Revista Procesos de Mercado (Review of Market Processes) has just published Mark Skousen’s article, “Blocking Progress in Austrian Economics: A Rejoinder,” where he defends his work in gross output (GO) and responds to a recent critique by Walter Block. See http://www.jesushuertadesoto.com/revista-procesos-de-mercado/vol-xiv-no2-2017/, pp. 153-172.
SQUARING THE MISES CIRCLE
“Eureka! Skousen has done the impossible. Students love it! I will never go back to another textbook.”
– Professor Harry Veryser, University of Detroit-Mercy
They said it couldn’t be done. Austrian economics is so different, they said, that it couldn’t be integrated into standard “neo-classical” textbooks. Consequently, college students learn little or nothing about the great Austrian economists (Mises, Hayek, Schumpeter).
Starting with Menger’s “Theory of the Good” and the Profit-and-Loss Income Statement
Professor Mark Skousen’s Economic Logic (now in its new 5th edition) aims to change that. Based on his popular course taught at Chapman University, Columbia Business School, and other institutions, Skousen starts his “micro” section with Carl Menger’s “theory of the good” and the profit-and-loss income statement to explain the dynamics of the market process, entrepreneurship, and the advantages of saving. Business students find this approach especially valuable. After analyzing the dynamics of the P&L statement, supply and demand diagrams are introduced.
Linking Micro and Macro
Then he incorporates a simplified version of “Hayek’s Triangles,” a powerful four-stage model of the economy to link micro and macro economics for the first time. For micro, he uses Stanford Professor John Taylor’s 4-stage process of making coffee:
Then for the macro model, Dr. Skousen uses this universal 4-stage diagram:
GO Behind GDP: Measuring Hayek’s Triangle
Every quarter a public-traded company releases a financial statement that includes both the “top line” (revenues/sales) and a “bottom line” (earnings, net income).
Using the 4-stage model of the economy, Skousen applies the same approach to national income accounting. Based on his work, The Structure of Production (NYU Press, 1990), he identifies gross output (GO) as the value of all 4 stages of production (#1 through #4 above) or the “top line” in national income accounting, and GDP (stage #4) as the “bottom line.”
GO is a measure of Hayek’s triangle. It adds up sales or revenues at all stages of production throughout the year, while GDP counts only final sales.
GO is a vital statistic, as it includes the value of the supply chain, all the business-to-business (B2B) transactions that move the production process toward final use. It is a measure of the “make” economy, while GDP estimates the value of the “use” economy.
In Economic Logic, GO is incorporated as a more comprehensive measure of the economy, serves as a valuable tool in analyzing the business cycle, restores the business sector as the major driver of the economy, and deserves to be updated on a quarterly basis along with GDP.
GO is now a reality. In April, 2014, the Bureau of Economic Analysis (BEA) in the Department of Commerce announced it will publish GO every quarter along with GDP. Austrian economics (Hayek’s triangles) is now officially part of macroeconomic accounting! (For Skousen’s latest press release on GO, go to www.mskousen.com.)
For the first time, the 5th edition of Economic Logic fully integrates GO in the chapters 14-15 on national income accounting and throughout the textbook. GO is presented as the top line, and GDP as the bottom line in national accounting. As economists Dale W. Jorgenson, Stephen Landefeld, and Bill Nordhaus state in their book “A New Architecture in US National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
Added Highlights to the 5th Edition
In addition, here’s new material found in the 5th edition:
- John Mackey’s “stakeholder” model of capitalism has been incorporated into the stages-of-production process in chapter 3. Moving the production process along requires the cooperation of all economic inputs or stakeholders.
- Updated discussions on job creation, the labor force participation rate, and the recovery after the Great Recession is discussed in detail in chapters 10 and 25. Chapter 10 also addresses the unemployment issues in Europe and America, and the prospects for renewed growth under a Trump administration.
- Recent government regulations (Sarbanes-Oxley, Dodd-Frank, SEC) following the 2008 financial crisis and the Bernie Madoff fraud are discussed in chapter 13.
- The consumption and savings rate patterns of China are compared to those of the United States in chapter 17. This comparison helps to determine what drives the economy, consumer spending or savings/investment?
- The end of the Federal Reserve’s “easy money” policies of ZIRP (zero interest rate policy) and Quantitative Easing (QE) in 2017 are debated in chapter 19.
- The on-going debate on “austerity” vs. “stimulus” has been added to chapter 22.
- What factor is more significant in the business cycle, Keynesian lack of “aggregate demand” or Hayekian “malinvestment”? See chapter 25.
- The rise of state capitalism in China is highlighted in chapter 27.
- The international gold standard, the defects of central banking, and the Mises/Hayek theory of the business cycle.
- A full critique of the Keynesian Aggregate Supply and Demand (AS-AD) model, and a revolutionary Austrian alternative (chapters 22 and 25). Plus a critique of Marxism and socialist central planning (chapter 27).
- Entrepreneurship, the financial markets, environmental economics, monetary policy and inflation, federal spending and taxes, and government regulation.
