ADAM SMITH AND THE MAKING OF MODERN ECONOMICS

By Mark Skousen
Presidential Fellow, Chapman University
mskousen@chapman.edu

(This paper is an expanded version of the first Adam Smith Lecture presented on September 24, 2018, at the Panmure House, Edinburgh, Scotland, sponsored by the Edinburgh School of Business.)

It is a supreme pleasure to give the first Adam Smith Lecture in this newly refurbished Panmure House here in Edinburgh, Scotland, the home where Adam Smith lived for the final dozen years of his life as he served as the Commissioner of Customs.  It was here that Smith produced four editions of his famous work, The Wealth of Nations.  I wish to thank Professor Keith Lumsden and everyone at the Edinburgh School of Business involved in this important project for inviting me to speak on this special occasion.

I wish to take this opportunity to talk about my own sojourn in which I made Adam Smith and his system of natural liberty the heroic figure in my book, The Making of Modern Economics, and the contributions I have made in the history of economic thought.

Adam Smith

My wife Jo Ann and I at the Panmure House in front of portrait of Adam Smith on September 24, 2018.

My contributions consist of the following:

First, The Making of Modern Economics:  Lives and Ideas of the Great Economic Thinkers is the first one-volume history of economics written from a market-friendly perspective.[1]  Until its publication, almost all other histories of thought were written by socialists, Keynesians and Marxists.

Second, my book applies an alternative to the traditional pendulum “left-right” approach to the political spectrum — a totem pole of economics, where economic thinkers are ranked from top to bottom.

Third, my work creates for the first time a real story line in the history of economics, with a primary protagonist; a cunning plot where the hero faces his enemies and is sometimes left for dead, only to be rescued by his friends; and a happy ending.  The running storyline is Adam Smith’s “system of natural liberty,” where every economist is measured to the extent they support or add to the house that Adam Smith built, or are critics who want to tear down and replace Smith’s model with their own.

To explain how this new pedagogy came about, let me tell my own story about how The Making of Modern Economics came into being.

The Origin:  Commissioning Murray Rothbard

The genesis of my work goes back to 1980, when I commissioned the libertarian economist Murray Rothbard to write a free-market alternative to the bestselling book, The Worldly Philosophers, by the late Robert Heilbroner.  No better title has been found for the “lives and ideas of the great economic thinkers” from Adam Smith on.  Heilbroner’s little book has been immensely popular, for both students and laymen, having sold over four million copies.  Unfortunately, Heilbroner was a socialist whose favorite economists were Karl Marx, Thorstein Veblen, and John Maynard Keynes.  He ignored the ideas of the French laissez faire school of J. B. Say and Frederic Bastiat; the Austrian school of Ludwig von Mises and Friedrich Hayek; and the monetarist school of Irving Fisher and Milton Friedman.  In fact, he didn’t even mention Milton Friedman’s name in the latest edition.  The reader deserved a more balanced approach.

Adam Smith

I also found the way the history of economics was taught in college to be frustrating.  One of the most disappointing classes I took as an undergraduate was in the history of economic ideas.  The course was convoluted, the text was dry (with few anecdotes and no pictures), the lives of economists seemed uninteresting, and even the A students came away from the class wondering whether economists made any sense at all.  Typically students in economics were exposed to a wide range of schools of thought — neoclassical, Keynesian, monetarist, Austrian, supply side, institutionalist, and Marxist — without any effort to determine the veracity of their theories.

In sum, the story of economics was told in a haphazard and disjointed way.  In a sense, there was no story at all.  There was no running plot, no engaging drama, and no single heroic figure.  Economists came and went on the pages of history, with no sense that the science was advancing or regressing.  In my readings of the histories of economic philosophy, they all lacked a running storyline, and a consistent point of view that allows the student to realize when an academic scribbler was heading down the wrong road, or off a cliff.

For years, I searched for a new approach.  I asked some of my friends who I should approach to write a contra-Heilbroner history.  Larry Wimmer, my mentor at BYU, suggested George Stigler, the Chicago economist, but I worried about his biting sarcasm and his criticism of the Austrian school.

I considered Murray Rothbard, the iconoclastic Austrian economist, to be a better choice.  One day in 1980 I called him on the telephone and asked him what he thought about the idea of writing a contra-Heilbroner history of thought.  He was enthusiastic and loved the idea, saying that he always wanted to write a libertarian version.  So we readily agreed, and I paid him a handsome advance of $20,000, so that he would concentrate on this work among his many other projects.   He promised that he would deliver a 12-chapter history in 12 months, and the book would not go beyond 300 pages, the same length as Heilbroner’s.

Then the waiting game began…

One year passed.  Two years.  Three years.  No completed manuscript.  No 300 pages.  No layman’s discourse.  No Adam Smith.  Murray was writing all right, but he was not writing a Heilbroner bestseller for the general public.  He was writing and researching what we call a Schumpeterian tome for graduate students:  a multi-volume, dense history of economic thought for professionals and advanced students.

In the 1940s, Joseph Schumpeter, the Austrian economist and iconoclastic Harvard professor, wrote his voluminous History of Economic Analysis, which reached 1,260 pages by the time it was published.  Rothbard’s laborious work began with Aristotle and the Greeks, moving slowly along to the Catholic Fathers and the Enlightenment, and finally, by chapter 16, reaching the celebrated Adam Smith.

I was an admirer of Murray Rothbard as a libertarian economist and radical historian, but I could see that this was not what I had bargained for.  Years later, after tiring of asking the question, “Have you reached Marx yet?” I sent Murray a copy of a Harvard Crimson interview with Joseph Schumpeter, who said in 1944, “My research program grows longer and my life shorter.  My History of Economic Analysis drags, and I am always hunting other hares.”  Rothbard was apparently following the same path.

