Missing Link in Economics Revealed!

by Mark Skousen
Presidential Fellow, Chapman University

For centuries economists have been searching for the missing link that would tie microeconomics (theory of the firm and individual behavior) with macroeconomics (theory of the economy as a whole).

I believe my four-stage model of the economy does just that.  Based on Austrian macroeconomics (known as Hayek’s triangles), I created a four-stage model of the macro economy in my book, The Structure of Production (NYU Press, 1990).  A few years later, John Taylor of Stanford University (famous for his Taylor Rule) independently produced a 4-stage micro model involving four stages in the production of Caribou Coffee.

A eureka moment!

I’ve incorporated both 4-stage micro and macro models in my textbook, Economic Logic (Capital Press, 2014), now in its 4th edition.  See especially chapter 14:  <http://www.amazon.com/Economic-Logic-Fourth-Edition-Skousen/dp/1621572226 It’s available in book print and Kindle.  If you want to buy it at a discount for only $34.95 plus S&H, call Eagle Publishing at 1-800-211-7661, and use code ECONL6.


Figure 1.  Universal 4-stage Macro Model of the Economy

Source:  Mark Skousen, The Structure of Production (New York University Press, 1990); Economic Logic (Capital Press, 2014).






Figure 2.  4-stage micro model (production process of Caribou Coffee) 

Source:  John B. Taylor, Economics, 5th edition (Boston:  Houghton Mifflin, 2006)

Steve Forbes Endorses My Gross Output Statistic

“Mark Skousen’s Gross Output statistic…will have a profound and manifestly positive impact on economic policy and politics.”  — Steve Forbes, Forbes magazine, April 14, 2014

The Bureau of Economic Analysis will start releasing Gross Output (GO) along with GDP every quarter starting on Friday, April 25.  I consider it a triumph in supply side “Austrian” economics.

I think Steve Forbes captures the importance of this new national statistic in his column in the April 14 edition of Forbes.

Most of the textbook writers are going to include GO in their next edition.  Sean Flynn, now the primary writer of the McConnell/Bruce textbook, is going to highlight it.

Here’s Steve’s commentary — New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal: by Steve Forbes  http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Here’s my original article in Forbes — Beyond GDP Get Ready for a New Way to Measure the Economy: by Mark Skousen  http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Here’s my op ed in the Wednesday, April 23 edition of the Wall Street JournalAt Last, A Better Economic Measure: by Mark Skousen http://online.wsj.com/article/SB10001424052702303532704579483870616640230.html


Chapman Students Are Surprised by the Answer to My Environmental Question

In January, my wife and I had the opportunity to teach at Chapman University, where I am a Presidential Fellow for 2014.  She taught a class in poetry, and I taught “Modern Political Economy:  Who is Winning the Battle of Ideas?”  I used my textbook, “The Making of Modern Economics,” now in its 2nd edition.

One of today’s controversies is about pollution and the environment.  We talked about a recent address by U. S. Secretary of State John Kerry, who warned students in Indonesia that “global warming” is “the greatest challenge of our generation,” more than disease outbreaks, poverty, terrorism and the proliferation of weapons of mass destruction.

Then he demonized anyone who disagrees with him, calling critics of global warming “shoddy scientists and extreme ideologues.” You could say the same about Al Gore.  Kerry added, “We should not allow a tiny minority of shoddy scientists and science and extreme ideologues to compete with scientific fact.”

Kerry is typical of the hysteria surrounding the issue of ecology and the environment. Students are being brainwashed into thinking the problem is getting worse and worse. Kerry and the extreme environmentalists blame any weather disaster, the cold snow in the Northeast or the drought in the West, to global warming.  You can’t argue with these fanatics.

