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Oscar Shrugged

September 5, 1999 By Mark Skousen Leave a Comment

LIBERTY — The First Galt’s Gulch Film Festival
Special report from the First International Libertarian Film Festival.

By Mark Skousen


GALT’S GULCH, COLORADO–What better location for the first libertarian film festival than Atlas Shrugged‘s Atlantis, the hidden valley high in the Rockies to which the world’s most productive individualists repaired when they went on strike?

Ragnar Danneskjold, the philosopher turned pirate, was the first to suggest the idea. “Gentlemen, we’ve been stuck here in this boring place for over 30 years, and the world still hasn’t begged us to return.” He closed the book he was reading, How I Found Freedom in an Unfree World, and stood up. “Fellow libertarians, or classical liberals, or Objectivists, or whatever we are, I’m sick and tired of sitting around reading philosophic tomes and self-help manuals. Let’s have a film festival! Every night we’ll see a different picture.”

Francisco d’Anconia, the industrialist turned playboy turned revolutionist, seconded the motion. “Great idea, Rag! If I hear one more note from Richard Halley’s Fifth Concerto…”

It was the first time in years that everyone had agreed on anything. John Galt, puffing madly on a gold cigarette, insisted that each film be strictly benevolent and life affirming in nature. “Our standards must be objective!” he shouted. “A is A!”

Word quickly spread, and Galt’s band of industrialists, scientists, doctors, and philosophers met at Midas Mulligan’s private theater the next evening. His library consisted of several thousand films; most of them pirated by Ragnar Danneskjold. The theater was a cozy little screening room that held approximately 50 guests. Surrounding the theater were photographs and posters of famous stars, including Gary Cooper, John Wayne, Clint Eastwood, and Farrah Fawcett (signed “Please, Ayn, let me play Dagny”).

By 7:00, the place was packed. Luminaries included industrialist Hank Rearden, oil magnate Ellis Wyatt, composer Richard Halley, movie actress Kay Ludlow, and Dr Thomas Hendricks. The last to appear was Dagny Taggart escorted by John Galt. She was still in an arm sling, recovering from another airplane accident. “I’m completely helpless without you, John,” she whispered, staring dreamily into his blue eyes. “I’11 pretend you never said that,” Galt responded, blowing smoke in her face.

Ragnar Danneskjold started things off. To qualify as a libertarian film, he said, a movie should offer protagonists who are rugged individualists and non-conformists, questioning the rules of society. They must be independent thinkers who unabashedly support their own self-interest and are reluctant to meddle in the affairs of others. Naturally, they will be skeptical of organized religion. Libertarian heroes should be uncompromising defenders of laissez-faire capitalism. They should champion the right to pursue the creation of wealth without guilt. Finally, they must oppose state power in all its forms, including the evils and injustices of war.

“Given these qualities, it may not surprise you to learn that most libertarian films have unhappy endings,” he warned the audience.

“Isn’t that a contradiction?” asked Rearden. “Don’t we believe in a benevolent, life-affirming universe?” The others remained silent.

Ragnar announced that he had uncovered a dozen films in the Atlantis library that in his judgment contained libertarian themes. A film was shown each night, followed by discussion and sometimes-heated debate.

First Night: Shenandoah (1965), 105 min., color. Directed by Andrew V. McLaglen. Starring Jimmy Stewart, Doug McClure, Katharine Ross, Patrick Wayne, and George Kennedy.

“This is a superb film that contains all the libertarian themes,” asserted Ragnar.

The storyline: The Andersons are hardworking, honest, independent farmers minding their own business, when the Civil War breaks out. The father (Jimmy Stewart) is a widower who honors his wife’s last request to attend church every Sunday and to say grace at dinner every night. While Anderson is skeptical of religion, he believes in honoring a contract, whether verbal or written. His libertarian prayer is a classic:

“Lord, we cleared this land, we plowed it, sowed and harvested it, and we cooked the harvest; it wouldn’t be here and we wouldn’t be eating it if we hadn’t done it ourselves. We worked dog-bone hard for every crumb and morsel, but we thank the Lord just the same for the food we’re about to eat. Amen.”

This prayer is repeated at the end of the movie, but it seems rather hollow after the Andersons have suffered the pains of war.

The Andersons are anti-war, anti-draft, and anti-state. They are Virginians, so they won’t support the North, yet they don’t own slaves, so they refuse to fight for the South. They don’t believe in the draft, although they are free to volunteer: “My sons don’t belong to the state.” They don’t believe in the government: “We never asked anything of the state, and we don’t figure we owe anything to it either.” They are anti-war: “Like all wars, the undertakers are winning it. The politicians talk about the glory of it, the old men will talk about the need of it. … The soldiers, they just want to go home. ” They are isolationists:

“They’re on our land?” asks Mr. Anderson.

“No,” responds a visiting Confederate officer.

“Then it doesn’t concern us.

“When are you going to take this war seriously?”

“This war is not mine.”

The audience greeted this dialogue with thunderous applause. “Bravo!” shouted Hank Rearden.

When Federal agents come on the Andersons’ property to confiscate their horses, using authority granted by an Act of Congress, one of the Anderson boys asks his dad, “What does confiscation mean, Pa?” He answers, “Stealing.” The Andersons refuse to turn over the horses and a fight ensues. The federal agents are driven off. Eventually, the Andersons feel obligated to enter the war when the youngest son is taken prisoner by the Northerners. At the end of the film, they get a taste of the horrors of war. Two sons are killed and a daughter-in-law is brutally assaulted.

“In short,” Ragnar summarized at the end, “it is nearly impossible to escape the evils of war, even if you try to mind your own business.”

No one could argue with that, and the film festival adjourned with everyone giving Shenandoah five stars.

Second Night: The Americanization of Emily (1964), 117 min., black & white. Directed by Arthur Hiller. Starring James Garner, Julie Andrews, James Coburn, and Melvyn Douglas. Screenplay by Paddy Chayefsky.

The second film was more controversial.

“This is the best anti-war movie ever made,” proclaimed Richard Halley.

“How can you consider cowardice a moral imperative?” Again, it was Rearden who spoke.

At issue was the personal philosophy of Charlie Madison (James Garner). The story is about  “dog-robbers,” personal valets to American generals and admirals, in Britain during World War II. The plot focuses on the relationship between American Commander Madison, personal assistant to Admiral Jessup, and Emily, a British Navy staff member. Madison is a promiscuous opportunist who has no interest in the war and is, in fact, a complete cynic. Emily (Julie Andrews), on the other hand, represents the traditional view — that the Allies are fighting an honorable and virtuous war against the evil Axis and that all good citizens and soldiers must be willing to sacrifice for the good of the war. When Charlie offers Emily some Hershey candy bars (unavailable to the general public), she refuses. When he makes advances, she slaps him. “I think it’s profane to enjoy this war,” she tells Charlie. She notes that Charlie does whatever is necessary, including bribery, to get his way or provide black-market goods (filet mignon) and services (prostitution) for his admiral. “You’re a complete rascal,” she says. In response, Charlie calls Emily a “prig. ”

“This film reminded me of the book, Overpaid, Oversexed, and Over Here,” commented Rearden. “It’s a book about American GIs in World War II Britain. I’d hardly call them heroes. Does Charlie Madison have any scruples, any admirable qualities?”

“Yes, I’11 defend him,” Richard Halley said. “Charlie Madison is to be honored for his eloquent condemnation of war, the stupidity of war. Besides, I like the music.”

In response to Emily’s self-righteous stance, Madison states, “I’ve had Germans and Italians tell me how politically ingenuous we are, but we haven’t managed a Hitler or Mussolini yet. This war … is the result of 2,000 years of European greed, barbarism, superstition, and stupidity. Don’t blame it on our Coca-Cola bottles.” In a conversation with Emily’s mother, he declares, “I’m not sentimental about war. I see nothing noble in widows.”

“What are your religious views?” Emily’s mother asks.

“I’m a practicing coward. ”

Madison condemns war. “We must resist honoring the institution of war. … We must condemn the traditional heroism of self-sacrificing soldiers.” Rather, Madison elevates selfishness and self-preservation as supreme virtues. “It’s not greed and ambition that makes wars, it’s goodness. … As long as valor remains a virtue, we shall have soldiers.”

Later he proclaims the value of an amoral lifestyle: “Life isn’t good or bad or true, it’s merely factual. It’s sensual, it’s alive…. I want to know what I am, not what I should be.” As he leaves Emily, he tells her that he wants to be remembered as one “unregenerately eating a Hershey bar. ”

Most of the audience roared with approval. Dagny stood up in the darkened room, and it was her lips that said, “He is the ideal man!” John Galt remained silent.

In the end, Emily is “Americanized.” She adopts his philosophy regarding war. She goes to bed with him. Speaking fondly of Charlie’s memory, she says, “We no longer take pride in death in this house. What was admirable about Charlie was his sensation of life, his cowardly, selfish, greedy appreciation of life.”

As the applause died down, Rearden took exception to Charlie Madison’s character. “Despite Madison’s eloquent condemnation of war, what about Charlie himself? Is his denunciation of war simply a justification of his cowardice? The Andersons in Shenandoah were never chicken. They were willing to fight for what they believed in. Moreover, when he miraculously survives Normandy, will Madison be faithful to his bride? Or will he remain a wheeler-dealer in civilian life? Libertarianism must not be equated with a libertine lifestyle! Liberty does not mean license! Charlie Madison is not my kind of hero.”

But even as Rearden spoke, the audience was giving The Americanization of Emily a standing ovation.

Third Night: Hombre (1967), 111 min., color. Directed by Martin Ritt. Starring Paul Newman, Fredric March, and Richard Boone.

