and the Constitution!

Will We Survive Obamanomics?
By Mark Skousen
Mar 5, 2009, The Gilroy Dispatch
Why I think Obama budget plan is leading us down the wrong path. Take a read!

Has Keynes Trumped Adam Smith?
By Mark Skousen
February 27, 2009
A nice reprint of one of my articles on a web blog. A great way to spread the word.

“Market Monitor” — Mark Skousen, Editor, Forecasts & Strategies
with Paul Kangas, Nightly Business Report, PBS, Friday, March 06, 2009
Link to transcript of the show

Steve’s Serendipities: Persuasion vs. Force by Mark Skousen
A discovery of my pamphlet on the principles of freedom. Worth a read!

With China We Trade,’ Historical Ties between China and Founding Fathers
by Jeffrey Bingham Mead, History Education Council of Hawaii
March 11, 2009, Honolulu Advertiser
This writer uses my work compiling The Compleated Autobiography by Benjamin Franklin, which revealed a lot of the great Founding Father in his later, significant years, in a fascinating new analysis of China and its trade practices. Take a look!

Plus, some nice reader reviews of Investing in One Lesson on Cheap Best Books. An important book to read in today’s investing climate.

Yours in liberty, AEIOU,
Mark Skousen

Dear Forecasts & Strategies subscribers,

We’ve always been able to keep in touch via the monthly newsletter, my appearances at investment conferences around the world, and my weekly hotline.

Now I’m on two of the biggest social networking sites on the Internet, Twitter and Facebook.

With these two great websites, you can follow my day-to-day, sometimes hour-by-hour, thoughts on the markets, the economy, as well as my various activities as I travel the world. It’s easy and free to join. So, join up at Twitter.com and Facebook.com, and follow my feed or add me as your friend!

It’s another great way we can stay in touch!

Yours in liberty, and in cyberspace!

AEIOU,
Mark Skousen

When I was in college in the 1960s, my economics professor assigned us the popular Keynesian textbook by Paul Samuelson, who advocated inflation, deficit spending, and progressive taxation to stimulate the economy.

The supplemental text was The Worldly Philosophers, by Robert Heilbroner, a socialist who never said a word about Milton Friedman, Ludwig von Mises and other modern-day free-market economists. His favorite philosophers were Marx, Veblen, and Keynes.

Like many students, I hungered for a “free-market” alternative to these big-government textbooks.

Little did I know at the time (forty years ago) that I would end up writing two books to replace Samuelson and Heilbroner!

I am happy to announce, after years of research and writing, two important books, both updated for 2009:

• Economic Logic is a “no compromise” textbook in free-market economics, covering micro, macro, and government policy. It even has separate chapters on the financial markets, entrepreneurship, money, and government policy. It’s ideal for students of all ages, from home schoolers to investors. The 590 page work is published by Capital Press/Regnery. Click here for more information on the new 2nd edition of Economic Logic.

• The Making of Modern Economics tells the true story of free-market economics, where Adam Smith and his “system of natural liberty” are the heroic figure who comes under attack by Marxists, socialists and Keynesians, but always makes a comeback. This 490 page book is published by M. E. Sharpe Publishers and is fully illustrated with over 100 pictures and illustrations. Click here for more information on new 2nd edition of The Making of Modern Economics.

AEIOU,
Mark Skousen

My latest articles on Human Events Online:

A Crash on ‘Green’ Friday
Human Events – Washington,DC,USA
by Mark Skousen

The Humpty Dumpty Economy
Human Events – Washington,DC,USA
by Mark Skousen

Floundering Economic Policy
By admin
by Mark Skousen

Click here to purchase EconoPower

“Have You Read Any Good Economics Books Lately?” asks the online blog, FAN.

Apparently, author Lance Winslow has! And his selection is none other than yours-truly’s EconoPower: How a New Generation of Economists Is Transforming the World.

A quick excerpt:

“This book demonstrates how everything we see, buy, own, do and dream of is indeed governed by economics. Our decisions, our religions, or politics, is all about economics. Education, science, history, law and finance, he shows evidence of the reality that economics is the way we do, whether it is about the individual, the leaders, societal changes or the movement of America at a national level. Even more interesting is the fact as the author shows that the US is exporting these ideas, the same ideas initiated by Adam Smith.”

Click here to read the entire review.

Or, pick up your own copy of EconoPower today!