I asked my students at Chapman University, “Has pollution declined or risen in the past 50 years in LA county?”  Over half thought pollution was worse.  The cold, hard fact is that pollution has been reduced sharply in LA county even as gasoline use has risen.  See this chart:


The fact is that the average world temperature has been flat or declining for 17 straight years.  If you want to know the facts about global warming and pollution, read this column by Larry Bell in Forbes.com:  http://www.forbes.com/sites/larrybell/2013/08/21/the-new-york-times-global-warming-hysteria-ignores-17-years-of-flat-global-temperatures/

During the class, a journalist visited my class and gave this nice write up:  http://blogs.chapman.edu/happenings/2014/01/28/class-act-economics-comes-to-life-with-mark-skousen-teaching/

I will be returning to Chapman University on Wednesday, April 16, to give a public lecture as part of my Presidential Fellowship.

Students (each holding an American eagle silver dollar) join me in front of the Adam Smith statue at Chapman University.

A Personal Triumph 25 Years in the Making with Launch of New Macro Statistic

For the first time since World War II, the Federal government (Bureau of Economic Analysis) will begin publishing a new macro statistic Gross Output [GO] starting in spring 2014 at the same time it releases its quarterly GDP data.

Forbes.com article has just published my article on this new statistic “Beyond GDP“: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

A shortened version will appear in the Dec. 16 issue of Forbes magazine (circulation over 1 million).

I’ve been advocating this new national statistic since writing The Structure of Production (NYU Press) in 1990. Now it’s finally happening. Steve Forbes calls it a “real breakthrough.”

Steve Moore of the Wall Street Journal and Gene Epstein of Barron’s are looking into writing articles on GO.  So is The Economist.

Bill Nordhaus, professor at Yale University, writes, “Congratulations on the article and the work.  It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld [Director, BEA] has been a superstar in this respect…This will open up the potential for new insights into the behavior of the economy.”

GO goes a long way in providing the right balance in the production-consumption process that is missing in GDP data. As BEA Director Steve Landefeld and co-editors Dale Jorgenson and Bill Nordhaus state: “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.”

I think you’ll find the chart comparing GO and GDP of interest, how GO is consistently more volatile than GDP, and a better measure of the business cycle. (Click on the chart below to go directly to the article)

I’m excited — this is a personal triumph nearly 25 years in the making.

Most of the economics textbook writers are planning to include a section on GO in their next editions (McConnell, Parkin, Gwartney, Hubbard), and economic analysts are now starting to look at it.  In an email, Roger Leroy Miller, professor at University of Texas at Arlington, says that he has added a section on Gross Output for his 18th edition of Economics Today.  It is already part of my own Economic Logic textbook.

I hope you’ll check out the Forbes article, as well as Economic Logic and The Structure of Production for a more in-depth look at this important development.

JFK Assassination: I Remember the Day

What were you doing 50 years ago on the day President Kennedy was assassinated?

I remember it well. I was a junior at Sunset High School in Portland, Oregon, and was sitting with my girl friend Mary Craner in the library when the monitor came on with Walter Cronkite announcing that the President had been shot in Dallas Texas and then later announcing with emotion, “President Kennedy died at 1 pm today.” Many students were in tears during the day (Friday), and even though I was a conservative Republican, I felt bad for the Kennedys and the country.

I was a Goldwater conservative at the time, and involved in the anti-communist movement along with my father Roy Skousen and his brother Cleon.

Today I see many conservatives are trying to make the case that JFK was a conservative, and there’s a book out now of that title (“JFK, Conservative”). I think they are trying to rewrite history. Everyone I knew back then thought that Kennedy was a social Democrat who was a big-spender and wanted more government involvement in the economy. We were opposed to his election. However, almost everyone I knew were saddened by the death of the President.

Looking back now, I see the JFK assassination as a tremendous tragedy. His successor, Lyndon Johnson, took advantage of the sympathy everyone felt about JFK’s death and pushed through “The Great Society” programs such as Medicare, Medicaid, food stamps, expanded Social Security (“The War on Poverty”), which has created a lot of the social problems, unfunded liabilities, and out of control spending that we face today.