“I saw this movie years ago,” commented Midas Mulligan. “Hombre is my favorite western.”

The storyline: John Russell (Paul Newman) is an Apache-raised “hombre” returning to a white man’s world. Russell is not afraid to defend his honor or to use a gun.

“He’s not a coward like Charlie Madison,” yelled Hank Rearden.

“Hush!” shouted Quentin Daniels, clutching a bag of popcorn in one hand and a cigarette in another.

Russell doesn’t believe in getting involved in other people’s affairs. When a gunslinger threatens a man, demanding his stagecoach ticket, Russell does nothing to help the innocent man. After the event, a witness turns to Russell and says, “You should have done something.”
“Wasn’t my business.”
“But if he had taken your ticket?”
“He didn’t.”
“That soldier would have helped you.”
“I didn’t ask him for any. … I didn’t feel like bleeding for him, and even if it isn’t all right with you.”

On the other hand, Russell, raised by Apaches, defends the rights of Indians. “They live where they don’t want to live.” In the beginning of the film, when a cowboy insults a fellow Indian, he hits him with the butt of his gun.

Hombre does not live by the rules of gentlemen and society. He is an outsider. He feels no obligation to assist other passengers on the stagecoach when they are robbed and left helpless. He shoots two of the robbers, one armed, the other unarmed. He takes off immediately, leaving the others behind complaining that “we are all together. ” They finally catch up with him.

“Now that’s my kind of libertarian,” exclaimed Midas Mulligan. His eyes were wistful again.

When the remaining robbers return to exchange a hostage for money, Russell is uncooperative. They threaten to shoot the hostage. Hombre is undisturbed.
“All right, shoot her…. She’s nothing to me.
“What about the others!”
“They say what they want.

Russell has a code of ethics, however. He keeps the saddlebags of bank notes, which had been stolen from the Indians, not for himself, but to be returned to the Indians, the rightful owners.

At the end of the film there’s a stalemate between the robbers and the passengers. Everyone except Russell turns out to be a coward, unwilling to exchange the money for the hostage. Finally, the stalemate is resolved when Russell takes the risk and sacrifices himself. His heroic, selfless act results in his demise. He is killed.

“You see what happens when men abandon their self-interest and sacrifice for humanity? Is that what you call virtue?” It was John Galt who spoke, and three hours later he was still speaking. The others remained silent.

Fourth Night: Cool Hand Luke (1967), 126 min., color. Directed by Stuart Rosenberg. Starring Paul Newman and George Kennedy. Screenplay by Donn Pearce and Frank R. Pierson, based on the novel by Donn Pearce.

Ragnar introduced the film, another Paul Newman appearance as a nonconformist libertarian. “In this case, the film tells the tragic — no, I mean the benevolent and life-affirming story of an individualist who, like many freedom loving souls, has tremendous potential yet fails to achieve it.”

“I’ve never planned anything in my life,” comments Lucas Jackson (Newman). His record indicates that he started as a buck private in the army, earned a Purple Heart in World War II, yet ended his stint the same way he started — as a buck private. Why did he tear off the heads of parking meters in a small town, landing him in a prison camp? “Settling an old score,” he responds, implying an act of revenge against the state, perhaps motivated by the war years. Lucas Jackson’s problem is that he can’t conform to official authority, which he characterizes as “lots of guys laying down a lot of rules and regulations.” The rules are often bureaucratic and nonsensical. When Luke is put into the one-man box overnight, after his mother passes away, a guard tells him, “Sorry, Luke, I’m just doing my job.” Luke responds, “Calling it a job don’t make it right.”

In prison, Luke quickly becomes a leader. He’s the best poker player among the prisoners. He meets incredible challenges (“I can eat 50 eggs”) and never gives up, even when he’s beat (the boxing match).

Luke doesn’t blame others for his problems. “What I’ve done I’ve done myself” he tells his distraught mother. “Man’s got to go his own way.” Luke must work out his own salvation. But the unrepentant prisoner is skeptical of God and religion. He goes into a church alone. “Anybody here?” he yells. There is no answer. Life is unfair, he concludes.

“You’ve got to learn the rules,” he is told. But Luke is a social misfit–opposed not to ordinary people, but to the state. “What we have here is a failure to communicate,” says the warden in a famous line. Luke disrupts the state prison system and pushes state officials to the limit of tolerance. Finally, they destroy him.

“I remember someone like that,” said Hank. “Back at Rearden Steel.”

“I’m not sure I understand this film’s ideological context.”

The hesitant voice was that of Dr. Thomas Hendricks, the famous surgeon. “In Hombre, the libertarian is killed when he finally comes to the rescue of someone who needs help. In Cool Hand Luke, just the opposite occurs: the libertarian is killed when he refuses to conform to society. Libertarians can’t win no matter what.”

Galt’s eyes narrowed. “We never said our lot would be easy,” he said. “Here, Doc, have a cigarette.”

The evening’s performance ended with a question. “Which actor has done more libertarian movies than anybody else?” asked Ragnar.

Nominations included Clint Eastwood, Gary Cooper, John Wayne, Humphrey Bogart, Errol Flynn, and Farrah Fawcett.

“Sorry, you’re all wrong,” Ragnar said. “It’s Paul Newman! Tomorrow we’ll be seeing his third libertarian film.”

Fifth Night: Sometimes A Great Notion (1971), 114 min., color. Directed by Paul Newman. Starring Paul Newman, Henry Fonda, Lee Remick, Michael Sarrazin, and Richard Jaeckel. Based on the novel by Ken Kesey.

“If you think last night’s film puts libertarians in a bad light,” commented Ragnar, “Wait until you see this evening’s picture. You’ll see what Paul Newman really thinks of libertarians.”

“Newman isn’t a libertarian!” yelled Kay Ludlow, the movie actress. “He isn’t even a good actor!”

“Perhaps so,” Ragnar replied. “As a matter of fact, in this film the Henry Stamper family, imbued with the libertarian philosophy, is placed in a highly unfavorable light.” The lights went down and the film began.

Henry Fonda plays an irascible, stubborn father who lives by the family motto, “never give an inch.” He heads an independent family logging operation in Oregon that is anti-union, anti-socialist, and anti-feminist (the women have little or no influence, and hardly ever talk). But they are hard working men of their word who don’t violate their contracts. Consequently, they become scabs when the rest of the community joins in a union strike.

The Stamper family is against anyone telling them what to do, whether a “commie, pinko” government or a threatening labor union. Hank (the oldest son, played by Newman) sardonically talks back to the union leaders: “You’re going to tell us when to stop cutting, who to sell to, and pat our little bottoms and tell us what good little boys we are.

In the final analysis, the family never gives an inch, but as a result Hank loses a father, a brother, and a wife. He also fails to help a theater-owner who later commits suicide. Despite paying this high price, Hank is defiant to the end.

“You must never compromise your principles,” declared John Galt at the end of the movie, “no matter what the price.”

“I’m afraid the price is too high for me.” Everyone turned and stared at the face of Francisco d’Anconia.

Sixth Night: Brazil (1985), 131 min, color. Directed by Terry Gilliam. Starring Robert De Niro, Jonathan Pryce, and Rim Greist. Screenplay by Terry Gilliam, Tom Stoppard, and Charles McKeown.

“This surrealistic story is the best dystopian film I’ve ever seen,” declared Ragnar. “The plot, full of black comedy, is far more entertaining and exciting than the stereotyped attempt to put George Orwell’s classic on the silver screen. The cinematography and production designs are dazzling. It’s a visual feast of imagination and creativity.”

Instead of being ruthlessly efficient, the central authority in Brazil gropes incompetently through a nightmare of paperwork, unreliable services, and a bloated and incredibly complex infrastructure. Nothing works — a vivid reminder of the old Soviet Union. Despite the government’s hoard of advanced weapons, the ubiquitous spy machines, and federal police galore, the underground survives and even thrives. The black market engineer (De Niro), referred to by state operatives as a “terrorist,” is never caught. However, a government clerk (Pryce), who holds fast to his ideals and his Dream Girl (Greist), is tortured and destroyed.

“Brazil paints a picture of the future that is much more believable than Nineteen Eighty-four,” Ragnar commented at the end of the presentation.

“Even more believable than Atlas Shrugged?” The darkened theater was too thick with smoke for anyone to recognize who said it.

Ragnar’s eyes narrowed, but he continued. “The storyline includes no-knock break-ins by federal SWAT teams, national ID cards required for all citizens, constant monitoring through X-ray machines, everyone living in tall apartment complexes, etc. But you also witness bureaucratic mix-ups, thriving black markets, and underground opposition. You can see it coming. It’s eerie.”

“Eerier than Atlas Shrugged?” But the theater was still too thick with smoke.

Seventh Night: The Adventures of Robin Hood (1938), 102 min., color. Directed by Michael Curtiz and William Keighley. Starring Errol Flynn, Olivia de Havilland, Basil Rathbone, Claude Rains, and Patric Knowles.

Ragnar bravely introduced the film. “Several pictures have been made about Sir Robin of Loxley, the outlaw of Sherwood Forest, including a recent effort by Kevin Costner, but nothing compares to the original, dynamic Errol Flynn version. He’s my kind of hero!”

“He’s the ‘hero’ that we tried to kill!” It was Francisco’s voice that protested.

“I remember that movie,” said Midas Mulligan.

Francisco remained silent.

