HOW BEN FRANKLIN SAVED THE POST OFFICE AND HELPED UNIFY AMERICA

By Mark Skousen

Special to the Franklin Prosperity Report

July 4, 2016

 

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“In the fourth year of Franklin’s administration, [the Post Office] paid a profit for the first time in its history.” — Thomas Fleming, “The Man Who Dared the Lightning” (1970)

“No one man before him had ever done so much to draw the scattered colonies together.” — Carl Van Buren, “Benjamin Franklin” (1938)

Despite mammoth efforts to increase revenues and productivity, the U. S. Postal Service has failed to make a profit in years. In fact, this year it’s expected to run a deficit of over $5 billion. The difference is made up by the Treasury — that is, the American taxpayer.

Benjamin Franklin faced a similar challenge when he was made America’s first postmaster general in 1753. Within four years, he reformed the Crown’s mail service from an unreliable, expensive and unprofitable service to an efficient, dependable and rewarding operation. And in doing so he helped make the 13 colonies come together as a nation. What was his secret, and what we learn from his experience today?

First, some background: The colonial post office was run by the British Crown, which appointed local postmasters. The royal mail was expensive, slow, erratic and limited to major towns. It was discriminatory — government officials like the Penns had the franking privilege (free mailing service). So did the local printers like Franklin, who was appointed postmaster of Philadelphia in 1737. Their newspapers could be circulated for free. And mailing letters was expensive, limiting its use to the wealthy, businessmen and lawyers. Few colonists could afford to mail letters through the official royal mail. Finally, mail delivery was slow. A letter from Boston to Philadelphia might take six weeks to arrive. There was no centralized network to transport mail.

How Franklin Reformed the Royal Post

How did Franklin transform the post office? First, he lobbied for the job, and won it because for 16 years he ran the post office in Philadelphia. His experience paid off.

His first action was to make a grand tour of the postal service. Like a true scientist, he felt is essential to have firsthand knowledge of the mail system, and within a few months after his appointment, he went on a ten-week inspection tour of New England from New Jersey to Massachusetts, to determine the problems facing the post office (poor roads, bad record keeping, etc.). He talked face to face with riders and postmasters, responding to suggestions and improvements.

After his grand tour, Franklin immediately went to work. On the post roads, he had milestones erected to help riders pace themselves better. (These milestones still exist between Boston and New York.) After consulting with local postal workers, he suggested new roads, fords and ferries to deliver the mail faster and more regularly. As a result, he was able to reduce the travel time for mail between Boston and Philadelphia from six weeks to three. Within a year, he had cut the delivery time of a letter between Philadelphia and New York to one day.

Franklin insisted on precise record keeping. When he started working for Andrew Bradford, who published the town’s only newspaper, he noticed Bradford was irregular in his accounts. To deal with this problem, he furnished a uniform system of accounts to all postmasters throughout the colonies, and insisted that all postmasters keep precise accounts of their revenues and costs.

In his old newspaper the Gazette, he had for years printed the names of persons who had letters waiting for them, and introduced this practice in other post offices. Too often, letters were allowed to lie around or read by friends. Franklin discontinued the practice in Philadelphia, and imposed the same regulation in the rest of the colonies.

He also introduced home delivery and the penny post. If individuals failed to pick up a letter after their names were published in the newspaper, letters would be sent the next day for an additional fee. Franklin encouraged the same local delivery in other large towns. Unclaimed letters after three months were forwarded to the central office in Philadelphia. Thus Franklin has another claim: inventor of the dead letter office!

Franklin also made the post office egalitarian. He reduced the price and expanded the service for all colonists, not just the wealthy or important people. He abolished the monopolistic practice of allowing local postmasters to distribute newspapers for free, and opened the service to all papers for a small fee. Franklin was never one to maintain monopoly power. For example, he never trademarked any of his inventions. He thought they should be made available to everyone for their benefit, whether it be the Franklin stove, the lightning rod, or bi-focals.

All these improvements in the postal system under Franklin cost money. It cost him and his partner, William Hunter, a great deal, and they incurred £900 over their first four years. But by the fourth year they collected more money in twelve months than it had in the previous thirty-six, earning a profit of £300 a year apiece. It remained profitable until the Revolutionary War broke out.

