The Rise and Fall of an American Icon

Forecasts & Strategies
Personal Snapshots
August 2000

by Mark Skousen

“The Chief didn’t believe in the Protestant ethic or trust in Poor Richard’s aphorisms. A penny saved might be a penny earned, but a penny borrowed was worth even more.”
– David Nasaw, author The Chief: The Life of William Randolph Hearst

In the past year, I’ve had the chance of visiting the two biggest mansions in the United States, the Biltmore in Asheville, North Carolina, erected by the Vanderbilts, and the Hearst Castle, built by William Randolph Hearst. Both are monuments of capitalist extravagance, and both bankrupted the owners. The Vanderbilts never recovered and not a single Vanderbilt appears on today’s list of the Forbes 400 Richest People in America. The Hearst family was luckier and somehow survived the excesses of the Chief. Several of the Hearst sons are listed today as billionaires on the Forbes list.

In reading his latest biography, The Chief (Houghton Mifflin), I was surprised to learn that William Randolph’s father, George Hearst, started out as a forty-niner prospector who made a fortune in Homestake Mining and Anaconda Copper. He bought the San Francisco Examiner to advance his political career as a U.S. Senator. His only son, William, was trained by his ambitious mother, Phoebe, who took him overseas and sent him to private schools, where he learned Greek, Latin, French and German. Learning business and finance at a course in “political economy” at Harvard, he took over the Examiner and made it profitable. He had the patience to wait on his investments, which paid off handsomely in the future after heavy initial outlays. He was an incurable optimist, a necessary characteristic to succeed in business. Gradually, Hearst built his media dynasty throughout the nation, and wielded influence like no other publisher in American politics. He was the baron of publishing, just as Carnegie was in steel, Rockefeller in oil, and Morgan in banking.

But, sadly, Hearst omitted a cardinal principle of finance: Live within your means! His newspapers were mostly profitable, but he could never retain the earnings. He was a man of insatiable appetites-in politics, high society and personal possessions. He spent all his profits and borrowed to the hilt to make movies, live the high life with his actress-mistress, and build his dream homes (at his peak, he held over 40 homes, beach houses, castles and other kinds of real estate around the world). During the Great Depression of the 1930s, it all came crashing down, and in many ways he died a broken and friendless man.

William Randolph Hearst was bigger than life, but he could have learned from Poor Richard’s Almanac: “Beware of little expenses, a small leak will sink a great ship.”

Yes, The Rich Are Different — They’re Better

Personal Snapshots
Forecasts & Strategies
March 2000

by Mark Skousen

“The rich are different from you and me.” — F. Scott Fitzgerald

“Yes, they have more money.” — Ernest Hemingway

In 1996 when I jogged with President Clinton (see My Jog with Bill Clinton), I complained about his constant attacks on the wealthy. During the presidential campaigns, he would often opine, “The rich don’t pay their fair share of taxes.” Politicians and the media love to take potshots at the well-to-do. Hollywood producers delight in portraying the rich as big spenders who use drugs, engage in white-collar crime, avoid taxes, and dump their companions in favor of trophy wives.

Millionaires Are Model Citizens!

Thomas J. Stanley, former professor of marketing at Georgia State University, shows that the critics of capitalism are dead wrong. Prof. Stanley, you may recall, is the author of the huge best seller, The Millionaire Next Door, which I reviewed last May in Forecasts & Strategies. Now he has a new book out, and it’s a blockbuster. According to The Millionaire Mind, (available from www.amazon.com or Laissez Faire Books www.lfb.org) millionaires are model citizens. Here are the results of his survey of over 1,000 super-millionaires (people who earn $1,000,000 a year or more):