LBJ also got us involved in the Vietnam War, although the evidence is pretty clear that JFK supported the war against Communist aggression.

The one good thing that came out at this time was the civil rights legislation, although all my conservative friends and most of the Republican leadership opposed it at the time. I think this was the Republican’s biggest error. Many Republicans such as Warren Buffett switched to the Democrats after Goldwater and other Republican leaders led their watershed opposition to equal rights for blacks. I have read since then that the more rank-and-file Republicans in Congress voted for the Civil Rights Act of 1965 than the Democrats. But the leaders were opposed.

In liberty, AEIOU,


Mark Skousen
Producer, FreedomFest
July 9-12, 2014, Las Vegas
Theme: “Is Big Brother Here?”

Record 2,500 Gather at “Best FreedomFest Ever”

By Mark Skousen

“FreedomFest was a gigantic conference.  It drew many academics, journalists, activists of all ages, vendors, investors, and a huge variety of professionals in all fields. And of course, Laissez Faire Books was there in full force. The level of fun was totally over the top. But the content of every session I attended was just spectacular.” – Jeffrey Tucker, president, Laissez Faire Books

Everyone seems to agree:  Our 7th FreedomFest was the “best ever” according to the many emails I’ve received – from Alex Green, Floyd Brown, Susana Etcheverry, Bert Dohmen, Brian June, and Gene Epstein, economics editor at Barron’sDinesh D’Souza said that FreedomFest has rapidly become “the premier libertarian gathering.”

We broke all kinds of records this year – number of attendees, sales of books at our official bookstore (Laissez Faire Books), and CDs/MP3s.  Numerous sessions, panels and debates at Planet Hollywood were standing room only.  And for the first time we had a major TV network, Fox Business at FreedomFest, along with C-SPAN.  (Plus a nice mention by Bill O’Reilly on Fox News in his interview with John Stossel.) [Read more…]

Announcing My Latest Breakthrough Book – “A Viennese Waltz Down Wall Street”

I’m very proud to announce the publication of my latest book, “A Viennese Waltz Down Wall Street: Austrian Economics for Investors,” published by Laissez Faire Books. See the letter from LFB publisher Jeffery Tucker below, and check out all the details of the book here.

Dear Readers:

The central message of the Austrian school of economics, writes Mark Skousen in this new and wide-ranging book, is that economics is about human beings. That outlook has direct implications for financial markets and personal investing. And this is why the Austrian school has had a huge impact Wall Street.

A Viennese Waltz Down Wall Street, then, is a tutorial on both economics and investment that sheds new light on both fields.

Consider the opening metaphor of the dance. This is the image that Skousen uses to illustrate the direction of prices in financial markets. It is not random, but neither is it entirely scripted. There is a great deal of improvisation and uncertainty. But what makes it all work is that great institution of the mutual benefit of buying and selling. This is what makes markets dance.

Economics and investing are the two fields that Skousen has followed closely during his long career. This book weaves the two together to show how you can use good economics to anticipate market turns. But just as importantly, it shows how you can use investing knowledge to understand economics.

You can download the e-book here.


  • What Is the Austrian School?
  • Carl Menger: Subjectivism and the Marginal Revolution
  • Eugen Böhm-Bawerk: Saving, Interest Rates, and the Theory of Capital
  • Friedrich von Wieser: The “Great Man” Theory
  • Ludwig von Mises: Human Action
  • Friedrich Hayek: The Austrian Theory of the Business Cycle
  • Schumpeter and Creative Destruction
  • Kirzner and the Discovery Process
  • Murray Rothbard and the “Hard-Money Movement”
  • The 2008 Financial Crisis: Austrian Response to the Chicago School of Milton Friedman
  • Murray Rothbard As Investment Advisor
  • What Every Investor Should Know About Austrian Economics and the Hard-Money Movement
  • The Economist As Investment Advisor
  • Keynes As a Speculator
  • Who Predicted the 1929 Crash?
  • Financial Economics
  • A Tale of Two Dollars
  • Austrian Economics: Newsletters, Books, and Services

We hope you enjoy this wonderful book, and thank you for being a member of the Laissez Faire Club!