Fifteen years later — 1995 — Edward Elgar (the publisher, not the composer) published the first two volumes of Rothbard’s history, “Economic Thought Before Adam Smith” (556 pages) and “Classical Economics” (528 pages).  Rothbard’s first volume ends with his famous (and critical) chapter on Adam Smith; and his second volume ends with his chapter on Karl Marx.  I have enjoyed reading Rothbard’s stimulating and often cutting remarks, and agree with much of what he wrote (with the strong exception of his attack on Adam Smith).  But he never finished the job.

Adam Smith

I frequently commented to friends that Murray was writing a Schumpeterian tome, which also meant that he would probably die before completing the book.  After Schumpeter’s death in 1950, his devoted wife, Elizabeth, tried to get the almost finished manuscript ready for publication.  She also passed away before completing the task, and the manuscript was prepared for publication by Harvard colleagues, and published by Oxford University Press in 1954.

Sadly, my concern became prophetic.  Murray Rothbard died of a heart attack in New York City in January 1995, at the age of 69, only a few weeks before the first copies of his two-volume work appeared (I believe I was the first person to be receive the two volumes in the mail).  He never got to the next two planned volumes.

My Turn to Write a One-Volume History

After Murray’s unexpected passing, I realized that the contra-Heilbroner work had yet to be written.  Like other libertarians, I admired most of Murray Rothbard’s contribution, but it wasn’t a Heilbroner alternative.  It was a Schumpeter alternative.

I finally came to the conclusion that perhaps I myself had prepared sufficiently to write the first one-volume history of economics from a free-market perspective.  In the 1980s I had written my work The Structure of Production, a treatise on Austrian macroeconomics, that was both historical and theoretical.  It was published in 1990 by New York University Press.  Then in 1991, I came out with Economics on Trial, a review of the top-ten textbooks in economics, which included studies of all the major schools of thought, and a year later an edited volume, Dissent on Keynes. 

So I began writing my first chapter entitled “It All Started with Adam” (Adam Smith, that is).  At the time, I was still heavily under the influence of Rothbard, so my first chapter was largely a negative assessment of Adam Smith.  Rothbard held the unconventional view that Smith apostatized from the sound doctrines and theories previously developed by pre-Adamites such as Richard Cantillon, Anne Robert Turgot, and the Spanish scholastics.  He asserted that Adam Smith’s contributions were “dubious” at best, that “he originated nothing that was true, and that whatever he originated was wrong,” and that The Wealth of Nations was “rife with vagueness, ambiguity and deep inner contradictions.”  Specifically, his doctrine of value was an “unmitigated disaster”; his theory of distribution was “disastrous”; his emphasis on the long run was a “tragic detour”; and Smith’s putative “sins” include support for progressive taxation, fractional reserve banking, usury laws, and a crude labor theory of value that Marxists later borrowed from Adam Smith and David Ricardo.[2]

At the time my assessment of Adam Smith followed similar lines.  I didn’t feel completely comfortable with this first chapter, but I was on my way.

The Adam Smith Debate

After writing the first chapter, I took it with me on a trip to Utah, and showed it to my uncle Cleon.  Uncle Cleon was a wise old man I respected as a towering figure in law, politics and religion.  I asked him to read the chapter.  When I handed him the first chapter, he turned to me and said with considerable feeling, “You know, Mark, the Adam Smith doctrine of the invisible hand is inspired of God.”

His statement shocked me.  I thought to myself, “If my uncle is right, I need to rewrite this chapter and start over.”

Later I read Ludwig von Mises’s introduction to Regnery’s edition of The Wealth of Nations, which Mises called a “great book.”  According to Mises, Smith’s works are “the consummation, summarization, and perfection…of a marvelous system of ideas…presented with admirable logical clarity and an impeccable literary form…. [representing] the essence of the ideology of freedom, individualism, and prosperity.”  Furthermore, “Its publication date — 1776 — marks the dawn of freedom both political and economic….It paved the way for the unprecedented achievements of laissez-faire capitalism.”  He concluded, “There can hardly be found another book that could initiate a man better into the study of the history of modern ideas and the prosperity crated by industrialization.”[3]

So I struggled with the question, “Who’s right?  Murray Rothbard, the professional economist and my mentor, or my wise old Uncle Cleon, who is not an economist by training but somebody I admire, or even better Ludwig von Mises, Rothbard’s mentor?”

There was only one way to find out.  I decided to read Adam Smith’s magnum opus, The Wealth of Nations, cover to cover, and decide for myself.

Adam Smith

So for the next two months I read day after day all 975 pages of The Wealth of Nations.  (I still have that well-marked Modern Library edition on my bookshelf.)  Two months later, I put the book down, and concluded without any doubt:  Murray Rothbard is wrong and my Uncle Cleon, and Ludwig von Mises, are right.  Adam Smith’s “system of natural liberty” and The Wealth of Nations, despite its sometime significant errors, are an inspiring and profound work that deserves to be the central message of the book.

I immediately tore up the first chapter and started rewriting it, and suddenly the whole theme of the book became clear.  I now had a powerful running plot, the development of an economic science based on Adam Smith’s “system of natural liberty” (freedom, competition, and justice).  The first chapter was built around the “invisible hand” doctrine or what was later described as “the first fundamental theorem of welfare economics.”  The book had a singular hero (Adam Smith, the father of modern economics), and a series of characters and events that either advanced or impeded the house that Adam Smith built.   In the words of George Stigler, the competitive model of Adam Smith became the “crown jewel” of economics, “the most important substantive proposition in all of economics.  Smith had one overwhelmingly important triumph:  he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interest under conditions of competition.”