Robin Hood’s oath, “To take from the rich and give to the poor,” sounds more like standard fare of the Clintonistas than a libertarian creed. But, like many libertarian heroes, Sir Robin is misunderstood–even by Ayn Rand. The real story, clearly revealed in this film version, is that Sir Robin of Loxley is not simply an outlaw who stole from the rich, but a fighter against unjust taxation and other acts of oppression by the forces of the state, Prince John and the Sheriff of Nottingham. Conforming to the legend, the twelfth-century Norman authorities impose unbearable fares on the Saxons, beating and torturing them, raping their women, and confiscating their property when they refuse to pay. A law is passed making it a capital crime to kill the king’s deer in Sherwood Forest, even if the hunter is starving. Robin’s band of merry men oppose this oppression, and their efforts to “steal from the rich” are in reality aimed at recapturing the tax monies that are rightfully theirs in the first place. The bold rascal Robin Hood isn’t a reckless outlaw, but a brave patriot. “I’II organize revolt,” he proclaims before Prince John and his entourage. “I’II never rest until I strike a blow for freedom.”

“You speak treason,” asserts Maid Marian.

“Fluently,” replies Sir Robin.

“There’s only one problem with this picture,” muttered Lawrence Hammond, the automobile magnate, glancing warily at Midas Mulligan, who had saved Hammond’s non-competitive business with a well-timed loan of a hundred pounds of gold. “What does Robin Hood do with the tax money he seizes? Does he keep it himself or does he return it to its rightful owners?”

“Better ask Ragnar about that,” said Mulligan. Ragnar had recently opened his own bank.

In this version, King Richard the Lion Hearted is being held for ransom in Europe, and the merry men decide to use the money to pay it off Richard is viewed as a benevolent king who ousts Prince John and reestablishes peace and liberty when he returns. Yet this is the same King Richard who has left England to lead the Crusades against the “infidels.”

Dagny ground her cigarette into her popcorn. “This is an unjustifiable act of religious intolerance and imperialism, an act that no libertarian can justify,” she declared. “Under these circumstances, The Adventures of Robin Hood, however well-performed, cannot be viewed as an entirely satisfactory libertarian film.”

“Aw, pipe down,” said John Galt. “I’11 do the talking in this family.”

“All right,” replied Ragnar, “if you don’t like this version of Robin Hood, you still might enjoy tomorrow night’s alternative. Stay tuned!”

Eighth Night: The Mark of Zorro (1940), 93 min, black & white. Directed by Rouben Mamoulian. Starring Tyrone Power, Basil Rathbone, and Linda Darnell.

“The story of Zorro has been produced on the silver screen numerous times, but nothing beats the 1940 version with Tyrone Power,” said Ragnar.

“That’s your opinion,” said John Galt.

Diego Vega, son of a rich plantation owner, returns from Spain to learn that his honorable father has been deposed as Alcalde of Los Angeles and replaced by tyrants who “make the people more industrious” by imposing heavy taxes (shades of Bill Clinton). Those who can’t pay are tortured and jailed (shades of Janet Reno). His father is an old traditionalist, a stickler for law and order, and refuses to fight back. “Two wrongs don’t make a right.

But the young, debonair, and tepid Diego becomes the brave, resourceful outlaw Zorro at night, recapturing the gold that the rulers have stolen from the “peons.” What does he do with the money?

“That’s what I’d like to know!” exclaimed Midas Mulligan. Ragnar remained silent.

“This gold was wrung from the peons, he tells the local padre. “It’s up to us to restore it to them.”

The story ends when the peons, under Zorro’s leadership, storm the mayor’s headquarters and reappoint Diego’s father as Alcalde.

“Fantastic!” exclaimed Midas Mulligan. “Clearly, Zorro does not suffer from bad motives, as is the case with Robin Hood — and some other people I might mention. I give The Mark of Zorro five stars.”

Ninth Night: Cash McCall (1959), 102 min., color. Directed by Joseph Pevney. Starring James Garner, Natalie Wood, and E.G. Marshall. Based on a novel by Cameron Hawley.

Ragnar stood in front of the crowded theater. “Attention all you unrepentant greedy capitalists Hank Rearden, Ellis Wyatt, Lawrence Hammond, Dwight Sanders! This is your kind of show!”

“And you too, Midas!” shouted Francisco. Francisco had a childlike, benevolent, life-affirming innocence, despite his enormous debts.

Cash McCall (Garner) is the quintessential misunderstood business tycoon. As a takeover artist and financier, a cross between Howard Hughes and Michael Milken, he is feared and loathed by the public, the media, his business partners — even school kids, who have made up a nursery rhyme about him. He is viewed as a vulgar, fast buck, unscrupulous, cold-hearted robber baron that takes over companies, lays off workers, and sells the enterprises at a hefty profit. At the beginning of the picture, McCall is being investigated by the IRS for tax evasion. Later he is accused by his fiancée, Lory Austen (Natalie Wood), of being unfaithful.

“I’m a thoroughly vulgar character, Cash McCall says, playing on his public image. “I enjoy making money. “So do I!” said Kay Ludlow.

“When the hell did you ever make any money?” asked Dagny. “You wouldn’t have gotten to your auditions if I hadn’t given you a railroad pass!” “Aw, pipe down!” interjected John Galt. “Give ‘er a break, will ya’?” Kay Ludlow smiled.

But the reality of the man is completely different from appearances. Cash McCall is, in fact, an efficient, shrewd businessman with a high standard of personal and business ethics. He admits that he is not a “company man.” As an independent financier, he likes to “buy old companies, whip them into shape, and sell them.” But there is nothing shady about him. He honors his commitments and doesn’t try to hide things. He gives potential sellers a chance to get out of his deals. Cash has an opportunity to take advantage of Lory when they first meet, but refrains.

Unlike many other libertarian films, this one actually has a happy ending.

“That’s the most beautiful film I’ve ever seen,” said Kay Ludlow. Dagny remained silent. She was remembering all the times John had refused to take advantage of her.

Tenth Night: Ben Hur (1959), 212 min., color. Directed by William Wyler. Starring Charlton Heston, Stephen Boyd, Jack Hawkins, Haya Harareet, Hugh Griffith, and Martha Scott.

“How in the devil could you include a religious film, Rag?” demanded John Galt. “You never really were one of us, were you?”

“But it’s so romantic,” said Kay Ludlow. “And so realistic, too!”

“Well, maybe you’re right,” said John Galt. “It might be benevolent and life-affirming.”

Dagny Taggart suddenly stood up. “Religion is the opiate of the masses. I’m leaving!” She put out her cigarette and exited the theater, followed by Francisco.

“Have an open mind,” pleaded Ragnar, oblivious to John and Kay’s increasingly harmonious ideological trends. “This movie actually has an underlying libertarian theme.”
The hero, Prince Juda Ben Hur (Heston), is the wealthiest man in Jerusalem, having obtained his wealth honorably as a merchant. He treats his servants as friends and stewards, not as slaves. When Ben Hur is confronted by the new Roman commander Messala (Boyd), his boyhood friend, he defends his country’s right to be free from foreign oppression: “Withdraw your legions, give us our freedom.” Ben Hur is opposed to violence, but will not turn informer and reveal the names of dissident Jews. “They are not criminals — they’re patriots” he explains.

Messala offers Ben Hur power and protection if he will betray his people, but he cannot be bought. “I’d rather be a fool than a traitor.

Ben-Hur has personal integrity. He refuses to kill Messala in cold blood, even though he has the opportunity. He becomes a Roman citizen when he saves the life of the Roman fleet commander Quintus Arias. But he returns his adopted father’s ring after coming back to Jerusalem. He will not take part in the Roman policies of slavery and tyranny.

“Still, he is a thorough-going, practicing Jew, a member of an irrational faith,” Rearden asserted after the film was over.

“It is the only thing that keeps him alive,” explained Ragnar. “The Jewish demand for revenge. It’s life-affirming.”

“Religion denies an objective, rational world — and requires faith in things you cannot see or feel,” insisted Galt. “That’s right,” Kay murmured.

“Granted, Juda Ben-Hur is a true believer in God, but he bases his belief on real evidence — such as the event at Nazareth where he is miraculously given water by the carpenter. That’s one of the most moving scenes ever filmed. And note how skeptical he is about the new Christian religion. He does not believe until he actually sees a miracle his mother and sister are healed of leprosy. Only then do bitterness and hatred leave his soul, allowing him to become a happy man again.”

The debate continued into the night in the midst of a smoke-filled room, although John, Dagny, Francisco, and Kay were no longer present.

Eleventh Night: Dark of the Sun (1968), U.K, 101 min., color. Directed by Jack Cardiff. Starring Rod Taylor, Jim Brown, Yvette Mimieux, and Kenneth More. Based on the novel by Wilbur Smith.

Ragnar Danneskjold was excited about the eleventh night’s presentation. “It’s my favorite movie — an action film full of violence, intrigue, and romance!”

“Better than Rambo, Dirty Harry, and Rooster Cogburn?”

“Much better!”

This is the story of four mercenaries, men who fight and die for anybody, for any cause, anywhere — if the price is right. In this story, they hunt diamonds, they hunt cannibals, and they hunt each other. Ostensibly, they are paid to rescue a community deep in war-torn Congo under threat of attack by vicious rebels, flesh-hungry cannibals; but they also have a clandestine objective of bringing out a load of priceless diamonds. The action is fast-paced, the music is haunting, and the train scenes ale unforgettable.

“This is my kind of life,” proclaimed Ragnar.

“I’d love to be on that train right now,” exclaimed Dagny Taggart.

“Me too,” said Francisco, taking the empty seat next to her.

The mercenaries are men without hope who discover that it is never too late. One finds the strength to die like a man, although he has lived his whole life in fear. Another rediscovers self-respect and the chance to start over again, and the third (Bruce Curry, a role magnificently performed by Rod Taylor) finds that he can love again. Still, the story line ends in violence and tragedy. He who lives by the sword must die by the sword. The question is, can there be any salvation for men who commit the vilest of sins?