- Leaders of all schools, including Austrian, Keynesians, Marxist, Chicago, and Public Choice.
- Austrians highlighted include Ludwig von Mises (chapter 2), Carl Menger (3), Joseph Schumpeter and Israel Kirzner (8) Eugen Böhm-Bawerk (11), Peter F. Drucker (12), Murray Rothbard (18), and Friedrich Hayek (25). Other highlighted free-market economists include Adam Smith, Gary Becker, George Stigler, John Bates Clark, J. B. Say, Milton Friedman, James Buchanan, Art Laffer, Ronald Coase, Julian Simon, and Robert Mundell.
- Economic Logic is dedicated to Friedrich Hayek and Milton Friedman, thus drawing from the best of the Austrian and Chicago schools of free-market economics.
- A glossary of terms has been added to this edition.
What Economists Are Saying
“An excellent balance of theory and the real world that no other text has achieved.”
– Charles Baird, CalState East Bay
“Better than any book out there! Skousen presents real business economics in a clear, provocative and logical fashion.”
– Ian Mackechnie, University of Wales
“Perfect for any economics student — designed to maximize learning while minimizing monotony. Simple, direct, and comprehensive.”
– K. Au, home school instructor
“My college econ classes, filled with perplexing theories like the paradox of thrift, GDP and Keynesian fiscal policy, were completely refuted by this excellent free-market textbook. Students, if your professors don’t use this text, get it for yourself so you can really understand the concepts of sound economics.”
– Amazon review
This new 5th edition (2017) of Economic Logic is a 714-page quality paperback published by Capital Press/Regnery. It retails for $79.95, but is available at a discount — only $39.95, plus $5 shipping & handling (for all orders outside the US, add an additional $15), by calling Ensign Publishing at:
About the Author
Mark Skousen, Ph. D., is a Presidential Professor at Chapman University, has taught economics at Columbia University, is the former president of FEE, and is the author of over 25 books, including several in Austrian economics: The Structure of Production (NYU Press); Vienna and Chicago, Friends or Foes? (Capital Press), The Making of Modern Economics (Routledge), and A Viennese Waltz Down Wall Street: Austrian Economics for Investors (LFB Books). For more information, go to www.mskousen.com.
“Mark Skousen is America’s leading economic author because he roots his luminous books in the real world. He is the Hayek of our era.” – George Gilder
Based on his popular classes at Chapman University and Columbia Business School, Professor Mark Skousen has just released the 5th edition of Economic Logic, the only “no compromise” college-level course in free-market economics.
It is uniquely based on his 40 years of experience as a CEO of several successful businesses, economic analyst for the CIA, president of a non-profit (FEE), and teacher at major colleges and universities. (He has a Ph. D. in monetary economics from George Washington U.) He is the founder of FreedomFest, “the world’s largest gathering of free minds.” Dr. Skousen was recently ranked as one of the world’s top 20 most influential economists today.
Economic Logic is divided into 28 lessons or chapters, and is used as a primary textbook in over a dozen major colleges and universities. It is designed to give you the analytical tools and market solutions to the most pressing problems facing business, government leaders, and individuals today:
- Real market solutions to the Great Recession and European debt crisis (including the hidden benefits of “austerity” programs).
- How John Mackey’s revolutionary “stakeholder” brand of “conscious capitalism” is destined to transform global business.
- Proof that the Federal Reserve is the engine of inflation, not the defender of sound money. (And why gold will never disappear as a monetary asset.)
- Why the Chinese model of state capitalism is destined to fail.
- How the Austrian school of Mises and Hayek trumps the Keynesians, Chicago monetarists, and Marxists. (Each chapter highlights an influential economist).
- How the welfare state violates the fundamental principles of sound economics, and how other countries have resolved the unfunded liability problem.
- Why saving, technology, entrepreneurship, and business investment drive the economy — not consumer spending or government stimulus.
- It introduces a major breakthrough in macroeconomics: a “top line” in national income accounting called gross output (GO), and why GDP distorts and leaves out critical information about production, consumption and investment.
- A full critique of Keynesian economics and the dangers of easy-money policies.
- Updates on the economics of global warming, Obamacare, and other threats to prosperity.
For more information, go to www.mskousen.com
What Others Are Saying
“Students love it. I will never go back to another textbook.” – Prof. Harry Veryser (University of Detroit-Mercy)
From Amazon reviews: “Ground breaking….Gave me a profound new understanding of real-world economics and personal finance….Easy to read without any need for math…My college economics courses, filled with perplexing theories like the paradox of thrift, GDP and Keynesian fiscal policy, were completely refuted in this excellent free-market textbook.”
This new 5th ed. of Economic Logic is completely revised and updated, a 714-page workbook published by Capital Press/Regnery. It retails for $79.95, but you pay only $39.95, plus $5 S&H (for all orders outside the US, add an additional $15). For all credit call orders, call Ensign Publishing, toll-free 1-866-254-2057, or go to www.miracleofamerica.com.