An excerpt of The Compleated Autobiography by Benjamin Franklin, where Franklin tells the “real” story of Thanksgiving. Read a blurb below, and then see the entire article on Human Events Online. Happy Thanksgiving!

Click here to purchase The Compleated Autobiography by Benjamin Franklin (edited and compiled by Mark Skousen)

“At length, when it was proposed in the Assembly to proclaim another fast, a farmer of plain sense rose and remark’d that the inconveniences they suffer’d, and concerning which they had so often weary’d heaven with their complaints, were not so great as they might have expected, and were diminishing every day as the colony strengthen’d; that the earth began to reward their labour and furnish liberally for their subsistence; that their seas and rivers were full of fish, the air sweet, the climate healthy, and above all, they were in the full enjoyment of liberty, civil and religious….”

Read the entire article here.

For more information on the book David McCullough calls “ingenious and inspired,” click here.

Mark Skousen’s important perspectives on economics, finance, investing and the economy regularly make appearances on the web and in the news. Check out the following links!

EZCorp (EZPW): Pawnbroker Profits
TheStockAdvisors.com
featuring Mark Skousen
October 21, 2008

Gray Lady Down
Vital Signs Blog
featuring Mark Skousen
October 31, 2008

It’s Official: NYT is Junk
Human Events Online
by Mark Skousen
October 28, 2008

Real Estate Investments Versus Stock Investments
Investment U
by Mark Skousen
October 17, 2008

Market Milestones to Watch for in the Months to Come
By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report
Excerpt:
As my friend, economist Mark Skousen, recently noted, “every one of the major wars involving America occurred during one party rule: World War I, World War II, Korea, Vietnam and Iraq.”

Click here to purchase EconoPower

As part of an online book club, EconoPower: How a New Generation of Economists Is Transforming the World, Mark Skousen’s latest book on economics, has received a terrific review, through a video on YouTube!

Check out the video!

I came back a day early from my 2-week China trip (see www.markskousen.com) to speak at the First Day Issue Ceremony for the four new Ben Franklin commemorative stamps in Philadelphia on April 7.  The ceremony was sponsored by the U. S. Postal Office at the National Constitution Center, and was quite an event, attracting hundreds of collectors and spectators.  I helped “Ben Franklin” (Ralph Archibald) officially unveil the stamps.

Afterwards, my wife Jo Ann and I participated in the first ever Franklin Family Reunion that weekend.  It was a grand affair with over 220 Franklin descendants from all over the country, including quite a few of my relatives.  (I’m a 6th generation grandson of Franklin.)  I was the after-dinner speaker at the Saturday night banquet, overlooking Independence Hall.

Here are my remarks at the First Day Issue Ceremony, which created a stir among postal officials.

BEN FRANKLIN ON STAMPS

My remarks at the First-Day-of-Issue Ceremony for the Benjamin Franklin Commemorative Stamps, Friday, April 7, 2006, National Constitutional Center, Philadelphia, Pennsylvania

By Mark Skousen

After Benjamin Franklin died in 1790, John Adams wrote Benjamin Rush a letter in which he described his worst nightmare:  “The history of our revolution will be one continued lie from one end to the other.  The essence of the whole will be that Dr. Franklin’s electric rod smote the earth and out sprang General Washington.  Then Franklin electrified him, and thence forward those two conducted the policy, negotiations, legislations, and war.”

If we can measure the influence of Franklin and Washington by the number of postage stamps issued with their image, John Adams greatest fear has come true.  Since July 1847, when the United States issued its first postage stamp (with Franklin on it), Franklin and Washington have appeared on more stamps than any other Americans.  And in a recent poll sponsored by AOL and the Discovery Channel, Washington (#4) and Franklin (#5) were ranked among the five greatest Americans.

Even more disconcerting, there may be more truth than lie to Adams’ bad dream.  Recent histories, and my own work in completing Franklin’s Autobiography, reveal that Franklin, like Washington, was indispensable in achieving American independence and Constitutional government, and some have contended that Franklin should be added as a “co father” of the nation.  Washington indeed was instrumental in winning the war at home, but Franklin played an essential role in winning the war abroad.  Without massive military and financial aid from France, it is clear that Washington and the American Army could not have defeated the British at Yorktown, and the war might have dragged on indefinitely.  And there is little doubt that Franklin almost singlehandedly engineered the fundraising efforts in France.  He accomplished this mighty achievement while in his seventies, a tribute to senior citizens everywhere.