“I told you most libertarian films have sad endings,” commented Ragnar.

“Can we expect anything different for us?” Richard Halley asked. Everyone knew the composition of his new opera, Frank O’Connor, was not going well.

Twelfth Night: The Fountainhead (1949), 114 min., black & white. Directed by King Vidor. Starring Gary Cooper, Patricia Neal, and Raymond Massey. Screenplay by Ayn Rand, from her novel.

Everyone applauded when Ragnar announced the festival’s last film. “It’s about time!” said Dagny Taggart.

“It’s about time!” added Francisco d’Anconia.

Ragnar agreed. “A libertarian film festival would not be complete without showing the movie version of Ayn Rand’s philosophical novel about Howard Roark, the iconoclastic architect,” he said.

Roark, like Van Gogh or Michelangelo, refuses to give in to popular artistic design: “I don’t care what they think of architecture, or anything else.” Roark’s standards are so demanding and provincial that he has great difficulty in finding work. “I don’t have clients in order to build, I build in order to have clients.”
“I don’t get it” Quentin Daniels interrupted. “I thought capitalism works because the producer responds to consumer needs. Is Howard Roark anticapitalist?”

“You have a lot to learn, young man,” responded Galt. “Roark sets the highest standard. If the public doesn’t buy it, he will do something else — just as all of you are doing other things here in Atlantis.”

“That’s right!” said Kay Ludlow.

“And what are you doing, my dear?” inquired Dagny.

“The Fountainhead is supposed to be symbolic,” Richard Halley added. “It’s about the moral strength of the individual against the mediocrity of the masses.”

“That’s right — mediocrity,” said Dagny.

“That’s right — mediocrity,” said Francisco.

Roark is the unbridled individualist, the “supreme egoist,” opposed to all forms of self-sacrifice or charity: “I don’t give or ask for help.” The final speech of Howard Roark, “The Individual vs. the Collective,” is delivered with great fervor.

“In a true libertarian society, there would be no government welfare system, that I know,” said Hank Rearden. “But are there to be no charitable organizations, no churches to help the needy?”

“Of course not, Hank. What’s got into you anyway? You’re starting to sound like your wife!” Kay smiled smugly at Galt’s words.

“It’s obvious that Hank is right!” shouted Dagny, snuffing out two cigarettes.

Francisco d’Anconia was disturbed about another aspect of the film. “Frankly, fellow libertarians, the sex in this movie stinks!  Dominique Francon appears incapable of showing real feeling and love. Sex with Roark is impersonal — only afterwards does she discover who he is. Who would want that kind of relationship?”

Dagny looked nervous as Francisco continued talking. “Can you imagine spending weeks alone in an empty country house? What a bore! To Dominique, freedom is empty; it is to want nothing, to depend on nothing. If this film were in color, there would still be no warmth.”

“Oh, who the hell wants color?” Dagny interjected.

Ragnar interrupted. “You might be interested in knowing that Miss Rand didn’t like the outcome of the film either, even though she wrote the screenplay. She wanted Greta Garbo to play the part of Dominique, and she hoped Frank Lloyd Wright would do the architectural designs. Some rank amateur produced some horrible modernistic work instead.”

“You mean she compromised her principles?” asked Rearden. No one replied.

On the thirteenth night, the audience gathered by the light of kerosene lamps. “How romantic!” said Kay Ludlow, but Galt did not reply. Dagny, too, remained silent.

After protracted debate about the morality of voting, an informal poll showed Cash McCall barely topping Shenandoah for Best Libertarian Picture. Paul Newman was voted Best Actor and Farrah Fawcett won Best Actress in a Future Libertarian Film.

John Galt reluctantly congratulated Ragnar Danneskjold for his choice of movies. “But of course,” he added, “the search for the ideal libertarian film won’t end until Atlas Shrugged has been produced.”

“And we can all play ourselves, Kay Ludlow sighed.

The throng of individualists trailed out into the fresh night air. In the distance could be seen the yellowish sign _ of a gold dollar, hovering high in the valley. A man appeared out of nowhere and approached the house, his glossy eyes looking straight ahead at John Galt.

He asked simply, “Who is Cash McCall?”

LIBERTY

Filed Under: Articles, Ayn Rand, Libertarianism, Liberty Magazine

Say’s Law Is Back

August 2, 1999 By admin 1 Comment

Ideas on Liberty
August 1999
by Mark Skousen

“Keynes . . . misunderstood and misrepresented Say’s Law. . . . This is Keynes’s most enduring legacy and it is a legacy which has disfigured economic theory to this day.”
—Steven Kates[1]

In researching my forthcoming book, The Story of Modern Economics (to be published by M. E. Sharpe next year), I came across a remarkable new work by Australian economist Steven Kates, Say’s Law and the Keynesian Revolution. According to Kates, John Maynard Keynes created a straw man in order to produce a revolution in economics. The straw man was Jean-Baptiste Say and his famous law of markets. Steven Kates calls The General Theory “a book-length attempt to refute Say’s Law.”

But to refute Say’s Law, Keynes gravely distorted it. As Kates states, “Keynes was wrong in his interpretation of Say’s Law and, more importantly, he was wrong about its economic implications.”[2] And Kates is sympathetic to Keynesian economics!

How Keynes Got It Wrong

In the introduction to the 1939 French edition of The General Theory, Keynes focused on Say’s Law as the central issue of macroeconomics. “I believe that economics everywhere up to recent times has been dominated . . . by the doctrines associated with the name of J.-B. Say. It is true that his ‘law of markets’ has long been abandoned by most economists; but they have not extricated themselves from his basic assumptions and particularly from his fallacy that demand is created by supply. . . . Yet a theory so based is clearly incompetent to tackle the problems of unemployment and of the trade cycle.”

Unfortunately, Keynes failed to understand Say’s Law. By incorrectly stating it as “supply creates its own demand,” he proposed, in effect, that Say meant that everything produced is automatically bought. Hence, Say’s Law cannot explain the business cycle.[3]

Keynes went on to say that the classical model under Say’s Law “assumes full employment.” Other Keynesians have continued to make this point, but nothing could be further from the truth. Conditions of unemployment do not prohibit production and sales from taking place that form the basis of new income and new demand.

Moreover, Say’s Law specifically formed the basis of a classical theory of the business cycle and unemployment. As Kates states, “The classical position was that involuntary unemployment was not only possible, but occurred often, and with serious consequences for the unemployed.”[4]

Production and Consumption

Exactly what is Say’s Law? Chapter 15 of Say’s A Treatise on Political Economy describes his famous law of markets: “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”[5] When a seller produces and sells a product, the seller instantly becomes a buyer who has spendable income. To buy, one must first sell. In other words, production is the cause of consumption, and increased output leads to higher consumer spending.

In short, Say’s Law is this: The supply (sale) of X creates the demand for (purchase of) Y.

Say illustrated his law with the case of a good harvest by a farmer. “The greater the crop, the larger are the purchases of the growers. A bad harvest, on the contrary, hurts the sale of commodities at large.”[6]

Say has a point. According to business-cycle statistics, when a downturn starts, production is the first to decline, ahead of consumption. And when the economy begins to recover, it’s because production starts up, followed by consumption. Economic growth begins with an increase in productivity, new products, and new markets. Hence, production spending is always ahead of consumption spending.

We can see why this is the case on an individual basis. The key to a higher standard of living is, first, an increase in your income, that is, your productivity, either by getting a raise, changing jobs, going back to school, or starting a money-making business. It would be foolish to achieve a higher standard of living by spending savings or going into debt to buy a bigger house or new automobile before you increase your productivity. You may be able to live high on the hog for a while, but eventually you will have to pay the piper . . . or the credit card bill.

According to Say, the same principle applies to nations. The creation of new and better products opens up new markets and increases consumption. Hence, “the encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means.” Then Say added, “Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption.”[7]

The Cause of the Business Cycle

Say’s Law states that recessions are not caused by failure of demand (Keynes’s thesis), but by failure in the structure of supply and demand. Recession is precipitated by producers miscalculating what consumers wish to buy, thus causing unsold goods to

pile up, production to be cut back, income to fall, and finally consumer spending to drop. As Kates elucidates, “Classical theory explained recessions by showing how errors in production might arise during cyclical upturns which would cause some goods to remain unsold at cost-covering prices.” The classical model was a “high-sophisticated theory of recession and unemployment” that with one fell swoop by the illustrious Keynes was “obliterated.”[8]

In his broad-based book, Kates highlights other classical economists, including David Ricardo, James Mill, Robert Torrens, Henry Clay, Frederick Lavington, and Wilhelm Röpke, who extended Say’s Law. Many classical economists focused on how monetary inflation exacerbated the business cycle. They were precursors of the Austrians Ludwig von Mises and F.A. Hayek.

Free-market economists, such as W. H. Hutt and Thomas Sowell, have tried to rehabilitate Say’s Law, but none carries the punch of Steven Kates.

Notes

  1. Steven Kates, Say’s Law and the Keynesian Revolution (Northampton, Mass.: Edward Elgar, 1998), p. 1
  2. Ibid., p. 212.
  3. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), pp. 25–26.
  4. Kates, p. 18.
  5. Jean-Baptiste Say, A Treatise on Political Economy (Augustus M. Kelley, 1971 [1832]), p. 134.
  6. Ibid., p. 135.
  7. Ibid., p. 139.
  8. Kates, pp. 18, 19, 20.