  • They live far below their means, and have little or no debt. Most pay off their credit cards every month; 40% have no home mortgage at all.
  • Millionaires are frugal; they prepare shopping lists, resole their shoes, and save a lot of money; but they are not misers; they live balanced lives.
  • 97% are homeowners; they tend to live in fine homes in older neighborhoods. (Only 27% have ever built their “dreamhome.”)
  • 92% are married; only 2% are currently divorced. Millionaire couples have less than one-third the divorce rate of non-millionaire couples. The typical couple in the millionaire group has been married for 28 years, and has three children. Nearly 50% of the wives of the super-rich do not work outside the home.
  • Most are one-generation millionaires who became wealthy as business owners or executives; most did not inherit their wealth.
  • Almost all are well educated; 90% are college graduates, and 52% hold advanced degrees; however, few graduated top of their class — most were “B” students. They learned two lessons from college: discipline and tenacity.
  • Most live balanced lives; they are not workaholics; 93% listed socialiazing with family members as their #1 activity; 45% play golf. (Stanley didn’t survey whether they were avid book readers — too bad.)
  • 52% attend church at least once a month; 37% consider themselves very religious.
  • They share five basic ingredients to success: integrity, discipline, social skills, a supportive spouse, and hard work.
  • They contribute heavily to charity, church and community activities (64%).
  • Their #1 worry: taxes! Their average annual federal tax bill: $300,000. The top 1/10 of 1% of U.S. income earners pays 14.7% of all income taxes collected!
  • “Not one millionaire had anything nice to say about gambling.” Okay, but his survey also showed that 33% played the lottery at least once during the year!

Thus, we see how the super upper-income families of this nation are not the ones contributing to crime, welfare, divorce, child abuse, and a spendthrift society. But they are playing a lot of taxes and making a lot of contributions to solve these social problems.

Although Stanley did not cover this issue, I’ve also seen studies indicating that higher-income individuals live longer, on average five to ten years longer, than the average American (76 years) and enjoy better health, fitness and quality of life. They aren’t the ones causing Medicare to go bankrupt.

Instead of bashing the rich, let’s salute them. If indeed the wealthy are such good citizens, as Stanley’s work suggests, our goal should not aim to impoverish the rich, but the enrich the poor. That our goal at Forecasts & Strategies.

The For-Profit Antipoverty Agency

Ideas Matter
F0RBES
November 15, 1999

The For-Profit Antipoverty Agency
by Mark Skousen

This summer’s spectacle of World Bank officials lobbying Congress for more foreign aid money was an embarrassment, or should have been. In the past half-century the bank has poured a staggering $450 billion in loans, grants and other aid into the Third World, with not very much to show for the money except some grandiose infrastructure projects. Even these bureaucrats concede that most of the money they have lent out has bypassed the poor.

Who should fill the vacuum? Can the private sector reduce poverty?

It can, and Exhibit A is the Grameen Bank, the brainchild of Muhammed Yunus, formerly an economics professor at the Chittagong University in Bangladesh. Yunus showed the World Bank how to fight poverty-at a profit.

The Grameen Bank (www.grameen.com) started in 1983 by lending amounts ranging from just $30 to $200 directly to poor people in Bangladesh. Applicants didn’t have to be able to read or write; no collateral or credit check was required.

The bank’s strategy was to lend money to entrepreneurs (or would-be entrepreneurs) who needed only a few dollars to buy supplies and tools. Borrowers might make bamboo chairs, sell goats’ milk or operate rickshaws.

By avoiding the usurious interest rates of local moneylenders-often 20% a month-many of these villagers finally broke out of poverty. Their small businesses grew, and thousands of borrowers now own land, a home (often using a $300 Grameen house loan) and even a cell phone (through Grameen Telecom).

By now, the Grameen Bank has made millions of these tiny loans, totaling $2.5 billion. Note that Grameen is a for-profit, private-sector bank that charges interest of 20% per year. Amazingly, Grameen’s loss rate is about 2%, largely because borrowers are bound together in small, local groups. If anyone in the group defaults, no one else may borrow more. That’s a powerful incentive.

You could call this social collateral. The strategy has been used by other microlenders in the Third World, and in a way it is reminiscent of what went on in small building-and-loan societies generations ago in the U.S., in which borrowers and savers all knew one another. Successful Grameen borrowers are not starving, and neither are their children. Most of the Grameen Bank’s 1,140 branches are profitable, albeit marginally. At the end of last year Grameen had $450 million in assets; for the year it managed to earn only $200,000. The bank is mostly owned by its 2.4 million borrowers, with each allowed to own only one share of stock. Yunus and other administrators are salaried employees.

Yunus’ success has inspired hundreds of other microlending operations worldwide-including at the World Bank, where $3.1 billion has been spent on microlending organizations since 1990. Ex-Wall Streeter and current World Bank President James D. Wolfensohn, to his credit, has moved the bank heavily into such partnerships with the private sector.

The Grameen Bank is powerful proof that the private sector can perform most of the World Bank’s functions. There is a renaissance occurring in private charity. Credit innovative organizations like Habitat for Humanity (and its best-known hammer-wielder, Jimmy Carter), which can catch the imagination of the public; and credit the huge fortunes that have been created by the current bull market.