In three years, the colonial postal service was completely overhauled, and its new speed and reliability made it profitable and popular with the people. As biographer Carl Van Buren concluded, “No one man before him had ever done so much to draw the scattered colonies together.”

On this 4th of July, it is entirely appropriate to remember Benjamin Franklin as the father of American capitalism. The post office has honored Franklin with his image on more stamps than any other person other than George Washington.

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Washington and Franklin on the 100th anniversary of stamp collecting

In celebration of Franklin’s contribution to the postal service, I recommend that the Post Office issue a permanent one-cent stamp with his image on it, and the words, “A penny saved is a penny earned.”

 

*     *     *

Mark Skousen is a Presidential Fellow at Chapman University, editor of Forecasts & Strategies, and producer of www.freedomfest.com.   This article is based on a column written for the Franklin Prosperity Report and appeared on the Newmax website:  http://www.newsmax.com/Newsfront/ben-franklin-saved-post/2016/07/03/id/736842/ with comments from readers. 

FreedomFest Fun Activities

In addition to all the great debates, presentation and hundreds of vendors in our exhibit hall.  there are many other activities to occupy your time and challenge your intellect.

FF_White_Mates_in_Two

 

 

 

 

 

 

 

One of the many fun activities at www.freedomfest.com :  “White Mates in Two” chess problem baffles Art Benjamin (Clermont College) and Michael Shermer (Skeptic magazine) at FreedomFest 2015.

Big news: the Bureau of Economic Analysis (BEA) has changed its definition of GDP that starts with Gross Output.

This is a significant breakthrough, which I have encouraged them to do for some time.

Here is the BEA’s official release (March 25, 2016), which re-defined GDP as follows:

“Real gross domestic product — 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 [II], adjusted for price changes — increased at an annual rate of 1.4 percent in the fourth quarter of 2015, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.”

Thus, the BEA defines GDP as follows:

GDP = GO – II,

where

GDP = gross domestic product (value of final goods and services)

GO = gross output (total revenues/sales at all stages of production)

II = intermediate inputs (value of supply chain)

I am not sure why the BEA won’t simplify the definition of GDP to define it simply as “the value of final goods and services.”  But in any case, it’s a good way to introduce GO.

Mark Skousen

FOURTH QUARTER GROSS OUTPUT AND B2B INDEX POINT TO BUSINESS RECESSION

By Mark Skousen

April 21, 2016

Washington, DC (Thursday, April 21, 2016):  U. S. economic activity continued to slow dramatically in the 4th quarter 2015, threatening recession.  As a whole, the growth rate of the economy was anemic, almost flat, for 2015.

Gross output (GO), the new measure of total U. S. economic activity published by the Bureau of Economic Analysis, showed that spending throughout the economy declined slightly in the 4th quarter of 2015.  And the Skousen B2B Index — a measure of business spending throughout the supply chain — has now fallen two quarters in a row.  Both data suggest a mild business recession as we entered 2016.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal GO fell 0.6% in the 4th quarter of 2015, compared to an increase in the 3rd quarter (+2.3%)[1].   Adjusted GO was $39.0 trillion in the 4th quarter, more than double the size of GDP ($18.2 trillion), which measures final output only.  Nominal GDP actually rose 2.3% in the 4th quarter.  When GO declines relatively to GDP, it’s usually a sign of recession.

Deflationary pressure on prices continued in the 4th quarter, so that in real terms, the adjusted GO growth rate rose slightly.  But the rise in real GO (+0.8%) was less than the growth in real GDP (+1.4%).

Supply chain activity varied significantly in the 4th quarter, with continued declines in early-stage production: Mining activity fell by 11.4% and manufacturing declined by 2%.  Gainers were led by information, finance, real estate, rental, and leasing, but they were not enough to compensate for the losses in the early stages.  Wholesale and retail sectors also fell by 1.6%.

Press_Release_2016-04-21_Graph_01_Original

GO and GDP are complementary statistics in national income accounting.  Gross output (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. The fact that the adjusted GO is now falling faster than GDP growth suggests that the economic recovery is losing steam as we enter 2016.

Real Business Spending (B2B) Suffers Decline

We have also created a new business-to-business (B2B) index based on GO data.  It measures all the business spending in the supply chain and new private capital investment.  Nominal B2B activity fell 0.8% from the previous 3rd quarter to $22.7 trillion.  In real terms, B2B fell 1.0%.  Meanwhile, consumer spending rose 0.6% to $12.4 trillion in Q4 (+0.3% in real terms).