By establishing an heroic figure in the development of economics, I found that it was possible to judge all economic characters on the stage of ideas.  The first chapter begins with Adam Smith, the heroic figure, and thereafter economists are ranked to the extent that they promoted or detracted from Smith’s “system of natural liberty.”  Thus, Karl Marx, Thorstein Veblen, John Maynard Keynes, Joseph Stiglitz, and even some of Smith’s disciples such as Robert Malthus and David Ricardo undermined the Smithian model of democratic capitalism during periods of economic failure and upheaval, while J. B. Say, Carl Menger, Alfred Marshall, Irving Fisher, Ludwig von Mises, and Milton Friedman, among others, remodeled and improved upon Smithian economics as the world economy recovered and prospered.  My history unfolded as Smith and his system of natural liberty came under frequent attack, such as during the Industrial Revolution, and were sometimes left for dead, such as in the Great Depression, but were always resuscitated and reinvigorated by supporters.  The collapse of the Soviet socialist central planning model in 1989-92 represented a triumph of the Adam Smith model.  Thus, the story of economics had a good ending (albeit muddied by the financial crisis of 2008).

In short, I made a discovery.  For the first time, economics could be told as a story, with a plot, a hero and a good ending.  Hence, the title:  The Making of Modern Economics.  (I originally suggested to the publisher that we call it “The Story of Economics,” but he rejected it on the grounds that it was not an academic title.)  Milton Friedman caught the vision of my book when he said, after reading it, “All histories of thought are BS–Before Skousen.”

To summarize, all previous histories of economic ideas tended to give a dry, disjointed, and helter-skelter account of economists and their contradictory theories. But The Making of Modern Economics unifies the story of economics for the first time by ranking all major economic thinkers either for or against the invisible hand doctrine of Adam Smith. Thus, Marx, Veblen and Keynes are viewed as critics of Smith’s doctrine, while Marshall, Hayek and Friedman are seen as defenders.

Using this ranking system, Making offers a full-scale review and critique of every major school and their theories, including classical, Keynesian, monetary, Austrian, institutionalist, and Marxist.

The Pendulum vs. Totem Pole Approach

There are some other contributions I made in writing The Making of Modern Economics.

First, I reject the standard political spectrum, what I call the “pendulum” approach to labeling economists.  In the world of competing ideologies, the standard political spectrum has Adam Smith, advocate of laissez faire, on the extreme right; Karl Marx, the radical socialist on the extreme left; and John Maynard Keynes, supporter of big government, in the middle.  This pendulum approach is unsatisfactory since it equates Adam Smith with the extremism of Karl Marx and represents Keynes as the golden mean or the middle ground.

Adam Smith

In the introduction to The Making of Modern Economics (and The Big Three in Economics, a shortened popularized version I wrote in 2007), I offered an alternative by creating the “Totem Pole of Economics,” where economists and their theories are measured by their impact on economic freedom and growth.  In this ranking, Adam Smith is on top, followed by Keynes, and Marx is “low man” on the Totem Pole of Economics.   After the book was published, I commissioned a Florida woodcarver, James Sagui, to carve the totem pole of economics, which now stands in my living room in my house in New York.

Adam Smith

Second, I added some important new figures in the history of economics.  I devoted a whole chapter (2) to the French laissez faire school, with major sections on J. B. Say and Say’s law of markets; Frederic Bastiat; and Alex de Tocqueville (who had a surprising lot to say about economic ideas and behavior in his Democracy in America).

I am also happy with how Chapter 9, “Go West, Young Man: Americans Solve the Distribution Problem in Economics,” turned out, where I was able to find singular American economists who advanced the development of the factors of production — Henry George on land, John Bates Clark on labor, and Frank Fetter on capital.

Especially novel, I think, is chapter 10, in the middle of the book.  It is entitled “The Conspicuous Veblen vs. the Protesting Weber:  Two Critics Debate the Meaning of Capitalism.”  It follows the success of the marginalist revolution that advanced the Adam Smith model and established “neo-classical” economics as a formal science.  Heilbroner and other historians highlighted the sociology of Thorstein Veblen, a major American critic of “neo-classical” economics without providing a counterweight.  My middle chapter juxtaposes the ingenious work of Max Weber, the German sociologist who offered a spirited defense of “rational” capitalism.  The two sociologists Veblen and Weber served as a perfect counterbalance.

Third, Making restored in the history of ideas how the central role the Austrian school, led by Carl Menger, played in the marginalist revolution and corrected the defects in Adam Smith’s model — his value, long-run cost, and distribution theories that Rothbard complained about.  The title of chapter 7 was “Out of the Blue Danube:  Menger and the Austrians Reverse the Tide.”

The Making of Modern Economics also broke new ground by publishing a hundred illustrations, portraits, and photographs, and offered details and little-known anecdotes about the lives and ideas of the economists and political thinkers (thanks to several new tell-all biographies).  I’ve introduced readers to a variety of subjects and individuals not normally covered in histories, such as Marxist liberation theology.  The book records the lives and ideas of important economists often ignored in other histories, such as Montesquieu, Ben Franklin, J. B. Say, Frederic Bastiat, Friedrich List, Herbert Spencer, Ludwig von Mises, Knut Wicksell, Philip Wicksteed, Max Weber, Irving Fisher, Roger Babson, Frederick Taylor, A. C. Pigou, Joan Robinson, Paul Sweezy, Paul Samuelson and Murray Rothbard.  My textbook has clever chapter titles and musical selections reflecting the spirit of each major thinker.  Students in particular have found these features unique and entertaining.  (In fact, no previous history of thought contained any pictures at all.)