Filed Under: Articles, Economics, Ideas on Liberty and The Freeman

Las Vegas: America’s Playground

July 28, 1999 By Mark Skousen Leave a Comment

Forecasts & Strategies
Personal Snapshots

by Mark Skousen

“Americans are, above all, a problem-solving people.”
–Paul Johnson, A History of the American People

The transformation of Las Vegas is a perfect example of why the United States of America is still the greatest country in the world. After World War II, developers created in the middle of the Nevada desert a sleazy, tacky town devoted to gambling, shows and sex. But in the past few years, entrepreneurs have created a brand-new Vegas.

Last month, I spent two fun-filled days at the Mirage Resort without gambling. The new Las Vegas offers a wide variety of services for the non-gambler: sports and swimming facilities, great restaurants and buffets, giant IMAX theatres, excellent golf courses, Wet’n Wild water theme park, several spectacular roller-coaster rides, shopping malls (including the sumptuous Forum Shops next to Caesar’s Palace), and a myriad of other forms of entertainment. As a result, Las Vegas is becoming America’s playground.

Another example of urban renewal is New York’s Times Square and 42nd Street. corporations such as Walt Disney have joined with the city to tear down the seedy side of Times Square and re-create a safe environment for local New Yorkers and tourists.

I’m reminded of one other example: Chicago’s Rush Street used to be a crime-infested section of town. Over the past few years, the city fathers have cleaned up the district, and now it’s a hot spot for night life for young people and college students.

PAUL JOHNSON’S NEW BOOK ON AMERICA

The eminent British historian Paul Johnson says, “Americans are, above all, a problem-solving people.” The transformation of Las Vegas, New York’s Times Sauare and Chicago’s Rush Street proves it. It’s our nature to solve problems. Under Reagan, U.S. fought to reduce interest rates, inflation and marginal tax rates.

Under Clinton, the deficit has come down, welfare has been reformed, and crime fallen. And much more can be done. As Johnson states, Americans “will attack again and again the ills in their society, until they are overcome or at least substantial redressed.”

If you want to read an upbeat, one-volume history of the U.S., there is no better source than Paul Johnson’s new book, A History of the American People ($35 or less, available at all major bookstores, on the Internet at www.Amazon.com or through Laissez Faire Books, 800/326-0996). It is a sheer delight to read. Johnson does not hide his admiration, his “labor of love,” of this “most remarkable people,” “this greatest of human adventures,” and this “human achievement without parallel”–the United States of America.

This one-volume history is fresh and exciting to read, not the stale history you may have read when you were a student. Johnson covers material not normally found in the history books, such as the impact of religion and art on American life. Johnson makes you proud of being an American again.

Johnson says, regarding the history of America, “We need to retell it.” Equally, we Americans need to reread it!

Filed Under: Articles, Forecasts & Strategies, Leisure, News

No More Political Labels, Please

July 5, 1999 By Mark Skousen 1 Comment

LIBERTY Magazine

By Mark Skousen


A rose is a rose is a rose. But a conservative is a libertarian is a liberal. When labels confuse rather than clarify, they should be dropped.

RESOLVED: That we use political labels as little as possible when describing
people’s ideologies. When somebody asks me, “Are you a liberal? Conservative? Libertarian? I answer, “What’s the issue?” Categorizing someone’s ideas as either “liberal” or “conservative” is often used to avoid real thinking about actual issues.

I refrain from referring to political positions as either “left” and “right” in my writing. I generally use the word “liberal” to describe a person’s spending habits, as in the case of a “liberal” spender–one who is generous or possibly overly lavish. I also occasionally refer to a person who is open-minded and tolerant of other people’s views as being “liberal” minded. “Conservative” on the other hand, seems best used in the context of investing–I call a person who is prudent and moderate in his choice of investments a “conservative investor” (as opposed to “speculative”)–though it also seems reasonable to describe one who wants to conserve time-honored values as a “conservative.” Not surprisingly, I like to be called “liberal” or “conservative” depending on the issue, the action or the mind-set. I dislike being called either if it is a method for throwing me into a convenient ideological box.

The three main reasons why labels are best avoided in political discussions are: (1) Labels are often an inaccurate description of a person’s or group’s views. (2) Labels often become pejorative terms used in character assassination (3) Labels put people into political boxes and keep them there, preventing individuals from objectively considering alternative opinions and changing their minds.

Obsolescence, Left and Right

The terms “left” and “right” came into use after the French revolution. In the French National Assembly, the “liberals” sat to the left of the president’s chair, the “moderates” in the center, and the “conservatives” to the right. Those on the left were designated “liberals” and “radicals” because they wanted to make major reforms in politics and the economy. Their opponents on the right became “conservatives” and  “reactionaries” because they were aristocratic nationalists who wanted to return to the status quo of the ancien regime. Those in the center were the “moderates” who were looking for a compromise. This political spectrum has often been used in describing the signers of our Declaration of Independence. Still, though Thomas Jefferson has often been called a classical liberal, calling him a left-winger seems out of place.

This dichotomy may have made sense during the American and the French revolutions. But once the principles of freedom and constitutional law were established (in America, at least), the “liberals” gradually became “conservatives” by defending the new status quo of liberty and limited government. Turnabout being fair play, in the 20th century the collectivists who pushed to eliminate economic freedom and expand the role of the state became the “liberals” or “progressives.” Having adopted the favorable titles of “progressive,”  “modern” and  “advanced,” they scorned the opposition as  “right-wing” and  “reactionary.” Thus, in the twisted world of political labeling; what the 19th century liberals supported–free enterprise capitalism and laissez faire government–the 20th-century liberals opposed by pushing for big government and interventionism in the marketplace.

Label confusion has reigned ever since, and the political spectrum has become a rhetorical version of Abbott and Costello’s “Who’s on first?” routine. The 19th century liberal ideals became the policies of some (but by no means all) 20th century conservatives.

Marxists, Communists and other international collectivists became the “radical left,” while the Fascists of the 1930s in Italy and Nazi Germany were designated “right wingers” simply because they opposed the “Reds.” But the only difference in their politics was nationalism vs. internationalism. The fascists were every bit as collectivist as Stalin.

Believers in economic and political liberty had a hard time dealing with label stereotypes in the 1950s. They opposed the New Deal and wanted a return to laissez faire, so they were dubbed “reactionary conservatives.” Because they were ardent “anti-Communists,” they were linked closely with the Fascists and Nazi-era “rightists.” Many conservatives responded by saying they were “old fashioned liberals,” but this didn’t mean anything to anyone in the torrent of nebulous labels.

Growing up in the 1950s and 1960s, I resented these and other pejorative labels. It was nearly impossible to convince anyone of the virtues of free enterprise capitalism, laissez faire government, and opposition to communism if my views were always called “reactionary,”  “old fashioned’ and “Neanderthal.” The conservatives responded in kind by calling the New Deal liberals  “radicals,”  “pseudo progressives’ and “communist sympathizers.”  Only the  “moderates” sounded “responsible,” and depending on their position on an issue, they usually got hit by traffic going both ways. There was a lot of bad blood, and very little sharing of ideas. Conservatives refused to read John Kenneth Galbraith and The Washington Post, and liberals eschewed Milton Friedman and National Review.
In the 1970s and 1980s, the labels became more complex and less enlightening as the political stereotypes began to crack. We now witness dictatorships of the left and the right, market economies of the left and right, revolutions of the left and right, and totalitarianisms of the left and right. We have socialist left-wing parties privatizing public services, and conservative rightwing governments imposing tariffs and higher taxes. We have extreme liberal Democrats supporting deregulation of the airlines and decontrol of natural gas. We have the nation’s most liberal newspaper, The New York Times, coming out against the minimum wage. We have a right-wing anarchocapitalist endorsing radical left-wing land reform in Latin America and legalization of drugs in the United States.

In the Middle East we have right-wing Christians killing left-wing terrorists. Soviet opponents of perestroika and glasnost are called “conservatives” by the American press, as are South African racists. Political analysts are having a devil of a time labeling an old “liberal” publication, The New Republic, because its views are no longer predictable. Politicians are now starting to run as individuals and not as members of a political party. And what’s this about conservative lobbyists joining hands with liberal lobbyists to fight IMF funding? None of this makes sense if we insist on dividing the world into the standard left-right divisions.

But, alas, instead of scrapping the entire phony nomenclature, everyone seems to be making up more labels. There’s the New Right and the Old Right, the Southern Conservative Democrats and the Northern Liberal Democrats, the Neo-Conservatives and the Paleo-Libertarians, the Post-Keynesians, the Neo-Marxists, and the  Neo-Liberals. The list goes on and on, growing like topsy and confusing everyone except the most stalwart who spend all day reading everything from every point on the political compass.

Fortunately, some editors and publishers have recently recognized the misleading and counterproductive nature of labeling and have largely discarded it. Reason magazine is one example. Eschewing ad hominem political tags, Reason analyzes issues on their own merits, not based on who espouses them.

For the Scrap-Heap of History

It’s time to make a change in our political lexicon. The national press and the political analysts need to stop using the outdated and misleading leftwing liberal/right-wing conservative dichotomy. When someone’s philosophy is labeled and compartmentalized, thinking stops and name-calling begins. Once an economist is labeled a Marxist, only the Marxists listen. When a political analyst writes a column called “On the Right,” no one except the “right-wing” faithful reads it. Dividing ideology into camps on two sides of the political spectrum tends to elevate both sides to an equal status, as if both policies hold equal sway and are equally justifiable. Then the moderates whisper, “Perhaps we should compromise!”  We are left with the erroneous impression that “the extreme left is just as bad as the extreme right.” Categorizing philosophies leads toward political nihilism and away from the desire to find the truth.