Press_Release_2016-04-21_Graph_02_Original

“The GO data and my own B2B Index demonstrate that total US economic activity has slowed dramatically.  While the ‘use’ economy (GDP) is still barely growing, the ‘make’ economy (GO) is in recession,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth and maybe even a downturn.”

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.  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 by providing technical data for this release.

Special Announcement

Cato Institute Luncheon and Policy Forum on Gross Output,

Friday, May 13, Washington, DC, 11:00 am – 1 pm ET.

Mark Skousen, Steve Forbes and George Gilder will be speaking at the Hayek Auditorium at the Cato Institute, 1000 Massachusetts Ave. NW, Washington, DC 20001, on the topic, “GO Beyond GDP: What Really Drives the Economy?”  The discussion will focus on gross output (GO) and how to encourage long-term economic growth, and what it means to investors, businesses and government policy.  The panel will be moderated by Peter Goettler, president of the Cato Institute.  Afterwards, we will have a luncheon and autograph session for the various author’s books:  Mark Skousen, “The Structure of Production”; Steve Forbes, “Reviving America”; and George Gilder, “The Scandal of Money.”

Lunch is complimentary.

To register, go to http://www.cato.org/events/go-beyond-gdp-what-really-drives-economy.

Or email events@cato.org or call (202) 789-5229.

If you can’t make it, you can see this event live by going to www.cato.org/live.

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: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

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

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”: http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,”: http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

New:  Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015:  http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

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 2015 3rd quarter is $31.6 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.0 trillion at the end of 2015.  Thus, the BEA omits $7.5 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.

CATO INSTITUTE POLICY FORUM: “GO Beyond GDP: What Really Drives the Economy?”

We hear constantly that consumer spending is 70% of GDP and that consumer spending drives the economy.  Our government often sets policies and spends taxpayer money in order to increase consumer spending in a misguided attempt to stimulate the economy.

However, what if these assumptions are wrong?  What if there is something other than GDP that is a better indicator of economic growth?

To get the answer to these questions and to find out what really drives the economy, we must GO Beyond GDP.

Join Mark Skousen, Steve Forbes and George Gilder, on May 13, 2016 for a “GO Beyond GDP: What Really Drives the Economy?” policy forum at the CATO Institute in Washington, DC to discover the real driver behind economic growth.

While you can watch the event online via live streaming, being there in person is a much better experience. You get a complimentary lunch, you get to meet all three panelists in person and you can get autographs of their latest books.

To attend in person, follow the link below to register:

http://www.cato.org/events/go-beyond-gdp-what-really-drives-economy

ANNOUNCING THE NEW THIRD EDITION OF “THE MAKING OF MODERN ECONOMICS” BY MARK SKOUSEN

March 9, 2016: Today marks the 240th anniversary of the publication of “The Wealth of Nations,” by Adam Smith. On this day Dr. Mark Skousen is also pleased to announce the publication of the new third edition of his bestselling history, “The Making of Modern Economics.”

Making of Modern Economics 3rd edAs you can see from the cover, the heroic figure in Skousen’s book is Adam Smith and his “system of natural liberty.” (Interestingly, the official pub date of the first edition of Skousen’s history was March 9, 2001.) All of the “worldly philosophers” – Ricardo, Say, Mill, Marshall, Menger, Marx, Fisher, Keynes, Schumpeter, Friedman, Krugman — are judged as defenders or critics of the great Scottish philosopher, and whether they advanced or attacked the House that Adam Smith Built.

Routledge, the top British academic publisher (famous for publishing the works of Hayek, another hero in Skousen’s work), is now the publisher of this bold history of the great economic thinkers.

What’s new in the third edition?

What’s the new edition all about?

First, Skousen expands his chapter on Adam Smith, including a new discussion and quotations from Smith’s “Theory of Moral Sentiments.” He also comments on the startling new discovery that Smith’s singular reference to the famous “invisible hand” metaphor is located in the mid-point of both “The Wealth of Nations” and “The Theory of Moral Sentiments.” Purposeful or coincident? Find out in chapter 1, “It All Started with Adam.”