With the Bill and Melinda Gates Foundation, for example, Bill Gates has finally shoveled some of his money out into the world. Many more bull market moguls will be giving money away. The next 50 years will see tens of trillions of dollars in wealth pass from one generation to the next, and a fair amount of this will go to charities.

The World Bank is scheduled to release a big report on world poverty next September. It should not overlook a most important lesson: The World Bank is a puny force in fighting poverty compared with the private sector. It should limit itself to encouraging developing nations to provide the infrastructure (private property rights, sound money policy, limited government) necessary for private markets and independent charities to flourish.

The Other Austrian

Discovery
LIBERTY Magazine

The Other Austrian
By Mark Skousen


Swashbuckling corporate raiders take heed, here’s another Austrian economist offering advice.

Peter F. Drucker once walked into the boardroom of a major company in crisis and bluntly demanded, “Gentlemen, what is your business?” Most of the executives thought it was a sophomoric question, but Drucker kept pushing. He repeated the question over and over again. “What is your business?” It took them an hour to figure out what Drucker was getting at: they had lost their vision. Once they returned to fundamentals, they found their way back to profitability — all because Drucker asked a “dumb” question.

Drucker is eclectic, independent and unpredictable. Although he is known as Mr. Management, he is a lone wolf, operates without a secretary, and has no supporting organization. He is an outsider. In the words of one admirer, he is an “iconoclast–the smasher of idols, seeker of proof, demander of evidence, gadfly, thorn in the side, tough and hard-nosed commentator on problems faced by our society.” 1

Nearly everyone in the business world is familiar with Drucker, either through his books or his columns in The Wall Street Journal. He is a household name among MBAs, corporate executives and business students. Drucker is the world’s most sought-after business consultant. His vitae are multifarious: lawyer, journalist, political theorist, economist, novelist, futurist, and philosopher extraordinaire. Now in his eighties, with 25 books under his belt, he is still active in writing and consulting, though he does not travel much anymore.

Business students and executives have often told me that Drucker’s ideas have a certain “Austrian” streak to them. They say that his emphasis on entrepreneurship, innovation and investment capital as well as his denunciations of big government, excessive taxation and Keynesian economics, has right in harmony with the ideas of Bohm-Bawerk, Mises, Hayek and the Austrian school of economics.

So: is Peter Drucker a closet Austrian?

Viennese Roots

In the very literal sense, Drucker is an Austrian. He was born in 1909 in Vienna, during the heyday of the Austrian school. But he was too young to attend Ludwig von Mises’ famous seminar. When he graduated from gymnasium in 1927, he went to the University of Frankfurt, where he got his LL.D. in the early 1930s. But his roots remained Viennese. He refused a job offer from the Nazi’s Ministry of Information. Instead, he wrote a 32-page monograph on the 19th century German philosopher, Friedrich Julius Stahl. There is as much to learn about Drucker as there is about Stahl in this paper. Stahl was paradoxical: a Jew by birth, a Protestant by conversion, and a conservative opposed to absolute monarchy.  Not surprisingly, Drucker’s paper was banned by the Nazis. Like Mises, Hayek, and other enemies of the Nazi state, Drucker immigrated to the West before the war broke out. He traveled to England in 1933 and the United States in 1937.

The Manager’s Manager

Of course, the question of whether Drucker is an Austrian is not a question about his birthplace. It is a question about his economic theory. If one limited the question to his management approach, the answer is clearly in the affirmative: Drucker’s style of management is Austrian through and through. Time, expectations, new information, and potential change in production processes–all Austrian focal points–are constantly emphasized in his writings and consultations. The manager must be an entrepreneur, not just an administrator. Innovation is essential. In 1985, he wrote an entire book on the subject, Innovation and Entrepreneurship.

He criticizes management for engaging in short-term planning, what he labels “industrial Keynesianism.” Long-term planning is more risky, says Drucker, but is essential for survival, especially for large corporations. Owners and managers must be future oriented, he stresses. “Tomorrow’s vision is today’s work assignment.” The Japanese have been so successful, Drucker asserts, because they’re so long-term oriented.

In Search of a New Social Order

It was his life in America that turned his interest to business management. During the late 1930s, Drucker began searching for a new social and industrial order. He became disenchanted with “unbridled” capitalism as the Great Depression wore on and on. But socialism, fascism, and communism seemed even worse alternatives to society’s ills.