For a sample of funny and unusual anecdotes about economists, and the chapter titles, go to http://www.mskousen.com/economics-books/the-making-of-modern-economics/

My History Published on a Special Day

When I finished the manuscript, I submitted it to several publishers.  M. E. Sharpe of New York was a surprising choice, because they are well-known to be publishers of radical works by Marxists, socialists, and social democrats.  Why would they be interested in publishing a book by a free-market libertarian?  Sean Culhane, my editor at ME Sharpe, told me frankly, “Because after the collapse of the Soviet model radical books don’t sell like they used to.”  I also believed that having the book being published by a non-conservative/non-libertarian publisher would be a good way to get exposure to a wider audience of students, teachers, and readers.

Every book has a “pub date,” as they call it in the media — the official release date for a book.  Mine is special.  The manuscript took longer than expected to get published, and went through numerous editing processes and reviews by anonymous referees assigned by the publisher.  Finally, the book came out with the official pub date of March 8, 2001.  For some reason, March 8 sounded familiar, but I couldn’t put my finger on it.  Then it dawned on me:  March 8 is the day in 1776 that The Wealth of Nations was published in London!

Adam Smith

Given that Adam Smith is the heroic figure of my book, I felt especially honored by this coincidence.  (I also had the opportunity of delivering a lecture on Adam Smith on the anniversary of his death, July 17, 2005, on a cruise ship circling the United Kingdom but now docked near Edinburgh.)

Most books are dedicated to an individual, and in my case, I felt that the catalyst behind the work was my uncle W. Cleon Skousen.  So I dedicated the book to him.

Positive Responses to the First Edition

For the book jacket, I asked a variety of friends to write blurbs, and received a number of favorable comments, such as the following.  From Milton Friedman:  “Lively and accurate, a sure bestseller.” From Douglas Irwin of Dartmouth College:  “The Making of Modern Economics is the most interesting and lively book on the history of economic thought ever written.” From David Colander, Middlebury College and an author of a history of thought himself:  “Entertaining and mischievous, like the author himself.”  From Greg Mankiw, Harvard:  “Provocative, engaging, anything but dismal.”  From Richard Swedberg, the top sociologist at Cornell University:  “One of the most original books ever published in economics.”  From Richard Ebeling, long-term economics professor at Hillsdale:  “One of the most readable ‘tell-all’ histories ever written.”  From Steven Kates, former chief economist, Australian Chamber of Commerce, and now a professor at RMIT in Melbourne:  “I couldn’t put it down!  Humor permeates the book and makes it accessible like no other history.  It will set the standard.”

The Ayn Rand Institute lists the MME on the “Top Ten MUST Read Books in Economics,” second only to Henry Hazlitt’s “Economics in One Lesson.”

Mike Sharpe, the publisher and a social democrat, asserted that my work will eventually replace Robert Heilbroner’s The Worldly Philosophers as the most popular history of thought in the classroom.  If only!

I was most worried about the reaction of Mark Blaug, the premier historian and author of the classic work, “Economic Theory in Retrospect.”  In a handwritten letter, he began by saying that I probably wouldn’t like what he had to say, but then went on to state that the author “tells a story rarely told….I find the book extreme, but is unputdownable — try it and see.”  I believe he created a new word for my book.

History of thought books are notoriously dry, especially with regard to the personalities of the economists (virtually non-existent).  That’s why many testimonials mentioned the lively nature of the biographies in the book.  As Richard Vedder (Ohio University) states, “Mark’s book is a glorious exception to dry history of thought books.”

When the book first came out, the Cato Institute sponsored a book event, with Peter Boettke (George Mason University) commenting,  “Skousen gets the story ‘right’ and does it in an entertaining fashion without dogmatic rantings.”

Student responses were the most gratifying.  Roger Garrison (Auburn University) reported, “My students love The Making of Modern Economics!  Mark Skousen makes the history of economics come alive like no other textbook.”  And Ken Schoolland (Hawaii Pacific University) wrote that the book is “the most fascinating, entertaining and readable history I have ever seen.  My students love it.”

Business leaders have also enjoyed the book.  John Mackey, CEO of Whole Foods Market, read the audio book (published by Blackstone Audio).  “Mark’s book is fun to read on every page,” he said.  “I have read it three times, and listened to it on audio tape on my summer hike.  I love this book and have recommended it to dozens of my friends.”

Academic Reviews

The first edition of The Making of Modern Economics was never reviewed by any of the major academic journals, including the journals that specialize in history of thought, such as the History of Political Economy (HOPE) and the History of Economics Society.

Nor was it reviewed, to my knowledge, by any free-market journals, such as the Quarterly Journal of Austrian Economics (published by the Mises Institute) or Review of Austrian Economics (edited by Peter Boettke at George Mason University), even though the text had three chapters on Austrian economists, and was a bold new approach to the history of thought.

A few years after publication my book started getting some notoriety.  It was reviewed by the late Bernie Saffran, who taught at Swarthmore College and was the well-respected editor of “For Further Reading” in the Journal of Economic Perspectives.  He wrote that it was “lively…amazing…good quotations!”

And in 2009 the American Library Association gave the 2nd edition of my work the Choice Book Award for Academic Excellence.

And Now for the Mixed and Negative Reviews

Least the reader think I’m only cherry picking the good reviews, let me now mention the mixed and negative review.  After the first edition came out, it was attacked by Marxists, Keynesians and even a few Austrians.  It was pulled from the library shelves of the University of Philippines, a hotbed of Marxism; censored by Keynesians at Columbia University; and blacklisted at the Mises Institute.

Surprisingly, Foreign Affairs reviewed it.  The reviewer both loved and hated the book.   It was, he said, “both fascinating and infuriating…engaging, readable, colorful.”

David Gordon, editor of The Mises Review, also gave it a mixed review.  “Though the book reads well, I find myself compelled to issue a warning. The book is a disaster.”  I suspect that Gordon was not happy that I made Adam Smith the hero of the book.   I also gave high marks to Milton Friedman for advancing free-market economics in the 20th century.  Under the influence of Rothbard, the Mises Institute was highly critical of both Adam Smith and the Chicago school of Friedman.