Second, the third edition updates the chapter on Karl Marx, particularly the resurrection of the Marxist-inspired “liberation theology” in Latin America, with comments about Pope Francis and his severe criticism of capitalism. The growth of socialism and corruption in Latin America is discussed.

Third, the final chapter, “Dr. Smith Goes to Washington: Market Economies Face New Challenges,” has been completely revised. Here Skousen focuses on the West’s decline in economic freedom in consequence of higher deficits, taxes and regulations, and the growing debate over inequality, austerity, and the need for a new brand of capitalism following the financial crisis of 2008. The chapter ends on a positive note, with discussions on the advances in game theory, auction design, experimental economics, behavioral finance, and other aspects of the new “imperial” science.

How to Buy a Copy

The third edition (500 pages) of “The Making of Modern Economics” is available in hardback, paperback, Kindle, or audio. You can order on Amazon here: http://www.amazon.com/Making-Modern-Economics-Lives-Thinkers/dp/0765645440/ref=sr_1_6?s=books&ie=UTF8&qid=1457540102&sr=1-6

The new edition is also available directly from the author at a discount. Amazon charges $47.95 for the paperback, but you can buy directly from the author by calling toll-free 1-866-254-2057. You pay only $30 plus $5 P&H. (Orders from outside the US, please add $15 extra for airmail–$45 total.) Or order online at www.miracleofamerica.com.

Awards and Translations

In 2009, “The Making of Modern Economics” (the 2nd edition) won the Choice Book Award for Excellence in Academia. It was recently ranked #2 in the Ayn Rand Institute’s Top Ten List of “Must Read Books in Economics.” It has been translated into five languages — Spanish, Chinese, Turkish, Mongolian and Polish.

What’s Different about “The Making of Modern Economics”?

Skousen’s history is a bold, new account of the lives and ideas of the great economists–Adam Smith, Karl Marx, John Maynard Keynes, Ludwig von Mises, Milton Friedman, and many others–all written by a top free-market economist. Presented in an entertaining and persuasive style, Professor Mark Skousen tells a powerful story of economics, with dozens of anecdotes, illustrations and photographs of the great economic thinkers.

First and foremost, Skousen tells the remarkable untold story of free-market capitalism’s long-running battle against Keynesianism, Marxism, socialism and other isms. It is an account of high drama with a singular heroic figure, Adam Smith and his celebrated “system of natural liberty.” The running plot involves many unexpected twists and turns; sometimes our hero is left for dead, only to be resuscitated by his free-market friends; the story even has a surprise ending.

A Full-Scale Critique of All Major Doctrines

All previous histories tend to give a dry, disjointed, and helter-skelter account of economists and their contradictory theories. But Skousen unifies the story of economics 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 supporters.

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

A Complete History

Skousen’s history is comprehensive. He makes a point of discussing all schools of economics and not just the ones he agrees with. Too many economists have omitted major characters from the history of economics, a practice bordering on intellectual dishonesty. Robert Heilbroner’s popular book, The Worldly Philosophers, for example, virtually ignores the laissez-faire French, Austrian and Chicago traditions. (His latest edition does not even mention Milton Friedman by name!)

Think of The Making of Modern Economics as a contra-Heilbroner history.

It’s a perfect antidote to all those biased, inaccurate attacks on the free market and its proponents.

Skousen 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, Murray Rothbard, and the three Paul’s: Paul Sweezy, Paul Samuelson and Paul Krugman.

Skousen’s book also restores the vital role of the Austrian and Swedish schools in the marginalist revolution and the development of monetary economics. It emphasizes the impact of other disciplines on economics, such as evolution, sociology, and religion.

“Tell All” Biographies

Skousen’s book brings history alive with exciting new insights into the lives of the great economists through in-depth biographies and the author’s own research, revealing an amazing tale of idle dreamers, academic scribblers, occasional quacks and madmen in authority.

The Making of Modern Economics does its best to entertain, with provocative sidebars, humorous anecdotes, even music selections reflecting the spirit of each major economist. Samples:

–Why Adam Smith burned his clothes…and then burned his papers.

–The “satanic verses” of the poet Karl Marx.

–Were Malthus, Ricardo, Marshall and Keynes anti-female?

–The infamous grading technique of Chicago’s Jacob Viner (he regularly flunked a third of his class).

–The sexual scandals of Karl Marx, Carl Menger, Joseph Schumpeter and Friedrich Hayek.