In short, it is high time that political pundits and the national media put away their cold-war mentality and endorse a new standard where each person stands on individual merit and not in some political box. Left and right, liberal and conservative, radical and reactionary–all are words of the past that divide people. I say scrap them. When adjectives are absolutely necessary, let’s at least try to be more specific. Use adjectives and nouns that are meaningful, accurate and unbiased. If we don’t, the war of political ideas will be decided on the basis of an axiom of my colleague, Larry Abraham: “Those who control the adjectives win.”

Filed Under: Articles, Liberty Magazine, Politics

Y2K and Entrepreneurial Error

March 28, 1999 By Mark Skousen Leave a Comment

ECONOMICS ON TRIAL
The Freeman

March 1999

by Mark Skousen

“No businessman in the real world is equipped with perfect foresight; all make errors.”
–Murray N. Rothbard (1)

Over the past year, I’ve been involved in a series of debates over the impact of the Year 2000 Problem, the potential collapse of computers–and perhaps the economy–owing to the fact that since computer programs use two digits instead of four to indicate years, the year 2000 will be treated as 1900. On the one extreme is Gary North, who claims that the Y2K problem is so serious that it will gravely disrupt society for years. On the other end is Harry Browne, who says that enlightened entrepreneurs will avert a worldwide disaster.

What’s interesting about the debate is that free-market advocates are found on both sides. North and other naysayers focus on the propensity of market players to make entrepreneurial errors and engage in shortsightedness. Browne and other optimists stress the entrepreneurs’ ability to solve problems, especially when so much is at stake. (Some businesses could go bankrupt if they don’t address the Y2K problem.) In short, the market works.

My concern is that the “market always works” camp comprises true believers who blindly think the market can solve all problems almost automatically. They seem to fit into the rational equilibrium-always school of economics where entrepreneurial misjudgment, imperfect knowledge, and uncertainty play little or no role.

MARKETS ARE NOT PERFECT

The Austrian economists teach otherwise. Israel Kirzner, noted for his studies on entrepreneurship, attacks the model of perfect efficiency as “wholly unsatisfying.” He adds that, “It is most embarrassing to have to grapple with the grossly inefficient world we know with economic tools that assume away the essence of the problem with which we wish to deal.” (2)

The market is characterized by profit and loss, success and failure, certainty and uncertainty. There is always room for improvement, and the entrepreneur’s role is to eliminate errors and inefficiencies. Thus, it should come as no surprise that many businesses and financial institutions are making significant headway in fixing their computer programs to avert the Y2K problem.

On the other hand, it would be folly to ignore that many businesses have budgeted insufficient time and money to fix or replace their computers. Evidence is growing that most firms, especially small businesses, are not doing enough. Many major corporations and government agencies, both here and abroad, admit that they only have time to fix critical systems. The rest will fail on January 1, 2000.

Free-market advocates sometimes place too mcuh faith in the market’s ability to solve problems and ignore ubiquitous error in an entrepreneurial economy. Think about all the ways people make mistakes every day in the marketplace: Investors buy the wrong stock. Businessmen declare bankruptcy. Marriages break up. Consumers over-spend and over-eat, especially during the holidays. Kids fail to do homework. Drivers have accidents. Ships sink. Builders don’t meet deadlines. Economists make false predictions. Entrepreneurs cut corners, deceive customers, and embezzle funds. Economic failure, stupidity, and incompetence are common to human nature. As Ludwig von Mises noted, “To make mistakes in pursuing one’s ends is a widespread human weakness.” (3)

The decision by computer programmers in the early 1950s to use two digits instead of four is a classic example of individual shortsightedness. To save space, they cut corners, and now, a generation later, the whole world is paying a heavy price for their blunder.

CLUSTER OF ERRORS

In most cases, entrepreneurial error is random, unpredictable, and self-correcting. As Murray Rothbard states, “As a rule only some businessmen suffer losses at any one time; the bulk either break even or earn profits.” (4)

There are, however, cases of widespread error–mistakes that affect virtually every part of an industry or economy. Rothbard, in standard Austrian school fashion, explained depressions in terms of “a sudden general cluster of business errors.” (5) Of course, the Austrians attribute those errors and the business cycle in general to monetary inflation by government.

Yet can’t error with far-reaching harm occur in the market without government being responsible? Austrian economists don’t normally discuss this possibility, but it undoubtedly exists. Market decision-makers have made shortsighted blunders that have had universal consequences. Examples of such errors include asbestos in construction, pesticides in agriculture, and air and water pollution in manufacturing. The Y2K computer glitch is a particularly tough challenge because it is universal and time-sensitive. In most cases, the deadline cannot be postponed.

THE MARKET’S SELF-CORRECTING MECHANISM

Fortunately, the market has a built-in mechanism to minimize mistakes and entrepreneurial error. The market penalizes mistakes and rewards correct behavior. Business leaders know that computer problems can destroy their business; fixing the Y2K bug will avoid losses and may even be profitable. They are willing to pay the price. As Kirzner has said, “Pure profit opportunities exist whenever error occurs.” (6) At the same time, the market will severely penalize businesses that have ignored the Y2K problem or have procrastinated.

Followers of free markets should take note: markets may be self-correcting, but they are not all-seeing.

FOOTNOTES

1. Murray N. Rothbard, Man, Economy, and State (Nash Publishing, 1970), p. 746.

2. Israel M. Kirzner, “Economics and Error,” in Perception, Opportunity, and Profit (University of Chicago Press, 1979), p. 135.

3. Ludwig von Mises, Theory and History (Yale University Press, 1957), p. 268. Mises adds that “Error, inefficiency, and failure must not be confused with irrationality. He who shoots wants, as a rule, to hit the mark. If he misses it, he is not ‘irrational’; he is a poor marksman.”

4. Murray N. Rothbard, America’s Great Depression, 4th ed. (Richardson & Snyder, 1983 [1963]), p. 16.

5. Ibid.

6. Kirzner, op. cit., pp. 132-33.

Filed Under: Articles, Ideas on Liberty and The Freeman, News

Who is the Greatest Economist of the 20th Century?

February 5, 1999 By Mark Skousen 2 Comments

WHO IS THE GREATEST ECONOMIST OF THE 20TH CENTURY?

“But half a century later, it is Keynes who has been toppled and (_________________), the fierce advocate of free markets, who is preeminent.” –Daniel Yergin and Joseph Stanislaw, The Commanding Heights, p. 15.

Who deserves to be the greatest economist of the 20th century? This question was debated at my session of the annual American Economic Association meetings in New York City last month. We polled the audience of about 150 economists, and John Maynard Keynes won. Keynes revolutionized the economics profession by contending that the free-market economy is inherently unstable and requires government intervention (through deficit spending, progressive taxation and monetary inflation) to keep it on the path of full employment.

Of course, the audience may have been biased since the topic of the session was on Keynes’s most famous proponent, Paul A. Samuelson. Still, Keynesian economics–the economics of government interventionism at the macro level–is very much alive, and therefore, Keynes must be regarded as the most influential economist of the 20th century.

FRIEDMAN’S COUNTERREVOLUTION

However, influence is not the same as greatness. Milton Friedman came in second in the informal poll and in terms of greatness, he exceeds Keynes. Time magazine’s editor-in-chief, Norman Pearlstine, gives the nod to Friedman as the “economist of the century” (Time, December 7, 1998). And in a recent study of living economists most frequently cited in college textbooks, Milton Friedman came in #1 by a landslide. He was cited in all the textbooks. (Paul Samuelson came in a distant #12.) Friedman’s contributions are many: He demonstrated that government, not free enterprise, caused the Great Depression (through a disastrous monetary policy); he showed that monetary policy was more powerful than fiscal policy; he made the case against progressive taxation, deficit spending and monetary inflation. He won the Nobel Prize in 1976 for these efforts. His best books are Capitalism and Freedom and Free to Choose (both still in print, available through Laissez Faire Books, 800/326-0996).

Sharing the Prize

Milton Friedman should also share the prize of greatest economist with Friedrich A. Hayek, the Austrian who studied under Ludwig von Mises. As Yergin notes in The Commanding Heights (quoted above), Hayek made a convincing case against socialist central planning in The Road to Serfdom and other anti-socialist works. He developed a powerful tool for explaining business cycles, known as Austrian capital theory. His theory of knowledge and entrepreneurship is vital in today’s global economy. He rightly won the Nobel Prize in 1974.

So my vote goes to both Friedman and Hayek.

WHO DO YOU CONSIDER THE GREATEST INVESTOR?

As we approach the end of the 20th century, scholars are compiling lists of the greatest writers, politicians, entrepreneurs and scientists of this remarkable century.

I know who gets my vote for greatest investor: Warren Buffett. Not only has he consistently beaten the market, but his optimism about America has paid off handsomely. Too bad he doesn’t own any Internet stocks. He could have been the world’s first trillionaire!

R.I.P., THE SUPERBOWL INDICATOR

I bid a fond farewell to the Superbowl Indicator. Every so often, market players get caught up in an irrational indicator that allegedly makes it easy to predict the markets. In the 1970s it was the soybean-silver ratio. In the 1980s it was the Kondratieff Cycle. And in the 1990s it was the Superbowl Indicator. Supposedly, if the National Football Conference (NFC) won the Superbowl, stocks would rise; if the American Football Conference (AFC) won, stocks would fall. Amazingly, this indicator worked for decades. Throughout the 1990s, the NFC team won and the stock market rose. Then last year the Denver Broncos of the AFC won, and many stock market pundits exited the market or sold short. Big mistake–the S&P 500 rose 28% in 1998! And thus ended once and for all the Superbowl Indicator. Good riddance, and may it be replaced by sound strategies based on free-market economics!