The U. S. Postal Service has rightly highlighted Franklin for his numerous contributions to his country. Lately I’ve enjoyed collecting rare Franklin stamps, and I am especially impressed with the 1947 commemorative stamp, featuring Franklin and Washington together on the 100th anniversary of the first postage stamp.  The year 1947 happens to be the year I was born.

If Franklin were here today, he would no doubt say that it pleases his vanity that he appears on the largest denominated banknote, the $100 bill, and that the banknote is a fiat paper currency.  For Franklin here in Philadelphia was an early advocate of paper money inflation beyond specie to stimulate trade and employment, though he learned during the American revolution that “there are limits beyond which the quantity [of paper money] may be hurtful.”  But Franklin was also an advocate of frugality and economy in government (“a virtuous and industrious people may be cheaply governed”).  He would no doubt be concerned about today’s high cost of living, and note with interest how the fae value of the Franklin series has increased gradually from the half-cent stamp in the late 19th century to today’s 39 cent first class stamp.  My only suggestion to the U. S. Postal Service is that in the next Franklin issue, you consider reducing the face value by a penny.  For a penny earned by the Post Office could be a penny saved by the taxpayer.

Fifty years ago, on the 250th anniversary of Franklin’s birth, the Post Office issued a striking stamp — a 3 cent issue — depicting an elder Franklin, assisted by youth, in his famous kite and key experiment.  It reminded me of Turgot’s quote, “He stole the Lightning from the Heavens and the Sceptre from Tyrants.”

As a representative of the Franklin descendants, I’d like to thank the U. S. Postal Service for its latest honor, four remarkable Franklin commemorative stamps honoring him as a printer, scientist, statesman, and postmaster.  In the book, The 100: The 100 Most Influential Persons in the World, Franklin is identified as “the most versatile genius of all ages,” and one could add a hundred more accomplishments and interests of Franklin.  For one thing, he was founder of American business.

And so I end my remarks with one of Franklin’s most notable quotes, “If you would not be forgotten, as soon as you are dead and rotten, either write things worth reading, or do things worth the writing.”  Naturally, Franklin did both.

Be free.

Mark Skousen is the compiler and editor of The Compleated Autobiography by Benjamin Franklin (Regnery, 2006).

Were the giants of the Gilded Age — John D. Rockefeller, Andrew Carnegie, Jay Gould, and J.P. Morgan — pious frauds who exploited and bilked the public on their way to achieving their ill-gotten millions? Or were they bold innovators and noble capitalists who established America as the richest, most productive country on the planet? Read the article below!

Reviews
“The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J.P. Morgan Invented the American Supereconomy,” by Charles R. Morris. Times Books, 2005, 382 pages.
Liberty Magazine

Review by Mark Skousen

Were the giants of the Gilded Age — John D. Rockefeller, Andrew Carnegie, Jay Gould, and J.P. Morgan — pious frauds who exploited and bilked the public on their way to achieving their ill-gotten millions? Or were they bold innovators and noble capitalists who established America as the richest, most productive country on the planet?

Was Balzac onto something when he claimed that “behind every great fortune is a crime”? Or was Carnegie more accurate when he observed that “great inequality and concentration of business are essential for the future progress of the race”?

In the past, historians have taken positions at opposite poles in this debate in American history, when railroads, oil, and steel transformed the world economy. On the one hand are the muckraker Ida Tarbell and Marxist historian Matthew Josephson. Ida Tarbell’s “History of Standard Oil Company,” based on her famous 19-part series that ran in McClure’s Magazine from 1901 to 1903, is an expose of John D. Rockefeller. She has since been honored as one of the first female journalists, with the U.S. Post Office issuing a stamp in 2002. Her book hastened the breakup of Standard Oil in 1911. “They had never played fair, and that ruined their greatness for me,” she wrote. Since then, her historical accuracy has been challenged.

Charles Morris concludes, “The great power of Tarbell’s prose conceals the holes in her argument.” (p. 86) The railroad rebates Rockefeller engineered, which she described as “secret, unjust and illegal” were in fact neither secret, nor illegal, nor unjust. “There was no law against rebates, on either the federal or state level, and they were standard practice among all carriers,” states Morris. (88) Despite complaints at the time, the Cleveland refiners who were pressured to sell to Rockefeller were offered a fair price, and those who accepted Standard Oil stock became quite wealthy.