–The story behind Marx the phrenologist, Jevons the astrologer,

–Keynes the palm reader, and Friedman the amateur hand-writing analyst.

–Which famous economist is buried next to rock star Jim Morrison in Paris?

–How Darwin and Wallace discover their theory of evolution after reading Malthus.

–Why Malthus and the doomsdayers have been proven wrong about overpopulation and environmental crises.

–The strange case of David Ricardo: Why Schumpeter, Keynes, and Samuelson admired him–and deplored him.

–Why Malthus refused to have his portrait made until age 67.

–Why Hayek blames John Stuart Mill, a hero of classical liberalism, for popularizing socialism among intellectuals in the 19th century.

–The real origin of the epithet “dismal science,” and why critics are now calling economics the “imperial” science, with ever-increasing applications in law, finance, history, and politics.

–How John Stuart Mill and the disciples of David Ricardo became hostage to the Marxists, and how Carl Menger and the Austrians revived the laissez faire model of Adam Smith from oblivion.

–The inside story of three multi-millionaire economists–David Ricardo, Irving Fisher and John Maynard Keynes.

–The bizarre story of Jeremy Bentham: from democratic reformist to utilitarian fascist.

–The socialist origins of the American Economic Association and the London School of Economics.

–Veblen’s incredible prophecies about World War I and II.

–Thorstein Veblen versus Max Weber: Who had a better vision of capitalism?

–How Irving Fisher became an advisor to the fascist Mussolini.

–The little-known story of how the economics establishment in the West (including economists at Cambridge, Harvard and Yale) failed to forecast the 1929-32 economic collapse.

–How Austrian economists Ludwig von Mises and Friedrich Hayek were able to predict the 1929-33 crisis, yet failed to convince the world of their theories.

–How the 1929 crash served as a catalyst for Keynes’s “general theory.”

–How Keynes saved the world from Marxism in the 1930s.

–The truth about Keynes’s homosexuality and the rumor that his Cambridge colleague, A. C. Pigou, was a Soviet spy.

–Gross Domestic Product (GDP)–how a Keynesian statistic was invented by a Russian.

–How Irving Fisher’s misinterpretation of his quantity theory of money led to his losing a fortune on Wall Street, and how Milton Friedman avoided repeating Fisher’s blunder.

–Why Friedman and the Chicago school triumphed over Mises and the Austrian school in discrediting Keynesianism and restoring the Adam Smith model of market capitalism.

Fully Illustrated with Over 100 Photos, Portraits and Graphs

Finally, The Making of Modern Economics is the first fully-illustrated history of economics, with over 100 charts, portraits, and photographs, including a picture of….

…Keynes in bed (where he made his millions),

…Eugen Boehm-Bawerk in official regalia as finance minister of Austria,

…Alfred Marshall trying to hide his oversized left hand,

…the preserved body of Jeremy Benthem in London,

…the only known photograph of Irving Fisher smiling (before he lost millions in the stock market), and

…over 75 rare and unusual photos and portraits of famous economists.

Provocative Chapter Titles

Here are the titles of each chapter of The Making of Modern Economics:

It All Started with Adam (Adam Smith, that is)

  1. The French Revolution: Laissez Faire Avance!
  2. The Irreverent Malthus Challenges the New Model of Prosperity
  3. Tricky Ricardo Takes Economics Down a Dangerous Road
  4. Milling Around: John Stuart Mill and the Socialists Search for Utopia
  5. Marx Madness Plunges Economics into a New Dark Age
  6. Out of the Blue Danube: Menger and the Austrians Reverse the Tide
  7. Marshalling the Troops: Scientific Economics Comes of Age
  8. Go West, Young Man: Americans Solve the Distribution Problem in Economics
  9. The Conspicuous Veblen Versus the Protesting Weber: Two Critics Debate the Meaning of Capitalism
  10. The Fisher King Tries to Catch the Missing Link in Macroeconomics
  11. The Missing Mises: Mises (and Wicksell) Make a Major Breakthrough
  12. The Keynes Mutiny: Capitalism Faces its Greatest Challenge
  13. Paul Raises the Keynesian Cross: Samuelson and Modern Economics
  14. Milton’s Paradise: Friedman Leads a Monetary Counterrevolution
  15. The Creative Destruction of Socialism: The Dark Vision of Joseph Schumpeter
  16. Dr. Smith Goes to Washington: Free-Market Economies Face New Challenges