He finally found his answer in the only “free, non-revolutionary way”–the large corporation. He was enthusiastic about his discovery: big business could provide a superior alternative to socialism and big government. According to Drucker, the large corporations should be the conduit through which economic stability and social justice would be established. Only big business could afford to assume social responsibilities such as job security, training and educational opportunities, and other social benefits. Such an alternative was absolutely critical in an age when free enterprise was on the defensive around the world.

After the war, Drucker got a consulting contract with General Motors, which gave him an opportunity to develop his thesis more fully. His exhaustive study of GM culminated in the 1946 publication of Concept of the Corporation. Drucker came to the unshakable conviction that the large corporation should be the “representative social institution” of the postwar period and that major American companies such as GM should take the lead in building the free industrial society.

Top officials at General Motors resented the book and scoffed at the idea that a large corporation should assume social responsibilities. But Drucker’s reputation as a management expert grew despite GM’s cold shoulder. By 1950, he was professor of management at New York University, and in 1973 he was appointed Clarke Professor of Social Science at Claremont Graduate School in California.

Drucker maintains that a company is more than an economic entity. “Even more important than economics are the psychological, human, and power relationships which are determined on the job rather than outside it. These are the relationships between worker, work group, task, immediate boss, and management.” 3 A company’s administrators have a moral purpose and social responsibility beyond making short-term profits. Drucker envisions the large corporation as the social institution, far superior to government in providing a retirement income, health care, education, childcare, and other fringe benefits. He argues that corporate welfarism should replace government welfarism. Drucker acknowledges that such social activity could undermine economic performance, but he rejects Milton Friedman’s admonition that business’ only legitimate responsibility is to increase its profits. A lethargic government has created a “vacuum of responsibility and performance” which big business must fill.

A Moral Dimension

Drucker’s attitudes toward business management and government may not be economic in origin, but religious. “The only basis of freedom is the Christian concept of man’s nature: imperfect, weak, a sinner, and dust destined for dust; yet man is God’s image and responsible for his actions.”‘ He calls for a return to spiritual values, “not to offset the material but to make it fully productive.”

But how far he is willing to carry this insight is open to question. Drucker has been criticized as an apologist for big business. And it is true that he has been reluctant to discuss big business as a special interest lobbying power. Drucker usually envisions business and government in an adversarial role rather than a cooperative one. In his massive volume, Management, his chapter on “Business and Government” fails to mention how big business often uses its power to gain special tax breaks, subsidies, monopoly power and restrictions on foreign competition.

Paul Weaver, a former Ford executive, describes the extent of corporate statism as follows: “From the beginning it [big business] has worked aggressively and imaginatively in this spirit, and over the years it has won a dazzling array of benefits — tariffs, subsidies, official monopolies, tax breaks, immunity from certain tort actions, government-supported research and development, free manpower training programs, countercyclical economic management, defense spending wage controls, and so on through the long list of the welfare state’s indulgences and beneficences.”6 Unfortunately, the master is oddly silent on this critical issue.

Drucker Qua Economist

Drucker is much more than a management consultant and writer. He is also a commentator on politics, economics and culture. Here Drucker is less easy to categorize.

His economic views are often in line with Mises and today’s Austrians; other times they are not. He often rejects notions that Austrians consider essential. Ludwig von Mises and he were colleagues at New York University in the 1950s, but they did not see much of each other. “Mises considered me a renegade from the true economic faith,” Drucker says, and “with good reason.”‘ Drucker became disenchanted with pure laissez faire capitalism during the Great Depression. Today he supports a Hamiltonian approach to government — small, but powerful. He believes in a strong president and a central government that plays a serious role in education, economic development, and welfare. Furthermore, he rejects the gold standard and favors a central bank.

At the same time, however, Drucker advocates many positions that free market economists would applaud.

Inflation is a “social poison.” Government has gotten bigger, not stronger, and can now only do two things effectively — wage war and inflate the currency. The state has become a “swollen monstrosity.” He continues, “Indeed, government is sick–and just at a time when we need a strong, healthy, and vigorous government.” 8 Drucker advocates privatization of government services as a way to reduce a bloated bureaucracy. Indeed, Drucker claims he invented the term, calling it reprivatization in his 1969 book, The Age of Discontinuity. 9 Social Security should be gradually replaced by private pension plans. The corporate income tax, says Drucker, is the “most asinine of taxes” and should be abolished (but replaced with a value added tax). Defense spending is a “serious drain” on the civilian economy, and should be cut sharply. The costs of “free” government services are “inevitably high.” 10 Echoing Hayek, Drucker claims that no public institution can operate in a businesslike manner because “it is not a business.”