I’m sure David Gordon and other members of the Mises Institute would be surprised to learn that Ludwig von Mises himself was a big fan of Adam Smith.

Marxists Ban My Book in the Philippines

It wasn’t long before the Marxists discovered my book.  One Marxist on Amazon.com stated, “This book stinks!  A shallow polemic of an extreme laissez-faire proponent.”

In the early 2000s, I sent a few copies to Mark Tier, a long time Aussie friend who had moved to the Philippines, and he donated a copy to the University of the Philippines, a hotbed of Marxism.  A student read it and was so taken with chapter 6, “Marx Madness Plunges Economics Into a New Dark Age,” that he typed the entire chapter into an email and sent it around to his fellow students and his teacher.  At the time the Marxist radicals were inviting sympathetic students to attend some revolutionary meetings in the hills around campus.  But when they read chapter 6 of my book, they stopped going to the meetings, and even his teacher was converted to free-market economics.  It made the Marxists on campus so mad that they had The Making of Modern Economics removed from the library’s bookshelves.  (I understand that the ban was temporary and the book has been placed back on the library shelf.)

The Chinese translation also had trouble with chapter 6 on Marx.  When I received a copy of the Chinese translation, I asked a Chinese economist to tell me if the chapter title was positive or negative.  “Oh, very positive,” he said.  “It says ‘Karl Marx and Classical Economics’” — a far cry from the actual title, “Marx Madness Plunges Economics into a New Dark Age”!  However, the Chinese economist told me that the rest of the chapter was accurately translated.

The latest translation (actually “The Big Three in Economics”) is in Arabic.  The designer of the cover must not have read the book, because the artist has Marx dominating Smith and Keynes.

Adam Smith

How “Making” Landed Me a Position at Columbia University

My history of economics even landed me a position at Columbia University.  Here’s the story:  When I was president of the Foundation for Economic Education (FEE) in 2001-02, I contacted William F. Buckley, Jr., the founder of National Review and a friend, to see if we could get together.  We decided on lunch at his home in Stamford, Connecticut, in the Spring of 2002.  My wife joined me and we had a delightful time as he gave us a tour of his waterfront home.  After lunch, he showed us his home office located in his garage, including an entire shelf of Buckley books.  He said I could pick any book on the shelf and he would autograph it.  I chose one of his sailing books, all of which I had read.

Almost as an afterthought, I gave him in turn a copy of The Making of Modern Economics, and we left.

I didn’t think anything of it until a month later a review of the book appeared in National Review.  It was totally unexpected.  Buckley wrote that he loved the book and thought it would make an excellent gift to college students.

A few weeks later I received a telephone call from John Whitney, a veteran business leader and popular professor at the Columbia Business School.  He specialized in turnarounds.  He said that based on Buckley’s review, he had bought and read my book and liked it so much he wanted to meet me.  After we had lunch, he invited me to give a guest lecture at Columbia Business School.  I was intimidated but he and the students liked my presentation so much that he told me, “Mark, I’ve decided to retire from Columbia and I’d like you to take my place.”  I was honored, and so the process began.  I had Milton Friedman write a letter of recommendation to the dean, and Professor Whitney finally convinced the Keynesian chair of the department, Ray Horton, to give me a try.  I taught economics at Columbia in 2004-05, all thanks to John Whitney…and Bill Buckley.  In the business course, I used The Making of Modern Economics but the department chairman saw my free-market history as a threat to a similar class he taught, “Modern Political Economy,” and my course was summarily discontinued.

Buckley, by the way, continued to be a fan of my work.  In 2005, I ran into him on a cruise around the British Isles in honor of the 50th anniversary of National Review and the 25th anniversary of my newsletter, Forecasts & Strategies.  He surprised me when he told me privately, “It’s my favorite book on economics.  I champion your book to everyone.  I keep it by my bedside and refer to it often.”

The Second Edition (2009)

After the financial crisis of 2008, it became apparent that The Making of Modern Economics needed a second edition.  I added new material in several chapters, especially at the end with space devoted to the financial crisis and the work of imperfect markets by Joseph Stiglitz, who won the Nobel Prize in economics in 2001.  Given the perception that capitalism failed in 2008-09 and was on the defense, I felt it necessary to change slightly the title of chapter 17 to “Dr. Smith Goes to Washington:  The Near Triumph of Market Economics.”

The second edition won the Choice Book Award for Outstanding Academic Title, and has gone on to become a popular history of thought textbook, now rivaling Heilbroner’s The Worldly Philosophers.   It has been translated into six languages–Spanish, Turkish, Mongolian, Polish, Arabic, and Chinese (twice).

Third Edition (2016)

When M. E. Sharpe was bought out by Routledge Publishers in late 2014, the Routledge editors thought it appropriate to update the MME with a third edition.  New sections were added on the “Invisible Hand, Central or Marginal?”, liberation theology, and a major rewrite of the final chapter 17 with new sections on the financial crisis of 2008-09, inequality, the “austerity vs. stimulus” debate, market imperfections, and “Hayek vs. Keynes Redux” and breakthroughs in market design and other microeconomic contributions.

Adam Smith

Appropriately, the new statue of Adam Smith, located on High Street in Edinburgh, graces the cover of the third edition, a fitting tribute to the father of modern economics.

How to Order Your Copy of “The Making of Modern Economics”

For only $35

A qualify paperback third edition of The Making of Modern Economics:  The Lives and Ideas of the Great Thinkers, published by Routledge, is now available at a substantial discount.  The retail price by the publisher and Amazon is $45.99, but you pay only $35 postpaid if you order through Ensign Publishing, toll-free 1-866-254-2057.