What Others Are Saying

“A story rarely told….It’s unputdownable!”
– Mark Blaug (University of Amsterdam), author of Economic Theory in Retrospect

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

“One of the most original books ever published in economics.”
– Richard Swedberg (University of Stockholm), author of Schumpeter: A Biography

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

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

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

“Irreverent, passionate, entertaining, sometimes mischievous, like the author himself!”
–David Colander (Middlebury College), coauthor of The Making of an Economist

“I have read Mark’s book three times. It’s fun to read on every page. I have recommended it to dozens of my friends.”
John Mackey, CEO, Whole Foods Market

“I loved the book–spectacular!”
Arthur B. Laffer

“I couldn’t put it down! The musical accompaniments for each chapter are a wonderful touch. Humor permeates the book and makes it accessible like no other history. It will set the standard.”
Steven Kates, RMIT University, Australia

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

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

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

About the Author

Mark Skousen (Ph. D., economics, George Washington University) is a Presidential Fellow at Chapman University in California.  He has taught economics, finance and business at Columbia Business School, Barnard, Mercy and Rollins colleges, and Chapman University.  Since 1980, Skousen has been editor in chief of Forecasts & Strategies, a popular award-winning investment newsletter (www.markskousen.com).  He was analyst for the CIA, a columnist to Forbes magazine, chairman of Investment U, and past president of the Foundation for Economic Education (FEE) in New York.  He is the editor of his own website, www.mskousen.com, and is the producer of FreedomFest, “the world’s largest gathering of free minds,” which meets every July in Las Vegas (www.freedomfest.com).  His economics works include The Structure of Production (NYU Press), The Big Three in Economics (ME Sharpe), The Making of Modern Economics (Routledge) and Economic Logic (Capital Press).  His investment books include Investing in One Lesson (Capital Press), and The Maxims of Wall Street (Eagle Publishing).  In honor of his work in economics, finance and management, Grantham University renamed its business school, “The Mark Skousen School of Business.”  Based on his work The Structure of Production (NYU Press, 1990), the federal government now publishes Gross Output (GO) every quarter along with GDP.

THIRD QUARTER GROSS OUTPUT AND B2B INDEX REPORTS SHARP SLOWDOWN IN US ECONOMY

Washington, DC (Thursday, January 21, 2016):  Gross output (GO), the new measure of U. S. economic activity published by the Bureau of Economic Analysis, slowed significantly in the 3rd quarter of 2015. And the Skousen B2B Index actually fell slightly in real terms in the 3rd quarter. Both data suggest the possibility of a mild recession developing in 2016.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, real GO grew by only 2.5% in the 3rd quarter of 2015, almost half the rate in the 2nd quarter (4.6%), but more than real GDP (2.0%) in the 3rd quarter[1]   Adjusted GO reached $39.2 trillion in the 3rd quarter, more than double the size of GDP ($18.0 trillion).

In nominal terms, adjusted GO growth rate declined from 6.3% in Q2 to 2.3% in Q3. In the same period GDP fell from 6.0% to 2.7%, illustrating the higher degree of volatility of GO compared to GDP (see chart below).  The higher volatility indicates that GO might be a better indicator of economic activity than GDP, since GO includes economic activity that GDP leaves out.

Press_Release_2016-01-21_Graph_01_OriginalSupply chain activity varied significantly in the 3rd quarter: Mining activity continued to fall by 7.6% (on top of declining 26% in Q2), but utilities reversed course and rose 7.2%.   Most other sectors grew, led by construction, which was up 7.6%. However, the wholesale market fell 6.6%, while retail trade rose 7.4% in nominal terms. Overall, price inflation remained tepid, declining 0.1%.

GO and GDP are complementary statistics in national income accounting. Gross output (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 an 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” (earnings) 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. The fact that the adjusted GO is now growing slower than GDP suggests that the economic recovery is losing steam and may end up in a mild recession in 2016.

Real Business Spending (B2B) Suffers Slight Decline

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. B2B activity rose only 0.2% in nominal terms in the 3rd quarter, down from 1% growth in the 2nd quarter, and actually fell in real terms by 0.1%. According to the Skousen B2B Index, business spending rose to $22.83 trillion in nominal terms compared to the 2nd quarter of $22.78 trillion. Meanwhile, consumer spending rose 1.1% (0.8% in real term) in Q3.