Filed Under: Articles, Forecasts & Strategies, Great Economists, Investing Articles

A Golden Comeback, Part III

November 29, 1998 By Mark Skousen 1 Comment

Economics on Trial THE FREEMAN NOVEMBER 1998

by Mark Skousen

“A free gold market … reflects and measures the extent of the lack of confidence in the domestic currency.”
— LUDWIG VON MISES

In the past two columns, I’ve highlighted the uses and misuses of gold. Despite occasional calls for a return to a gold standard, the Midas metal has largely lost out to hard currencies as a preferred monetary unit and monetary reserve. Most central banks are selling gold.

Gold has also done poorly as a crisis hedge lately. It has not rallied much during recent wars and international incidents. U.S. Treasury securities and hard currencies such as the German mark and Swiss franc have become the investments of choice in a flight to safety.

Nor has gold functioned well as an inflation hedge over the past two decades. The cost of living continues to increase around the world, yet the price of gold has fallen from $800 an ounce in 1980 to under $300 today.

What’s left for the yellow metal? I see two essential functions for gold: first, a profitable investment when general prices accelerate and, second, an important barometer of future price inflation and interest rates.

Gold as a Profitable Investment

Since the United States went off the gold standard in 1971, gold bullion and gold mining shares have become well-known cyclical investments. The first graph demonstrates the volatile nature of gold and mining stocks, with mining shares tending to fluctuate more than gold itself. The gold industry can provide superior profits during an uptrend, and heavy losses during a downtrend.

One of the reasons for the high volatility of mining shares is their distance from final consumption. Mining represents the earliest stage of production and is extremely capital intensive and responsive to changes in interest rates.1

Gold as a Forecaster

Gold also has the amazingly accurate ability to forecast the direction of the general price level and interest rates. In an earlier Freeman column (February 1997), I referred to an econometric model I ran with the assistance of John List, economist at the University of Central Florida. We tested three commodity indexes (Dow Jones Commodity Spot Index, crude oil, and gold) to determine which one best anticipated changes in the Consumer Price Index (CPI) since 1970. It turned out that gold proved to be the best indicator of future inflation as measured by the CPI. The lag period is about one year. That is, gold does a good job of predicting the direction of the CPI a year in advance. (All three indexes did a poor job of predicting changes in the CPI on a monthly basis.)

Richard M. Salsman, economist at H. C. Wainwright & Co. in Boston, has also done some important work linking the price of gold with interest rates. As the second graph demonstrates, the price of gold often anticipates changes in interest rates in the United States. As Salsman states, “A rising gold price presages higher bond yields; a falling price signals lower yields. … Gold predicts yields well precisely because I~ it’s a top-down measure. It is bought and sold based purely on inflationdeflation expectations; thus it’s the purest barometer of changes in the value of the dollar generally.”2

In sum, if you want to know the future of inflation and interest rates, watch the gold traders at the New York Mere. If gold enters a sustained rise, watch out: higher inflation and interest rates may be on the way.

1. For further discussion regarding the inherent volatility of the mining industry, see my work The Structure of Production (New York: New York University Press, 1990), pp. 290-94.

2. Richard M. Salsman, “Looking for Inflation in All the Wrong Places,” The Capitalist Perspective (Boston: H. C. Wainwright & Co. Economics),October 15, 1997. For information on his services,call (800)655-4020.

Filed Under: Articles, Ideas on Liberty and The Freeman, Investing Articles, Investments & Markets

A Golden Comeback, Part II

October 29, 1998 By Mark Skousen Leave a Comment

Economics on Trial THE FREEMAN OCTOBER 1998

by Mark Skousen

“Gold maintains its purchasing power over long periods of time, for example, half-century intervals.”
Rou JASTRAM, The Golden Constant1

In last month’s column, I focused on gold’s inherent stability as a monetary numeraire. Historically, the monetary base under gold has neither declined nor increased too rapidly. In short, it has operated very closely to a monetarist rule.

What about gold as an inflation hedge? In this column, I discuss the work of Roy Jastram and others who have demonstrated the relative stability of gold in terms of its purchasing power–its ability to maintain value and purchasing power over goods and services over the long run. But the emphasis must be placed on the “long run.” In the short run, gold’s value depends a great deal on the rate of inflation and therefore often fails to live up to its reputation as an inflation hedge.

The classic study on the purchasing power of gold is The Golden Constant: The English and American Experience, 1560-1976, by Roy W. Jastram, late professor of business at the University of California, Berkeley. The book, now out of print, examines gold as an inflation and deflation hedge over a span of 400 years.

Two Amazing Graphs

The accompanying two charts are from Jastram’s book and updated through 1997 by the American Institute for Economic Research in Great Barrington, Massachusetts. They tell a powerful story:

First, gold always returns to its full purchasing power, although it may take a long time to do so; and

Second, the price of gold became more volatile as the world moved to a fiat money standard beginning in the 1930s. Note how gold has moved up and down sharply as the pound and the dollar have lost purchasing power since going off the gold standard.

In my economics classes and at investment conferences, I demonstrate the long-term value of gold by holding up a $20 St. Gaudens double-eagle gold coin. Prior to 1933, Americans carried this coin in their pockets as money. Back then, they could buy a tailormade suit for one double eagle, or $20. Today this same coin–which is worth between $400 and $600, depending on its rarity and condition-could buy the same tailor-made suit. Of course, the double-eagle coin has numismatic, or rarity, value. A one-ounce gold-bullion coin, without numismatic value, is worth only around $300 today. Gold has risen substantially in dollar terms but has not done as well as numismatic U.S. coins.

Gold as an Inflation Hedge

The price of gold bullion was over $800 an ounce in 1980 and has steadily declined in value for nearly two decades. Does that mean it’s not a good inflation hedge? Indeed, the record shows that when the inflation rate is steady or declining, gold has been a poor hedge. The yellow metal (and mining shares) typically responds best to accelerating inflation. Over the long run, the Midas metal has held its own, but should not be deemed an ideal or perfect hedge. In fact, U.S. stocks have proven to be much profitable than gold as an investment.

The work of Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, has demonstrated that U.S. stocks have far outperformed gold over the past two centuries. Like Jastram, Siegel confirms gold’s long-term stability. Yet gold can’t hold a candle to the stock market’s performance. As the chart, taken from his book, Stocks for the Long Term, shows, stocks have far outperformed bonds, T-bills, and gold. Why? Because stocks represent higher economic growth and productivity over the long run. Stocks have risen sharply in the twentieth century because of a dramatic rise in the standard of living and America’s free-enterprise system.

One final note: Stocks tend to do poorly and gold shines when price inflation accelerates. As Siegel states, “Stocks turn out to be great long-term hedges against inflation even though they are often poor short-term hedges.”2 Price inflation is the key indicator: When the rate of inflation moves back up, watch out. Stocks could flounder and gold will come back to life. In my next column, I’ll discuss the ability of gold to predict inflation and interest rates.

1. Roy W. Jastram, The Golden Constant: The English and American Experience, 1560-1976 (New York: Wiley & Sons, 1977), p. 132.

2. Jeremy J. Siegel, Stocks for the Long Run: A Guide to Selecting Markets for Long-Term Growth (Burr Ridge, Ill.: Irwin, 1994), pp. 11-12.

Filed Under: Articles, Ideas on Liberty and The Freeman, Investing Articles, Investments & Markets

TEXTBOOKS TAKE FREE-MARKET TACK But Many Welfare-State Myths Still Are Taught

October 22, 1998 By Mark Skousen Leave a Comment

NATIONAL ISSUE — Investor’s Business Daily

TEXTBOOKS TAKE FREE-MARKET TACK But Many Welfare-State Myths Still Are Taught

Date: 10/22/98
Author: Michael Chapman


Many students today learn a lot about free-market economics. Problem is, John Maynard Keynes, the godfather of the welfare state, is doing the teaching.

Still, in recent years, textbooks have improved. Free-market economists like Milton Friedman and Friedrich Hayek get some play. But their successful ideas still aren’t getting the coverage they deserve.

The problem is what’s not taught, the ”sins of omission,” said economist Mark Skousen, author of ”Economics on Trial: Lies, Myths, and Realities.”

”I give the textbooks higher marks now,” he said, ”but there’s still much more to do.”

Free enterprise and private property are what America was built on. The idea of private property – ”life, liberty and the pursuit of happiness” – is enshrined in the Declaration of Independence.

Economic freedom is essential to political freedom, says Nobel Prize winner Friedman.

In countries with little economic freedom, such as China or the former Soviet Union, he says, there’s little political liberty. You can’t have one without the other.

So it’s vital that American students learn the facts about free enterprise. But do they?

A few textbooks at the high school and college undergraduate levels are good, says Burton Folsom Jr., a former college professor and now senior fellow at the Michigan- based Mackinac Center for Public Policy.

”The new high school textbooks are moving away from Keynes,” he said. ”But they’re still bad on antitrust, taxes and the Great Depression. They repeat myths about (John D.) Rockefeller and Reagan.”

Professor Richard Ebeling, head of the department of economics and business at Hillsdale College, agrees.

Some college texts now cite free-market economists such as Friedman and the monetarists or Hayek and the so-called Austrians, Ebeling says. But these schools of thought ”are explained in terms of a general Keynesian model or theory.”

”The Keynesian mind-set still dominates,” he said.

With that mind- set come many economic myths, false beliefs about markets and a skewed view of how the world works.

Folsom and his colleagues at the Mackinac Center are finishing a study of 16 high school textbooks. The books were reviewed to find whether students were getting a good economics education. So far, three books earned A’s, six got D’s, and two wound up with F’s.