Drucker is largely optimistic about he future. He talks excitedly about an expanding global economy and the collapse of Communism. Multinational corporations, both large and small, are far more important than foreign aid or domestic spending programs by the state, and will lead the way into a new nirvana. The more firms become “transnational,” the healthier the world economy will be.

Drucker is encouraged by events in developing countries, especially efforts to privatize and denationalize and open up domestic economies to foreign capital. The worst move a developing country can make is to adopt Marxism. “Communism is evil. Its driving forces are the deadly sins of envy and hatred. Its aim is the subjection of all goals and all values to power; its essence is bestiality; the denial that man is anything but animal, the denial of all ethics, of human worth, of human responsibility.” 11 Drucker debunks Soviet-style central planning, which only produced “disdevelopment.”  He rightly concludes that Soviet economic growth rates are largely figments of the bureaucratic imagination.

Search for the “Next Economics”

Drucker expresses a withering contempt for the economics profession, which he says is still largely Keynesian in nature. Economists are too concerned with the equilibrium theory of a closed economy rather than the growth, innovation and productivity of a global economy. Drucker claims that contemporary economics is where medical school or astronomy was in the 17th century. “There are no slower learners than economists. There is no greater obstacle to learning than to be the prisoner of totally invalid but dogmatic theories.” 12

He blames Keynesianism for an unhealthy anti-saving mythology, causing “undersaving on a massive scale” among the western nations, especially the United States. Moreover, “Keynes is in large measure responsible for the extreme short-term focus of modern politics, of modern economics, and of modern business … Short-run, clever, brilliant economics — and short-run, clever, brilliant politics — have become bankrupt.”

The management guru is also discouraged by today’s popular schools of economics, including the monetarists and the New Classical school. They too ignore entrepreneurship, uncertainty and disequilibrium. Drucker calls for the “next economics” to be “microeconomic and centered on supply,” not aggregate demand, and should emphasize productivity and capital formation.”

Contemporary Austrian economics seems very much like Drucker’s vision of the “next economics.” Somewhat surprisingly, Drucker’s writings do not mention the work of today’s Austrians, like Murray Rothbard, Israel Kirzner and Roger Garrison. When I asked him his opinion of contemporary Austrians, he told me that he was not familiar with their writings. He had not heard of Kirzner’s major work, Competition and Entrepreneurship, even though Kirzner and Drucker both taught at NYU in the sixties.15

Drucker’s favorite economist is Joseph Schumpeter, the Austrian-born Harvard economist. In a 1956 article, Drucker advocates privatization of government services as a way to reduce a bloated bureaucracy. Indeed, Drucker claims he invented the term, calling it “reprivatization” in 1969.

“Modern Prophets: Schumpeter or Keynes?,” he clearly sides with Schumpeter, predicting that of these “two greatest economists of this century … it is Schumpeter who will shape the thinking … on economic theory and economic policy for the rest of this century, if not for the next thirty or fifty years”16 Drucker likes Schumpeter’s emphasis on dynamic disequilibrium and innovation by entrepreneurs who engage in “creative destruction.” In his 1985 book, Innovation and Entrepreneurship, he emphasizes the impact of technological change, innovation, the unexpected and new knowledge on business and the world economy.

But, of course, Schumpeter was an enfante terrible and renegade from the Austrian school as it developed under Mises and Hayek. In this sense, Drucker fits more into the Schumpeterian mode, although he does not share Schumpeter’s pessimism about the future of capitalism.

In the final analysis, Peter Drucker is his own man.

Drucker’s mind is like a rough diamond, providing flashes of insight at every turn. He is able to analyze complex subjects so that his readers and clients catch Drucker’s vision, seeing the essential simplicity behind the apparent chaos.

Sooner or later, every student of business discovers Peter Drucker. Now it is time for economists and social scientists to discover him too.