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“The GO data and my own B 2B Index demonstrate that total US economic activity has slowed dramatically. A recession could develop in 2016, although I expect it to be mild,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth and maybe even a downturn.”

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 just 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. 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: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

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

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”:

http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”:

http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

New: Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015: http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

 

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations, 1-201-788-6623, or email him at skousenpub@gmail.com.

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[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 2015 3rd quarter is $31.6 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.2 trillion. Thus, the BEA omits $7.6 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. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

 

 

 

 

SECOND QUARTER GROSS OUTPUT AND B2B INDEX: US ECONOMY MUCH STRONGER THAN GDP INDICATES

Washington, DC (Thursday, November 5, 2015):  Gross output (GO), a broader measure of U. S. economic activity published by the Bureau of Economic Analysis, accelerated in the 2nd quarter of 2015, indicating a more robust economy than GDP data reports.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, real GO grew by 4.6% in the 2nd quarter of 2015, considerably more than the 3.9% annualized growth rate of real GDP.[1]   Adjusted GO reached $39.0 trillion in the 2nd quarter, more than double the size of GDP ($17.9 trillion).

In nominal terms, adjusted GO growth rate went from -2.5% in Q1 to 6.3% in Q2. In the same period GDP went from 0.8% to 6.0%, illustrating the higher degree of volatility of GO compared to GDP (see chart below).  The higher volatility indicates that GO might be a better indicator of economic activity than GDP, since GO includes economic activity that GDP leaves out.

GO_2015_q2_a_changeHowever, early-stage activity continued to show weakness in the 2nd quarter: Mining activity fell 26% and utilities declined 16%. However, most other sectors grew, led by construction, which was up 24%. Wholesale and retail sales also rose sharply, probably benefiting from lower fuel prices. Overall, price inflation remained tepid, rising only 1.4%.

GO and GDP are complementary statistics in national income accounting. Gross output (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 an 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” (earnings) 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. The fact that the adjusted GO is still growing slightly faster than GDP suggests that the economic recovery is on-going.

Business Spending (B2B) Rises Only 1%

We have also created a new B2B Index based on GO data. B2B activity rose only 1% in the second quarter. According to the new Skousen B2B Index, business spending rose to $22.7 trillion in nominal terms compared to the 1st quarter of $22.4 trillion. Meanwhile, consumer spending remained stable.

GO2015q2b“The GO data and my own B2B Index demonstrate that total US economic activity has picked up, and a recession has been avoided for now,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates continued growth.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out a big part of the economy, business to business transactions in the production of intermediate inputs,” he notes. “GO includes most 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 just 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 an important achievement in national income accounting. 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 less than 40% of economic activity, not the 70% figure that is reported by the media. 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: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

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

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”:

http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”:

http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations, 1-201-788-6623, or email him at skousenpub@gmail.com.

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[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are transformed 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 2015 2nd quarter is $31.4 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $38.9 trillion. Thus, the BEA omits over $7 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. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

New Article Links Austrian and Keynesian Economics

by Mark Skousen

The Journal of Private Enterprise has published my paper on Gross Output (GO), the new supply-side macro statistic that the federal government is now publishing quarterly along with GDP.  It is entitled “Linking Austrian and Keynesian Economics:  A Variation of a Theme.”  Go to http://journal.apee.org/index.php/Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

It’s one of four articles in the Journal of Private Enterprise honoring the work of Roger Garrison, the “Austrian” economist at Auburn U who recently retired.  I put together a Festschrift in his honor at the annual Association for Private Enterprise Education (APEE) meeting last year.