Matthew Josephson’s classic work, “The Robber Barons,” was published in 1934, during the depths of the Great Depression. It is still in print, and widely considered “the classic account” of the captains of industry. Josephson’s bias is apparent in his frequent citations of Thorstein Veblen, Charles A. Beard, and Karl Marx. Although written in an entertaining style, his history is cleverly prejudiced against the creators of industry. Witness its highlighting of their peculiar personal habits (for example, he claims that Rockefeller had a “queer habit of talking to his pillow”) and their misdeeds and deceptions, while it religiously avoids references to their positive contributions. In his chapter on J.P. Morgan, Josephson emphasizes Morgan’s imperial wizardry at 23 Wall Street, where he conspired to monopolize and unify the transportation business of Vanderbilt, Gould, Huntington, and Hill, and create the world’s first billion-dollar company, U.S. Steel. Yet he conveniently leaves out any mention of Morgan’s twice saving the U.S. Treasury from the gold drains and near bankruptcy of the 1890s, and his role as quasi-central banker in restoring order during the Panic of 1907. These omissions are a fatal flaw.

On the other extreme is Burt W. Folsom Jr.’s “Myth of the Robber Barons.” Folsom teaches history at Hillsdale College and lectures regularly at student conferences sponsored by Young America’s Foundation, which also published his book. He is in the vanguard of a revisionist movement reevaluating the genius of the barons of industry. Countering the standard textbook view that Commodore Vanderbilt’s actions in the steamboat business were “immoral and in restraint of trade,” he portrays Vanderbilt as an entrepreneur with “superior skills” in driving down prices and offering better services than his competitors. Unlike his rivals, Vanderbilt accomplished this feat without resorting to government subsidies. In his chapter on Rockefeller, Folsom shows how the oil magnate repeatedly slashed the price of oil and constantly expanded production, “refining oil for the poor man.” He paid fair prices in buying out his competitors, and paid his employees higher than market wages. “Standard Oil was rarely hurt by strikes or labor unrest,” states Folsom.

Folsom’s book is strangely hit and miss, probably because it was written as a series of articles, not a complete history, and his focus is on industrial giants who succeeded without state favors. His railroad chapters cover Commodore Vanderbilt and James J. Hill, but omit Jay Cooke. His banking chapter highlights Andrew Mellon, while hardly mentioning J.P. Morgan. His steel chapters focus on the Scrantons and Charles Schwab, rather than kingpin Andrew Carnegie. And despite the title of his book, Folsom never mentions Matthew Josephson, nor does he review “The Robber Barons.” Just as Josephson typically ignores the beneficial actions of the 19th century tycoons, so Folsom turns a blind eye to their shortcomings. His chapter on Carnegie Steel (under the title, “Charles Schwab and the Steel Industry”) ignores Carnegie’s flaws. Here are three cases omitted in Folsom’s book:

• In 1888 Carnegie wrote a letter to every railroad company in the United States, warning them that the new, cheaper steel process of his competitor Allegheny Bessemer was risky. He had no evidence for this accusation, but his complaint eventually forced Allegheny Bessemer to sell out to Carnegie Steel; afterwards, Carnegie adopted the new process.

• Carnegie had a policy of ruthlessly reducing costs, including wages, even while his company was making record profits. He offered bonuses and other incentives to managers, but the rank-and-file employees had to fight for every concession. Carnegie’s refusal to honor the new eight-hour workday the Carnegie Steel workers had negotiated was a major cause of the Homestead Strike of 1892, one of the worst labor strikes in U.S. history. When Carnegie ordered workers to return to the twelve-hour shift, the workers not surprisingly staged a strike, which Carnegie, through his partner Henry Clay Frick, violently suppressed.

• The dispute between Carnegie and Frick in 1899, when Carnegie tried to expel Frick from the firm and pay him only book value for his shares, would have wiped out 80 percent, or $10 million, of the fair market value of Frick’s holdings. Frick sued in court and won.*

This brings me to Charles R. Morris’ “The Tycoons,” which takes into account the latest economic research and analysis of the Gilded Age, and is not only comprehensive in its account of the major players in the early industrial age, but is evenhanded. He credits all four main characters — Carnegie, Gould, Rockefeller, and Morgan — with dogged determinism and entrepreneurial genius in expanding output, cutting prices, and “turning luxuries into necessities” (Carnegie’s description of capitalism).