Texts in their fifth or sixth editions still rely on Keynes, Folsom says. But the new texts are kinder to free enterprise.

”They’re good on trade issues and entrepreneurship – and there is some skepticism of big government,” Folsom said. However, they’re bad on antitrust, he says.

For instance, they repeat the myths about John D. Rockefeller and the robber barons, Folsom says.

”Rockefeller never had a monopoly. He had an oligopoly (a market controlled by a handful of firms),” Folsom said. ”The price of refined oil fell from 30 cents to 6 cents a gallon . . . (and) Standard Oil’s market share declined to 64% (in 1911 from 88% in 1890) because of competition – before the government broke it up.”

Standard’s share of oil production had dropped from 34% in 1890 to 11% in 1911 before antitrust enforcers broke this ”monopoly.”

Folsom also notes that U.S. Steel was the largest steel company in 1901; it held 61% of the market.

But because of competition, not antitrust laws, U.S. Steel’s market share fell to 39% by the mid-’20s.

”This is never mentioned in the textbooks,” Folsom said. The same holds true for American Sugar, he says, which held 98% of the market in the 1890s only to see its share decline due to competition.

A second myth, Folsom found, concerns taxes.

”Supply-side still hasn’t sunk in. Tax cuts in the ’20s produced more federal revenue, and cuts in the ’80s doubled federal revenue.” Only two texts were fair on this topic, Folsom says.

College texts still don’t treat supply-side economics right, Skousen says. ”It still gets a lot of criticism.”

A third myth is that laissez- faire capitalism caused the Great Depression and government spending cured it, say Folsom, Skousen and Ebeling.

”Almost every textbook misses on this,” Folsom said. ”Friedman proved that the Federal Reserve caused it, and government programs didn’t get us out of the Depression.”

Walter Williams, chairman of the economics department at George Mason University, agrees.

”Some textbooks say that runaway capitalism caused the Depression, when it was the Fed and the Smoot-Hawley tariff that did it,” Williams told IBD. ”Friedman confirmed this.”

Among economists, only those of the Austrian School, such as Hayek and Ludwig von Mises, clearly predicted the ’29 stock market crash and the Depression that followed.

They both blamed the Fed’s manipulation of the money supply, years before Friedman documented it. Yet the Austrian School rarely gets a mention in textbooks.

Williams adds that other related myths are that ”World War II brought us out of the Depression and that war is good for the economy.”

In fact, war means less money for real investment, he said, because money that could be going to factories and equipment is instead spent on troops and arms.

The minimum wage and the business cycle got fair treatment in about half the texts, Folsom said, but it’s still ”a mixed bag.”

Many texts still view the Fed as ”the savior” of the business cycle, he said, ”but we had more stability under the gold standard.”

There’s little debate among academic economists anymore that the minimum wage causes unemployment, Williams says. ”The debate is the magnitude.”

If money’s a problem, why not just make the minimum wage $25 an hour? Or $100? Obviously, supply and demand would intercede, and people would see the danger, Ebeling says.

Ditto for Fed control of the money supply. ”(Interest) rates are real. Why not make the rate zero? It’s like setting the price of shoes at zero.”

The myth that the minimum wage ”is a wonderful way of helping poor people,” however, is peddled by professors in other fields, said Donald Boudreaux, a former economics professor and now president of the Foundation for Economic Education.

”There is a knee-jerk reaction for government intervention at universities, even among those who’ve had economic training,” Boudreaux said. ”It’s a statist culture.”

Boudreaux adds that the problem with the textbooks began with Paul Samuelson. He’s a Keynesian and Nobel Prize winner whose books have dominated economics teaching since the ’40s.

Samuelson argues that economics is a science, Boudreaux says.

”He sees the economy as a machine that government can manipulate,” he said. ”The ideology is that if we get good people, we can master the economy.”

Ebeling adds that the myth is that ”the market is a planned mechanism” and planning is needed because markets fail.

This thinking pervades college textbooks, he says. It ignores the entrepreneur, who is the prime mover, and myriad complex and intricate relationships at the microeconomic level.

In some ways, the teaching of college economics has grown worse, Boudreaux says.

”By and large, the top schools, they teach technique, mathematical manipulation of economic models, a series of equations. They’re divorced from reality.”

But Skousen also sees a shift away from Keynes in newer college texts.

”All textbooks have shifted more toward free markets,” he said. They are going back to the classical, long-term growth model first and the Keynesian, short-term equilibrium model second. Friedman is cited more often, he said, and the Austrians get a little credit.

One of the biggest myths still peddled, however, is that the economy is consumer- driven, Skousen says.

”You see this all the time,” he said, ”references to retail sales, consumer spending. Consumption should be almost ignored. Focus on production. The economy is investment-driven.”

Filed Under: Articles, Economics, Free Markets

A Golden Comeback, Part I

September 29, 1998 By Mark Skousen Leave a Comment

Economics on Trial THE FREEMAN SEPTEMBER 1998

by Mark Skousen

“A more timeless measure is needed; gold fits the bill perfectly.”
–MARK MOBIUS

When speaking of the Midas metal, I’m reminded of Mark Twain’s refrain, “The reports of my death are greatly exaggerated.” After years of central-bank selling and a bear market in precious metals, the Financial Times recently declared the “Death of Gold.” But is it dead?

Following the Asian financial crisis last year, Mark Mobius, the famed Templeton manager of emerging markets, advocated the creation of a new regional currency, the asian, convertible to gold, including the issuance of Asian gold coins. “All their M1 money supply and foreign reserves would be converted into asians at the current price of gold. Henceforth asians would be issued only upon deposits of gold or foreign-currency equivalents of gold.” Mobius castigated the central banks of Southeast Asia for recklessly depreciating their currencies. As a result, “many businesses and banks throughout the region have become bankrupt, billions of dollars have been lost, and economic development has been threatened.” Why gold? “Because gold has always been a store of value in Asia and is respected as the last resort in times of crisis. Asia’s history is strewn with fallen currencies. … The beauty of gold is that it limits a country’s ability to spend to the amount it can earn in addition to its gold holdings.”

Not Just Another Commodity

Recent studies give support to Mobius’s new monetary proposal. According to these studies, gold has three unique features: First, gold provides a stable numeraire for the world’s monetary system, one that closely matches the “monetarist rule.” Second, gold has had an amazing capacity to maintain its purchasing power throughout history, what the late Roy Jastram called “The Golden Constant.” And third, the yellow metal has a curious ability to predict future inflation and interest rates.

Let’s start with gold as a stable monetary system. With most commodities, such as wheat or oil, the “carryover” stocks vary significantly with annual production. Not so with gold. Historical data confirm that the aggregate gold stockpile held by individuals and central banks always increases and never declines.2 Moreover, the annual increase in the world gold stock typically varies between 1.5 and 3 percent, and seldom exceeds 3 percent. In short, the gradual increase in the stock of gold closely resembles the “monetary rule” cherished by Milton Friedman and the monetarists, where the money stock rises at a steady rate (see Chart I).

Compare the stability of the gold supply with the annual changes in the paper money supply held by central banks. As Chart II indicates, the G-7 money-supply index rose as much as 17 percent in the early 1970s and as little as 3 percent in the 1990s. (Why has monetary growth slowed even under a fiat money standard? The financial markets, especially the bondholders, have demanded fiscal restraint of their governments.) Moreover, the central banks’ monetary policies were far more volatile than the gold supply. On a worldwide basis, gold proved to be more stable and less inflationary than a fiat money system.

Critics agree that gold is inherently a “hard” currency, but complain that new gold production can’t keep up with economic growth. In other words, gold is too much of a hard currency. As noted the world gold stock rises at a miserly annual growth rate of less than 3 percent and oftentimes under 2 percent, while 70% GDP growth usually exceeds 3 or 4 percent and sometimes 7 or 8 percent in developing nations. The result? Price deflation is inevitable under a pure gold standard. My response: Critics are right that gold-supply growth is not likely to keep up with real GDP growth. Only during major gold discoveries, such as in California and Australia in the 1850s or South Africa in the 1890s, did world gold supplies grow faster than 4 percent a year.3

Prices Must Be Flexible

Consequently, an economy working under a pure gold standard will suffer gradual deflation; the price level will probably decline 1 to 3 percent a year, depending on gold production and economic growth. But price deflation isn’t such a bad thing as long as it is gradual and not excessive. There have been periods of strong economic growth accompanying a general price deflation, such as the 1890s, 1920s, and 1950s. But price and wage flexibility is essential to make it work.

Next month. Update on Jastram’s study The Golden Constant, and gold’s amazing ability to maintain its purchasing power over the past 400 years.

1. Mark Mobius, “Asia Needs a Single Currency,” Wall Street Journal, February 19, 1998,p. A22.
2. See the chart on page 84 of my Economics of a Pure Gold Standard, 3rd ed. (1997), available from FEE. Note how the world monetary stock of gold never has declined between 1810 and 1933.
3. Ibid., p X6.


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Skousen Investor CAFÉ is a weekly electronic newsletter written by Dr. Mark Skousen. Mark offers commentary on the markets, the economy, politics and other topics of interest and what they mean to individual investors. Sign up for FREE here.

FreedomFest Conference


FreedomFest is an annual festival in Las Vegas where free minds meet to celebrate “great books, great ideas, and great thinkers” in an open-minded society. It is independent, non-partisan, and not affiliated with any organization or think tank.

Anthem Film Festival

Anthem Libertarian Film Festival

Anthem is the only film festival in the country devoted to promoting libertarian ideals. Anthem shows films and documentaries that celebrate self-reliance, innovation, commerce, individual rights, and the power of persuasion over force. We are looking for the year's best films about personal and civil liberty.

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