A few updates on the GO statistic since I wrote this article:

  1. I’ve dropped my own term GDE and now use “adjusted GO” to describe a more complete measure of spending at all stages of production.
  1. I’ve found an easy way to explain the relationship between GO and GDP that accountants and finance people grasp right away:  Just as a good accountant or financial analyst looks at both the “top line” (revenues/sales) and the “bottom line” (earnings/net income) of a firm’s financial statement, so now economists look at the “top line” (GO or total revenues at all stages of production) and “bottom line” (GDP or value added) of national income accounting.  In sum, GO is the top line and GDP is the bottom line of national income accounting.
  1. Top textbooks are now planning to incorporate GO into their chapters on national income accounting.   Roger LeRoy Miller was the first to write up GO in his latest “Economics Today” textbook, and plans to expand GO in the next edition.
  1. In response to the Federal government (BEA) publishing GO on a quarterly basis, NYU Press has published a new 3rd edition of my work, “The Structure of Production” (1990, 2007, 2015), with a new introduction on GO.  See the announcement here: http://mskousen.com/2015/09/announcing-the-new-third-edition-of-the-structure-of-production/

 

Announcing the New Third Edition of “The Structure of Production”

Federal Government Introduces a New Macro Statistic: A Triumph in Supply-side “Austrian” Economics and Say’s Law

Mark Skousen, The Structure of Production. New York University Press. Third revised edition, 2015, 402 pages. $26 paperback. Available on Kindle.

To buy the book: NYU, Amazon
Quarterly data for Gross Output can be found at the BEA site here.
For Skousen’s latest quarterly report on GO, see this.

From the cover:

SoP3coverweb2In 2014, the U. S. government adopted a new quarterly statistic called gross output (GO), the most significance advance in national income accounting since gross domestic product (GDP) was developed in the 1940s. The announcement comes as a triumph for Mark Skousen, who advocated GO twenty-five years ago as an essential macroeconomic tool and a better way to measure the economy and the business cycle. Now it has become an official statistic issued quarterly by the Bureau of Economic Analysis at the U. S. Department of Commerce.

Quarterly data for Gross Output can be found at the BEA site here.

For Skousen’s latest quarterly report on GO, see this.

Since the announcement, Gross Output has been the subject of editorials in the Wall Street Journal, Barron’s, and other financial publications, analyzed in the Eastern Economic Journal, and is now being included in leading economics textbooks, such as Roger Leroy Miller’s new 18th edition of Economics Today. Economists are now producing GO data for other countries, including the UK and Argentina.

In this third printing of Structure of Production, Skousen shows why GO is a more accurate and comprehensive measure of the economy because it includes business-to-business (B2B) transactions that move the supply chain along to final use. (GDP measures the value of finished goods and services only, and omits most B2B activity.) GO is an attempt to measure spending at all stages of production.

As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in “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 states, “Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the ‘make’ and the ‘use’ economy, between aggregate supply and aggregate demand. I make the case that GO and GDP complement each other as macroeconomic tools and that both should play a vital role in national accounting statistics, much like top line and bottom line accounting are employed to providing a complete picture of quarterly earnings reports of publicly-traded companies.”

He concludes, “Because GO attempts to measure all stages of production (known as Hayek’s triangle), it is a monumental triumph in supply-side ‘Austrian’ economics and Say’s law.”

Using GO, Skousen demonstrates that consumer spending does not account for two-thirds of the economy, as is often reported in the financial media, but is really only 30-40% of total economic activity. Business spending (B2B) is over 50% of the economy, and thus is far larger and more important than consumer spending, more consistent with economic growth theory, and a better measure of the business cycle. (See chart below.)

GO1stQtr2015-B

About the Author

MARK SKOUSEN is a Presidential Fellow at Chapman University in California. He has taught economics and finance at Columbia Business School, and is a former economic analyst for the Central Intelligence Agency. He received his Ph. D. in economics at George Washington University (1977). He is the editor-in-chief of the investment newsletter Forecasts & Strategies, and author of several books, including The Making of Modern Economics.

Reviews

“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.” — Steve H. Hanke, Johns Hopkins University (2014)

“The development of Gross Output is a good idea and a better measure [of economic activity] than GDP.” — David Colander, Eastern Economic Journal (2014)

“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.” –Steve Forbes, Forbes magazine (2014)

“Skousen’s Structure of Production should be a required text at our leading universities.” (referring to second edition) –John O. Whitney, Emeritus Professor in Management Practice, Columbia University

“Monumental. I’ve read it twice!” (referring to first edition, published in 1990) — Peter F. Drucker, Clermont Graduate University

“I am enormously impressed with the care and integrity which Skousen has accomplished his work.” — Israel Kirzner, New York University

For Interviews or Lectures

To interview Dr. Mark Skousen or arrange a lecture, contact him at mskousen@chapman.edu, or Valerie Durham, Media Relations, 410-570-0535, or email her at vdurham@skousenpub.com.

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