All copies are shipped free inside the United States, and autographed by the author.  (For orders going to Canada and other foreign countries, call Harold at Ensign Publishing for additional shipping costs.)

The Making of Modern Economics is also available on Kindle, or audio book, at Amazon.com.


[1]  The possible exception is The Roots of Capitalism, by John Chamberlain (1965), now out of print.

[2]  For more information, see my paper, “The Centrality of the Invisible Hand,” presented on January 31, 2012, at Hillsdale College.

[3]   Ludwig von Mises, “Why Read Adam Smith Today,” in Adam Smith, The Wealth of Nations (Regnery, 1998), pp. xi-xiii.

 About the Author

Mark Skousen is a professional economist, author and teacher.  He is a Presidential Fellow at Chapman University.  In 2018 he was awarded the Triple Crown in Economics for his work in theory, history and education.  Since 1980, he has been editor of Forecasts & Strategies, an award-winning financial newsletter.  He is also the producer of FreedomFest, “the world’s largest gathering of free minds,” held every July in Las Vegas (www.freedomfest.com).  For more information, go to www.mskousen.com or www.markskousen.com.

US Economy Continues to Expand, but Business Spending Slows Temporarily

Washington, DC (Friday, July 20, 2018):  Gross output (GO), the top line of national accounting that measures spending at all stages of production, continued to expand in the first quarter, but at a slower pace than the previous quarter.

Based on data released on Friday, July 20, 2018 by the BEA, real GO increased at an annualized rate of 2.7% in the first quarter of 2018. This increase lags behind the last period’s 4.3% growth rate, but faster than real GDP, which increased only 2.0% in the first quarter of 2018.

Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University, states, “When Gross output grows faster than GDP, this is a good sign of an expanding economy.  However, the latest GO data indicates that business investment and spending grew at a reduced rate in the 1st quarter, probably because of concerns over Federal Reserve’s potential interest rate hikes, uncertainties regarding tariffs and possible trade wars with our trading partners, and the usual weather-related slowdown in business activity during the winter.”

Real GDP, the bottom line of national income accounting, rose at an annualized rate of 2.0% in the first quarter of 2018. The 2.7% real GO growth rate in Q1 2018 is a good indication that, while growing slower than in the Q4 2017, intermediate business activity is still expanding and should translate into continued GDP growth in the near future.

According to a recent study by David Ranson, chief economist at HCWE & Co., GO anticipates changes in GDP by as much as 12 weeks in advance and thus serves as a reliable leading indicator: http://www.hcwe.com/guest/EW-0118.pdf.

The first quarter Skousen B2B Index, a measure of business spending throughout the supply chain, increased at 4.5% in nominal terms, which is significantly lower than the 12.2% growth rate from the previous quarter. After a spike in the previous quarter, the growth in the first quarter puts the business spending increase at almost the same level it was in the third quarter 2017. In the first quarter of 2018, B2B transactions rose at an annual rate of 1.36% in real terms, which is just a fraction of the 8.5% rate from the previous quarter.

After experiencing its highest quarterly growth rate over the past three years in the fourth quarter of 2017, the nominal adjusted GO (GO*)[1] increased at 4.1% in the first quarter of 2018 to reach $43.1 trillion. This current adjusted GO is more than double the size of the current $20.0 trillion real GDP, which measures final output only. However, the broader GO* growth rate of just 1% in real terms indicates a cooling of in economic activity  expansion – most likely because of the HUGE wholesale and retail trade increase in the fourth quarter.  “I view the slower growth in GO in the 1st quarter as temporary,” commented Skousen.  “The economy is likely to recover in the 2nd quarter.”

All but two industrial sectors increased versus the previous quarter, which drove the growth of GO in the first quarter of 2018. While spending increased at extraordinary rates in the previous quarter, the current quarter’s numbers still indicated a robust growth in the early stages of production, such as mining, manufacturing and construction, which is usually a reliable leading economic indicator that overall economic growth should continue to expand.

Supply Chain Activity Continues to Expand

The mining sector’s growth slowed from 46% in the previous quarter to the current 12.2% rate. While lower than the Q4 2017 rate, the current growth rate is still significantly higher than the 4.7% increase in Q3 2017. However, the growth of the mining sector is still robust, it has a relatively small impact on the growth of the overall GO due to the mining sector’s low share of just 1.5% of total GO. Conversely, the manufacturing sector’s 7.6% spending increase has a much bigger impact since the manufacturing sector accounts for nearly a fifth of total GO (18.2% share). Therefore, the 7.6% current growth of the manufacturing sector, while lower than last period’s 13%, has a much greater positive impact on the total GO and should be an even better indicator of a continued economic expansion. The 5.8% growth rate for durable goods was lower than the growth rate for non-durable goods, which rose 9.5% in the first quarter.

Another sector with an 18% share of GO is the Finance, insurance, real estate, rental and leasing sector. This is one of the few sectors that expanded at a greater rate than in the previous quarter. After increasing its growth rate from 2.8% in Q3 2017 to 6% in the in Q4 2017, this sector expanded at nearly 10% in the first quarter of 2018. Within the overall sector, the Finance and insurance sub-segment rose at 16.4%, which is the highest rate increase of any sector or segment for the current period. Additionally, after rising 6.4% in the previous quarter, the real estate, rental and leasing sub-segment expanded at a slightly lower, but still respectable 5.4%.

Additionally, two more segments posted growth rates in excess of 9% for the first quarter. While the Construction sector increased 9.9%, the transportation and warehousing sector rose 9.1%. These two segments account for a combined GO share of 7.7%.

Only two segments reduced spending from the previous quarter. The Arts, entertainment, recreation, accommodation, and food services sector accounts for just 4% of the total GO and declined almost 3% which is the same decline as in the previous quarter. Additionally, the spending classified as “Other services, except government”, which accounts for 2.2% of GO, declined 2% versus Q4 2017.