Jeffrey Tucker

Announcing the FreedomFest Slogan Winner

We are delighted to announce Daniel Brackins as the winner of the FreedomFest Slogan Contest for his suggestions “FreedomFest: For the 100%!” We believed his slogan concisely summed up the inclusive nature of FreedomFest — we welcome all people, from all parties of thought, for coherent, insightful and open discussions…all while having tons of fun in Las Vegas. We also believe that the true principles of liberty are a benefit to everyone in the world.

Daniel will receive a genuine silver dollar, the symbol of FreedomFest, as his prize for coming up with the winning slogan.

Other slogans that made the top round for selection:

“FreedomFest: It’s not about left or rights. It’s about what’s left of our rights.”

“The Barbarians are at the Gate”

“Round up the usual suspects.”

“We the Market.”

“Breath freedom.”

“Live FreedomFest, or Die Hard”

We hope to see all of you at FreedomFest for our first conference at Caesar’s Palace, July 10-13, 2013. This year’s theme is “Are We Rome?” and it promises to be the absolute greatest FreedomFest yet. To register and find out the latest news on planned events, speakers and debates, plus the incredible Anthem Film Festival, visit http://www.freedomfest.com

Report from AEA Meetings in San Diego: The FED = Inflation

I returned early this year from a productive trip to San Diego for the American Economic Association (AEA) meetings, where I met with several top economists, including Nobel Prize winners. One of the most popular sessions was a panel on the 100th anniversary of the Federal Reserve. The most shocking graph was presented by Ken Rogoff, a Harvard economist.

As the graph indicates, there was virtually no inflation prior to 1913, when the Federal Reserve was created (other than wars, which caused temporary inflation) and we went off the classical gold standard. Rogoff noted that since the Fed was created, prices have skyrocketed 30-fold, or 3,000%! This data confirms Murray Rothbard’s contention that the Fed was created to remove the barriers to inflation, not to control it.

Despite the fact that the Fed engineered all of this inflation, caused the Great Depression and failed to regulate the mortgage banks prior to the 2008 crisis, all of the panelists gave high marks to the Fed! (You can bet that won’t be the case at our special panel on the 100th anniversary of the Fed at FreedomFest!)

Another telling sign was the fact that the sessions with super Keynesian Paul Krugman were standing room only, while monetarists including Nobel laureate Bob Lucas had a small turnout.

What does this situation bode for the future? If Krugman has his way, it means greater deficits, more inflation, and higher taxes.

Ben Franklin: The most modern of the Founders

by Mark Skousen
01/17/2012 (This article was also published on Human Events)

“I have sometimes almost wished it had been my destiny to have been born two or three centuries hence.” — Ben Franklin

Benjamin Franklin, whose birthday we celebrate today, Jan. 17, 1706, was the oldest of the founding fathers — he was indeed a whole generation ahead of George Washington, John Adams and Thomas Jefferson — and yet he was the most forward-looking of the group, a man ahead of his times.  He was a supporter of free-enterprise capitalism and globalization, a skeptic about organized religion, defender of the rights of minorities, a lover of modern gadgetry, and proponent of the sexual revolution.

His views were distinctly modern.  Of all the founders, he would be the one most comfortable living today.  He would not be surprised by the tremendous advances in people’s incomes and living standards.  After the American revolution, he predicted, “America will, with God’s blessing, become a great and happy country.”  He was an optimist and a believer in progress and the American dream, the idea that every American could get ahead through industry, thrift and a good education.  Franklin was in many ways the father of American capitalism.  He would be pleased with the buzz of daily life in the market place and our major cities.