Notes

1 Tony H. Bonaparte, Peter Drucker: Contributions to Business Enterprise (New
York: NYU Press, 1970), p. 23.

2 Peter F. Drucker, Preparing Tomorrow’s Business Leaders Today (Englewood Cliffs, NJ: Prentice Hall, 1969), p. 290.

3 Drucker, The Unseen Revolution (New York: Harper 6r Row, 1976), pp. 134-35, 168.

4 Quoted in John J. Tarrant, Drucker: The Man Who invented the Corporate Society (Boston: Cahners Books, 1976), p. 30.

5 Drucker, The Landmarks of Tomorrow, p. 264.

6 Paul H. Weaver, The Suicidal Corporation: How Big Business Fails America (New York: Simon & Schuster, 1988), p. 18.

7 See Drucker’s autobiography, Adventures of a Bystander (New York: Harper k Row, 1979), p. 50. In an interview in 1991, Drucker told me that on the few occasions they met, Mises was always depressed. “He was one of the most miserable men I ever met.”

8 Peter F. Drucker, The Age of Discontinuity (New York: Harper k Row, 1969), p· 212

9 ibid., p. 234.

10 Drucker, The New Realities (New York: Harper & Row, 1989), p. 215.

11 Drucker, The Landmarks of Tomorrow (New York: Harper & Row, 1959), p. 249.

12 Drucker, The Frontiers of Management (New York: Harper & Row, 1986), p. 13. 13 Drucker, The Unseen Revolution, pp. 114-15.

14 Drucker, Toward the Next Economics and Other Essays (New York: Harper k Row. 1981), pp.1-21.

15 Israel M. Kirzner, Competition and Entrepreneurship (University of Chicago Press, 1973).

16 The Frontiers of Management, p. 104.

Darwin on Wall Street

Darwin on Wall Street
Mark Skousen
Forecasts & Strategies August 1998

“No other theory or concept ever imagined by man can equal in boldness and audacity this claim — that everything revolves around human existence — that all the starry heavens, that every species of life, that every characteristic of reality exists for mankind and for mankind along. It is simply the most daring idea ever proposed.”
— Michael Denton, Nature’s Destiny

I can’t think of a more depressing philosophy than that of Darwinian evolution as expressed by apologists Stephen J. Gould and Richard Dawkins.

According to them, life is a mindless perpetuation of the species, without meaning or design, just natural selection and survival of the fittest.

Man is nothing special. The creation of life did not have man in mind. Man is accidental and random, a descendant of “punctuated equilibrium.” There’s no God, no special creator, no life after death, no spiritual existence at all. There’s no beauty in life — it’s all random matter. There’s no free will, only material determinism.

It’s all in the genes, didn’t you know?

Not surprisingly, Darwin suffered from this blead outlook on life and was terribly unhappy at the end of his life. Prior to writing The Origin of Species, he delighted in reading poetry and Shakespeare, and listening to music.

Afterwards, however, he lost all interest. “But now for many years, I cannot endure to read a line of poetry: I have tried lately to read Shakespeare, and found it so intolerably dull that it nauseated me. I have also almost lost any taste for pictures or music.” (The Autobiography of Charles Darwin, pp. 138-139)

The evolutionist view is pervasive; we even see it in economics and the financial world. “Today’s economy is a dog-eat-dog world; it’s a jungle out there, and only the fittest survive; the big corporations gobble up the weak competition.”

Economic Darwinism ignores the cooperative side of the economy, and the ability of weaker participants to survive and even thrive.

In the financial field, the efficient market theorists proudly declare: “The markets are random and unpredictable. You can’t beat the market, so why try?” Their investment technique is pretty boring stuff: Buy index funds, never trade, just buy and hold until retirement. It’s like watching paint dry.

A Better Alternative: Intelligent Design

Fortunately, there’s an alternative to Darwinian philosophy called “intelligent design,” and there’s growing support for this more upbeat theory of life, even among evolutionists.

One of the most fascinating books I’ve read recently is Nature’s Destiny: How the Laws of Biology Reveal Purpose in the Universe, by Michael J. Denton (Free Press, $27.50, buy at a discount through www.amazon.com).

Denton is a biologist at the University of Otago in New Zealand. He joins forces with the physicists who have demonstrated how the planet is uniquely formed to sustain life.

Moreover, Denton concludes, “the cosmos is uniquely fit for only one type of advanced intelligent life — Homo sapiens.” He demonstrates, for example, how the earth’s size and atmosphere are fit both for our size and dimension.