Total government spending (11% share of total GO) increased at 3.8%. This rate was significantly lower than the 6.75% two-year average. The two-year average growth rate of total government spending declined for the first time after rising for five consecutive quarters. State and local government spending and Federal government spending rose at nearly identical rates of 3.8% and 3.7%, respectively.

Gross output

Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. Recently quarterly GO and GDP have both been growing at a similar pace.

Skousen states, “The GDP growth rate of 2.0% failed to take into account what happened behind the scenes in the supply chain in the 1st quarter.  By focusing solely on final spending and the end of the economic chain, GDP can sometimes be a misleading indicator of economic performance. GO is a much better, more comprehensive view of total economic activity along the entire supply chain.”

Business Spending (B2B) Grows Faster Than Consumer Spending

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 4.5% in the first quarter to $24.9 trillion. Meanwhile, consumer spending rose to $13.8 trillion, which is equivalent to a 3.4% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 1.4% and consumer spending rose 1.2%.

Gross output

 

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain,” stated Skousen. “The business activity cooled slightly in the first quarter of 2018 on tariff, interest rates, and market correction concerns, but still grew, partially because the business community saw the passing of the tax reform bill in December 2017 as a sign that President Trump and Congress are serious about living up to their promises that they will improve the business environment through tax cuts, as well as reduction of obstructive business regulation.”

About GO and B2B Index

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

Click here: Structure of Production on Amazon

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

The BEA now defines GDP in terms of GO. GDP is defined as “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].” See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. 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.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

Note: Ned Piplovic assisted in providing technical data for this release.

 

For More Information

The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: BEA – Gross Output by Industry

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

# # #

________________________________________
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2018 1st quarter is slightly below $35 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to $43.1 trillion in Q1 2018. Thus, the BEA omits more than $8 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Full Remarks by Steve Forbes On the Presentation of a Triple Crown in Economics to Mark Skousen

The following are Mr. Forbes remarks following Skousen’s session on “Adam Smith, Marx and Keynes:  Who’s Winning the Battle of Ideas?” on Wednesday, July 11, 2018, at the Global Economic Summit, FreedomFest, Paris Resort, Las Vegas. 

Steve Forbes

Who’s winning the battle of ideas?  Well, Mark Skousen is winning the battle of ideas. But among past economists, I think Joseph Schumpeter, the 20th century Austrian economist, is winning the war of ideas.

Smith, Marx and Keynes all believed in various ways in what you might call an equilibrium, that the economy is a steady state and you get disruptions from time to time, whether wars, earthquakes or new inventions. You get some turmoil and then things settle down and you have an equilibrium, which is why even John Stuart Mill became a socialist (not because of the influence of his young wife).  He couldn’t understand the role of profit.

Even Adam Smith did not understand the role of profit. If you have an economy where you are striving for a perfectly competition equilibrium, there is no role for profit, other than as a bribe for entrepreneurs to do things. Schumpeter was an infidel, in the words of Peter Drucker.  That is, he saw profit as a cost of doing business, as a moral force. Why? Because in his mind the economy is always dynamic.  A free market is dynamic, always changing, what he called creative destruction.  You focus on the creative side.  But it’s also destroying, which means it’s destroying capital and you have to replace that destroyed capital with new capital.

Also, how does an economy advance?  It advances with new knowledge. Where does knowledge come from? Through constant experimentation by entrepreneurs in the marketplace.  Look at Silicon Valley.  Look at Peter Thiel. He says eight out of ten ventures, even with great brains like his, will fail. Only two out of ten, maybe one out of ten, will really be successful.

So, profit is essential if you’re going to have a growing economy. To replace the destroyed capital here’s one little example.  I’m not a fan of the New York Times, but decades ago they bought the Boston Globe, and a few other papers in Massachusetts, for $1.2 billion. About 20 years later they ended up selling it for about $50 or 60 million, depending on whose numbers you want to believe.  Over a billion dollars of capital were destroyed. And you have to replace this capital with new ventures.

So, in Schumpeter’s mind, profit was a cost of doing business in a dynamic, free economy.  His worry was not taking wages from laborers, but too not enough profit.  It was essential to grow and have a dynamic economy – to create the means to make it possible, to nurture it, to replace what was destroyed and to finance what is new. So, I vote for Schumpeter.

But, among the big three (Smith, Marx and Keynes), it must be pointed out that Adam Smith was a moralist. He understood, as Mark does, that economics is people. He saw the economy not just a creator of wealth, but as a moral force, which too many of all these equations we have in economics today ignore.

Which gets to the 50-page encomium that Professor Ken Schoolland wrote for Mark’s award.  Ken is also quite a fellow. You may know that he wrote The Adventures of Jonathan Gullible: A Free Market Odyssey, which is translated in over fifty languages. Maybe we can get one to the White House and to trade representatives!

But, Mark, as you know, is an amazing individual. He’s a highly accomplished economist and in a normal, non-political environment, he and a handful of others would have already won the Nobel Prize for economics. But, given the political environment we have today, that’s not going to happen right now. Maybe in the future.

He is a superb and highly original scholar. Just look at his textbook Economic Logic, now in its 5th edition, which demonstrates Mark’s ability to look at the whole economy, the real world and real people.  This rigidity between micro- and macroeconomics is not for him.  He realizes they’re all connected together. He began this book with a profit-loss income statement to demonstrate the dynamics of the real-world economy. No other textbook does that. He gets it.

And extraordinarily, Mark’s book brings in many other disciplines to teach lessons of economics, underscoring crucial lesson, whether it is history, sociology, finance business or marketing management. He recognizes that this rigidity may be nice for departments created at universities. But, in the real world, it does not advance learning.  They are need to be combined together. In that sense, he goes back 200 years to before mathematicians took over economics. His output is voluminous, with numerous books and articles.  And, what is so unusual, is that he combines mastery of math-laden fields with the ability to write clearly and directly in a manner that would have elicited cheers from Ernest Hemingway. Imagine, he gets to the point.