As a result, America surpassed England in the late 19th century and rapidly became the dominant power in the global economy. But Morris doesn’t ignore their flaws. To Morris, Carnegie — despite his humanitarian acts — was “the most irritating” and“repellently smarmy,” a manager who issued pro-labor manifestos while he “steadily ratcheted up the demands on his workers and steadily cut their pay.” Jay Gould created the national railroad map that prevails today, but was “always financially stretched” and had “a strange streak of self destructiveness.” Morgan was the last of the great merchant bankers, engineering the first world class merger, U.S. Steel, but engaged in some questionable business dealings, and was in and out of bankruptcy for the rest of his days. Rockefeller comes off the best. “On balance,” Morris concludes, “while there were skeletons aplenty in John Rockefeller’s closet [Morris points to Rockefeller’s once lying under oath], he was not a brigand, or embezzler, or stock manipulator in the manner of the early Jay Gould.” (91) In depicting the Gilded Age’s tycoons as neither the saints of Folsom’s apology, nor the demons of Josephson’s and Tarbell’s rants, Morris himself has hit upon a fine balance.

*All three accounts are included in Les Standiford’s recent history of Carnegie Steel entitled “Meet You In Hell: Andrew Carnegie, Henry Clay Frick, and the Bitter Partnership that Transformed America.”

On this Veteran’s Day, I’m happy to announce that I’ve just been made chairman of Investment U.  Investment U is published by the Oxford Club in Baltimore and is one of the fastest growing online financial services in the world.  I’m honored to have been selected as its new chairman.  I write two columns a week–commentary on the markets, financial theories, and investment strategies.  It’s a free newsletter.  To sign up, all you have to do is give them your email address at www.investmentu.com.  Unlike other e-services, you do not have to provide them with any personal details about your life.

I won’t give specific stock market advice in this column; that is reserved for Forecasts & Strategies (www.markskousen.com).  But I do offer important economic and geopolitical insights in the Investment U column.

Come join me, will you?

AEIOU, 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.” 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.” Read the article below

Suggestion
Liberty Magazine
The Necessary Evil
by Mark Skousen

Too much government and the economy chokes. Too little, and it cannot
function. Is there a Golden Mean?

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.

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 ��

Notes

1. Thomas Paine, “The Thomas Paine Reader” (Penguin, 1987), p. 66.

2. George Washington, “Quotations of George Washington” (Applewood Books, 2003), p. 29.

3. James Gwartney and Robert Lawson, “Economic Freedom of the World, 2004 Annual Report” (Fraser Institute, 2005), p. 35.

4. Milton Friedman, “Capitalism and Freedom” (University of Chicago Press, 1962), p. 2.

5. Quoted in Clyde E. Danhert, editor, “Adam Smith, Man of Letters and Economist” (Exposition Press, 1974), p. 218.

6. Colin Clark, “Taxmanship” (Hobart Paper 26, Institute of Economic Affairs, 1964).

7. Gerald W. Scully, “Tax Rates, Tax Revenues and Economic Growth” (National Center for Policy Analysis, 1991).

8. Vito Tanzi and Ludger Schuknecht, “Public Spending in the 20th Century: A Global Perspective” (Cambridge University Press, 2000).

9. Benjamin Franklin, letter to Charles de Weissenstein, July 1, 1778, in “The Papers of Benjamin Franklin” (Yale University Press), vol. 27, p. 4. I discovered this quotation in my research for my forthcoming book, “The Compleated Autobiography of Benjamin Franklin” (Regnery Books, 2006).

10. According to the 2005 Index of Economic Freedom published by the Heritage Foundation, “the scores of 86 countries are better, the scores of 57 are worse, and the scores of 12 are unchanged.” (p. 2).

11. Tanzi and Schuknecht, “Public Spending in the 20^th Century,” p. 34.

12. Ronald H. Coase, “The Problem of Social Cost,” The Journal of Law and Economics 3 (October 1960), reprinted in “The Firm, the Market and the Law” (University of Chicago Press, 1988), pp. 95–156.

13. For an analysis of Somalia’s ability to survive without government for over ten years, see Tatiana Nenova and Tim Harrford, “Anarchy and Invention: How Does Somalia’s Private Sector Cope Without Government?” Public Policy Journal 280 (November 2004): http://rru.worldbank.org/PublicPolicyJournal/Summary.aspx?id=280.

14. Adam Smith, “The Wealth of Nations” (Modern Library, 1965 [1776]), p. 11.