He writes eloquently about the unique features of man compared to other animals — our superior intelligence, vision, linguistic ability, and most interestingly, the dexterity of the hand. (A chimp can’t peel an apple, tie a knot, use a typewriter or thread a needle.)

Denton also points out how man is just the right size to handle fire. He also has an engaging chapter on water, and why humans and life in general couldn’t exist without it.

In one of his great books, Human Action (hardcover, $49.95, paperback, $24.95 available at www.lfb.org), the Austrian economist Ludwig von Mises asserted correctly that man alsways acts purposefully and with design.

Human beings think, adopt values, make choices, are conscious, make mistakes and learn from experience. In the financial markets, humans invest with a specific purpose in mind, whether to earn income, make a capital gain or hedge their portfolio. Thus, all movements in stock prices are purposeful, and never random.

In sum, Darwinian evolution as a philosophy is an empty black box. It’s time sciencists and social thinkers look to “intelligent design” as a more consistent and more fulfilling concept of life.

Forecasts & Strategies
August 1998 issue

The Exuberant Wade Cook

Ideas Matter
FORBES

By Mark Skousen

The first time I met Wade B. Cook was at a seminar for small investors in the early 1980s, when real estate and other inflation hedges were the rage. Cook gave a workshop on how to buy and sell mortgages–“discounted paper”–for quick profits, which he called the Real Estate Money Machine, which became a best-selling book of the same name. Forget buy-and-hold, he urged. Speculate. Trade mortgages: “Roll them.” Churning mortgages to create a “money machine.”

For a while Cook sold lots of books and tapes and had lots of fans, but apparently his money machine stopped working, and in 1984 he filed for bankruptcy well ahead of the real estate crash that took place later in the decade.

I thought Wade Cook would disappear like the rest of the get rich-off-real-estate gang, but I was wrong. He’s back, reincarnated as a stock market expert. Three of his books are on the Business Week bestseller list: Wall Street Money Machine, Wall Street Miracles and Bear Market Baloney. His book Real Estate Money Machine is back in print. His company is on the radio, promoting his one-day seminars, his books, videos and his three-day, $4,700 Wade Cook Workshops. Apparently the fish are biting.

Never one to overlook an opportunity, Cook has taken his company public (Nasdaq: WADE), and it has risen 500% in the past year. Recent market cap: $210 million. Cook owns 62% of the stock.

Cook’s enticements would catch the eye of any red-blooded investor: Get 14% to 34% monthly returns-consistently! Double your money every 2 1/2 to 4 1/2 months! The evangelist is not timid: “I’m into formulas which produce safe, sane 20%-plus monthly returns,” he says.

You don’t even need patience for the Cook approach: He promises fast results. In his books he annualizes his weekly, daily and even hourly returns. You’d think people would know better, but apparently they don’t.

How does Cook suggest going about investing? Forget buy-and-hold, he urges once again. Trade options. Make full use of margin. Turn your stocks over constantly. “Roll them” like a money machine. He urges buying stock right before the ex-dividend date, capturing the dividend and then selling. But doesn’t the stock price drop by the amount of the dividend “This is not always the case,” Cook claims.

For quicker profits, Cook goads his followers to load up on companies announcing stock splits. He pleads, “Show me a company that has done a stock split, which one year later (or two) is trading down.” Want faster profits? Buy options and buy on margin.

Can’t you get into trouble with a margin account? “Absolutely not.” It’s not surprising that with claims like these Cook’s company has been the subject of a fraud investigation by the SEC since March 1996. He denies any wrongdoing. And goes right on leading naive investors to potential doom.

Perhaps Alan Greenspan had Wade Cook in mind when he referred to “irrational exuberance” on Wall Street. It’s certainly irrational. This is the same nonsense Cook was peddling nearly 20 years ago, but this time it’s stocks, not real estate. The advice is just as dangerous and the people buying it are just as uninformed.

What I find scary is that there is a market for this stuff. The last time Cook prospered was when real estate became overheated and later crashed. Is his resurgence a harbinger of doom. Is the popularity of his stock market stuff telling us something? I hope not.

If it’s good stock market advice you want, read J. Paul Getty’s 12-page chapter on “The Wall Street Investor” in his classic work How to Be Rich. Sample: “The seasoned investor buys his stocks when they are priced low, holds them for the long-pull rise and takes in-between dips and slumps in his stride.” There’s more wisdom in those 26 simple words than in all the get-rich books ever written.

Forbes, December 1, 1997