So, you won’t win an economic argument with Mark by trying to outdo him with regression analysis, graphs and comprehensible equation. He’ll hit you right back.  He’s master of that.

But, he’s unique with his fascination with history, with flesh and blood individuals. Read his concise and incisive sketches of numerous economists in “The Making of Modern Economics.”  He brings history to life. People are interested in people. He recognizes that stories are highly instructive.

And, this is very fascinating:  Mark is a genuine heir to Ben Franklin, a direct descendant.  And he apparently inherited Franklin’s genes of versatility and range of interests. He’s also, among other things, a talented thespian. Taught by his wife, but he learned very quickly.

And, one of Mark’s other greatest achievements is finishing Franklin’s autobiography. Franklin stopped writing his autobiography in 1757 at the age of 51.  But, the most interesting part of his life happened in the next 30 years, including the Constitutional Convention, his diplomacy in France, where he put on the coonskin cap to show that he’s a frontiersman. He was actually a very sophisticated scientist. But, he played to the images of Americans in the French court. He knew how to seduce diplomats and others, and played a crucial role in the French alliance, which gave us the wherewithal to win the revolution.

But Mark, with his help of his wife Jo Ann as editor, finished his autobiography, and they did so by using Franklin’s own words from speeches, pamphlets, books, Poor Richard’s Almanack, newspaper articles – a dazzling achievement. In this sense, this book surpasses the work of 99% of today’s professional historians in terms of audacity, originality and adherence to the truth.  In short, Mark is an outstanding historian, as well as an economist.

He’s a pioneering thinker. This is what I think he’s a really going to be noted for. He’s pushing the concept of the gross output.  I prefer the acronym GO.  What does GO mean?  It’s a more comprehensive way to measure the economy at all stages of production.  GO is a better way than GDP to take a picture of our economy. It’s like the difference between an x-ray and an MRI.  GDP is the x-ray; GO is the MRI.

The GDP is like looking at a carton of milk in the supermarket and ignoring all the cows that you had to raise, and pasteurize the milk, then bottle the milk and deliver the milk.  GDP gives you a very incomplete picture.  It’s just final output.  Alone it’s misleading and that’s why you read time and time again, GDP shows that 70% of the economy is consumption. That is absolute nonsense.

What makes consumption possible is people’s income, which comes from investment. And so, GO looks at the whole economy from production to final output and show that investment is the big part of the economy, not consumption. Also, GO knocks government down to size.  In terms of GDP, they say the more government spends the better the economy is. Ask the old Soviet Union how well that worked.

The BEA – the Bureau of Economic Analysis – is finally beginning to recognize the value of GO.  Right now, they come out months later after GDP.  But thanks to Mark, it is now being published by the federal government, and eventually is going to replace GDP as a much more accurate picture, much more sensitive and full picture of what is actually happening in the economy. And I think it was late last year, we saw GO that the economy was beginning to pick up a real head of steam before GDP showed it. So, Mark is on to something with that.

And so, without investment you get stagnation and turmoil.  GO saves us from a profound misconception that if you just juice up spending, you get prosperity.  The future belongs to GO.  A hundred years from now, we will celebrate Mark’s contribution.  Just as Billy Beane did in baseball (remember Moneyball?), how this whole new set of statistic had people looking at baseball player performance in a whole new way. Now they’ve all adopted it. Soccer’s doing it, basketball is doing it.  And Mark is doing it in economics – a whole new way starting to look at the economy and that way we get ideas shape on how we see the world.

So enough of my verbiage.  Mark has done many other things.  He’s a great investor, he’s written great books on investing, he created FreedomFest.  All tributes to his creativity.  He also married Jo Ann, best thing he ever did, which is why we’re all here today.

With that, Mark richly deserves this award, and this will be a dress rehearsal for a trip to Stockholm.  He will be going there some day, or your heirs will to get the prize that he should have had, and some day will have.

— Steve Forbes

Mark Skousen’s article on Revista Procesos de Mercado (Review of Market Processes)

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.

 

Groundbreaking

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

Economic Logic

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:

Coffee_Chart_02Figure 1.  Four Stages of Production of Espresso Coffee.

 Then for the macro model, Dr. Skousen uses this universal 4-stage diagram:

4-stage_model_02bNotice that this Hayekian 4-stage model ties into national income accounting.  GDP represents the final stage of production – the value of all finished goods and services produced in a year.

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


 

 SPECIAL OFFER: 

ONLY $39.95

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:

1-866-254-2057

 

 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.

http://mskousen.com/2017/10/2322squaring-the-mises-circle/

ANNOUNCING A NEW EDITION BREAKTHROUGH COURSE IN FREE-MARKET CAPITALISM

“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

Economic Logic

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:

  1. Real market solutions to the Great Recession and European debt crisis (including the hidden benefits of “austerity” programs).
  2. How John Mackey’s revolutionary “stakeholder” brand of “conscious capitalism” is destined to transform global business.
  3. 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.)
  4. Why the Chinese model of state capitalism is destined to fail.
  5. How the Austrian school of Mises and Hayek trumps the Keynesians, Chicago monetarists, and Marxists. (Each chapter highlights an influential economist).
  6. How the welfare state violates the fundamental principles of sound economics, and how other countries have resolved the unfunded liability problem.
  7. Why saving, technology, entrepreneurship, and business investment drive the economy — not consumer spending or government stimulus.
  8. 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.
  9. A full critique of Keynesian economics and the dangers of easy-money policies.
  10. 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.”

Economic Logic

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.