As an advocate of the “new” economics of “free trade” and open borders, he embraced the benefits of globalization, the spread of democracy and representative government.  “Our cause is the cause of all mankind.  God grant that not only the love of liberty but a thorough knowledge of the rights of man may pervade all nations of the earth so that a philosopher may set his foot anywhere on its surface and say, this is my country!”

Throughout his adult life, he was mesmerized by scientific advances in transportation, medicine, and agriculture, and loved to hear about and even create his own new inventions.  “I have sometimes almost wished it had been my destiny to have been born two or three centuries hence,” he dreamed, “for inventions of improvement are prolific, and beget more of their kind.  The present progress is rapid.  Many of great importance, now unthought of, will before that period be procured.  I mention one reason for such a wish, which is that if the art of physic [medicine] shall be improved in proportion with other arts, we may then be able to avoid diseases, and live as long as the patriarchs in Genesis.”  Franklin would be the first to have a cell phone and an HD television.

His attitudes toward religion were very much in keeping with today’s tolerant and skeptical views.  He opposed any kind of requirement of a religious test on legislators, and believed in a “general toleration of all.”  He actually donated funds to all the various churches in Philadelphia.  Of the three virtues, hope, faith and charity, he regarded charity (good works) as the most important.  He believed in God, but had his doubts about the divinity of Christ.

His views were advanced for his age when it came to treatment of minorities.  He let his slaves go during his lifetime, and was an advocate for the abolition of slavery.  He considered blacks equally capable as whites.  He blamed most of the Indian disputes on the white population.

Franklin was a defender of women’s rights and treated them as his equals.  “Women, especially, flocked to see him, to speak to him for hours on end,” commented his French friend Le Roy.  The savant of Philadelphia was no distant marble figure like the reserved Virginian George Washington or the cantankerous prude John Adams.  Here was a red-blooded American Casanova who disdained the mores of a sexually-repressed Puritan age, enjoyed a strong libido, and was adored by the fairer sex for his charm, story-telling, fame and savoir faire.  A thoroughly modern founding father who had few hang-ups.

As far as politics is concerned, there are many characteristics of today’s government he might find agreeable and some disagreeable.  He was not especially fond of the gold standard, and preferred a paper money standard, though he feared too much inflation could be “mischievous and the populous apt to demand more than is necessary.”  He supported and invested in Robert Morris’s Bank of North America, a precursor to Alexander Hamilton’s Bank of the United States, America’s first central bank.

Some features of modern-day America would appall Franklin.  He would feel terribly uncomfortable with the size and burden of today’s national debt, and America’s leaders failure to balance the budget.  The sheer size of the federal government would depress him.  He believed “a virtuous and laborious [industrious] people can be cheaply governed.”  He would dislike the engagement in foreign wars by the U. S. military.  “The system of America is [should be] commerce with all, and war with none.”

Finally, he hated party politics.   “There are two passions which have a powerful influence in the affairs of men, ambition and avarice, the love of power and the love of money….And of what kind of men will strive for this profitable pre-eminence, thro’ all the bustle of cabal, the heat of contention, the infinite mutual abuse of parties, tearing to pieces the best of characters?  It will not be the wise and moderate, the lovers of peace and good order, the men fittest for the trust.  It will be the bold and the violent, the men of strong passions and indefatigable activity in their selfish pursuits.  These will trust themselves to this government and be their rules.”


Mr. Skousen is a renowned financial economist, author and university professor. He has been the editor of the financial advice newsletter, Forecasts & Strategies, for 30 years. Two of his books highlight Milton Friedman’s career: “The Making of Modern Economics” and “Vienna and Chicago, Friends or Foes?.” Check out his latest book “The Big Three in Economics: Adam Smith, Karl Marx, And John Maynard Keynes” or “Investing in One Lesson” and “EconoPower: How a New Generation of Economists is