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My Friendly Fights with Dr. Friedman

The Rational, The Relentless – Liberty Magazine – September 2007

by Mark Skousen

“To keep the fish that they carried on long journeys lively and fresh, sea captains used to introduce an eel into the barrel. In the economics profession, Milton Friedman is that eel.”— Paul A. Samuelson

Milton Friedman, the intellectual architect of the free-market reforms of the post-World War II era, was a dear but prickly friend. We constantly argued over a variety of issues, but remained friends throughout. I was probably the last person to go out to lunch with him before he died of a heart attack on Nov. 16, 2006.

It was a privilege to know him, despite our policy differences. The triumph of free-market reforms introduced by Thatcher, Reagan, and other leaders in the post-Berlin Wall era (reforms such as lower taxes, deregulation, and privatization that showed the collapse of the Keynesian and Marxist paradigm) can be laid at the feet of a single giant figure: Milton Friedman. Other free-market economists made their mark, but Friedman was the most influential.

Founder of the modern-day Chicago school of economics, Milton Friedman was the force behind many new and excit­ing ideas: policies such as monetarism, privatization of Social Security, school choice, and futures markets in currencies, and also scholarly pursuits that transformed the economics profession from the “dismal science” to the “imperial sci­ence” of today. He was the first economist to counter effec­tively the Keynesian monolith and its myths: that capitalism is inherently unstable, that money does not matter, that there is a trade-off between inflation and unemployment. Friedman debunked them all. He demonstrated that money mat­tered a lot: “Inflation is always and everywhere a monetary phenomenon.”

His most important work is his 1963 magnum opus, A Monetary History of the United States, 1867–1960, with co-author Anna J. Schwartz. This book carefully demonstrates a close correlation between monetary policy and economic activity. Friedman and Schwartz demonstrated beyond doubt that ineptitude by a government body, not free-enterprise cap­italism, caused the Great Depression, when the Fed allowed the money supply to contract by over a third. This book marked the beginning of a counterrevolution, away from the Keynesian view that big government and the welfare state were beneficial. Now government was seen as the cause of our problems, not the cure, as Reagan used to say. Textbooks replaced market failure with government failure. And Friedman made it happen.

He was able to succeed where other free-market econo­mists failed because he had impeccable credentials within the economics profession — earning his Ph.D. from Columbia University, becoming president of the American Economic Association, being published by Princeton University Press, teaching at the University of Chicago, and winning the Nobel Prize in Economics (in 1976, appropriately on the 200th anni­versary of America’s Declaration of Independence).

After establishing himself as a top-ranked economist, he wrote for the general public, especially in Capitalism and Freedom (1962) and Free to Choose (1980), co-authored by his wife and fellow economist, Rose Friedman. (Rose was his beloved companion in life — they traveled and worked together, reared two children, and wrote the memoir “Two Lucky People.”) Milton told me that he always regarded Capitalism and Freedom as his best book for the intelligent layman. I recommend it as an ideal libertarian document.

On a personal level, Milton was unique. He had an “open door” policy toward people of all walks of life. Always intelligent and demanding of evidence, he kept his secretary busy with a huge correspondence with friends and strangers. When I met him in the early 1980s, he didn’t know me from Adam, but he was willing to talk with me and answered my questions seriously. I kept up our friendship by letters, emails, telephone calls, dinners, and lunches over the past dozen years. In 1988, he invited me to my first meeting of the Mont Pelerin Society, and through his influence, I became a member in 2002. He generously wrote blurbs for my recent books and was a big fan of FreedomFest, my annual gathering of freedom lovers. When I had the opportunity to teach at Columbia Business School, he wrote a favorable letter to the dean, which helped me win the position.

Friedman loved to debate, and took on all comers. Unlike many erudite libertarians, he suffered fools gladly and, to my knowledge, never excommunicated anyone over intellectual disagreements. He disagreed sharply with Keynesian economists such as Paul Samuelson and John Kenneth Galbraith, yet he remained friends with both. At times, my own disputes with him were so intense that I thought our relationship was threatened, but my friendship with this happy warrior continued to the end.

Friedman and I were friend and foe on many issues, to the point where I was criticized for being both too sympathetic and too critical. In 2001, at my first board meeting as president of the Foundation for Economic Education, I was approached privately by Bettina Greaves, a long-time FEE employee and devotee of Misesian (“Austrian”) economics. She said, “Mark, I support you in every way as the new president of FEE, but please be more critical of Milton Friedman.” I thanked her for the suggestion. Then, half an hour later, another board member, Muso Ayau, past president of the Mont Pelerin Society and founder of the Universidad Francisco Marroquin in Guatemala, pulled me aside to give me some advice. He whispered, “I support you in every way, but could you do me a favor? Please stop being so critical of Milton Friedman!” When I told Milton this story, he had a belly laugh.

I first met Milton Friedman at the San Francisco Money Show. I approached him with a question about Murray Rothbard’s book, America’s Great Depression, and he willingly engaged me. At the time, I was quite enamored with Rothbard’s Austrian-school explanation of the depression — his argument that it was caused by an inflationary boom in the 1920s that had to collapse, and that the 1930s was actually a good cleaning for a defective financial system. Friedman quickly disparaged Rothbard’s scholarly work, saying that the Fed’s policies during the 1920s were not the problem and that Rothbard had artificially inflated the money supply figures to justify his Austrian position. “The Great Depression was caused by inept Fed policy in the 1930s, not the 1920s,” he told me.

Afterwards, we continued our correspondence by mail, arguing largely about Austrian vs. Chicago economics. This correspondence eventually culminated in my book, Vienna and Chicago, Friends or Foes? (2005). When I asked Milton about the title of this book, he answered, “We’re both friends and foes!” Once I made the mistake of referring to Anna Schwartz, co-author of Monetary History, as his “researcher,” and he blew up. He accused me of being “narrow-minded” and “intolerant” in a way he termed “typical of Austrian economists.” He urged me to look at the back­ground papers and letters dealing with Monetary History at the Hoover Institution, where I would quickly realize that Schwartz was clearly a bona fide “co-author” and not just a “researcher.” This letter is still burning in my files. Funnily enough, a month later, I saw a picture of Anna Schwartz in the American Economic Review, and the short summary of her professional career listed the terms “researcher” and “research” seven times! But I dared not write him back with this comment for fear of retaliation.

A few years after the Money Show I was back in California for a meeting of political conservatives where Friedman was a speaker. I called his hotel room and invited him to lunch, just the two of us. He agreed, and we had a delightful two-hour luncheon overlooking the California coastline. I showed him a chart of M1, the narrowly defined money supply, noting that it had declined sharply in the mid-1980s. I interpreted this to mean that another economic collapse was imminent. He disputed my interpretation. “You can’t rely on M1 anymore — it’s out of date due to the deregulation of the bank­ing system. If you look at M2, which includes money market funds, the money supply is growing. There isn’t going to be any collapse.” He was right. The Reagan era was booming.

When the lunch was over, the bill came and I insisted on paying. As I was signing the credit card bill, I turned to him and said, “Dr. Friedman, one of your favorite sayings is ‘There’s no such thing as a free lunch.’ Well, I’m here to disprove it today because I’m paying for yours.” Quick as a flash, he retorted, “Oh, no, no, Mark, that wasn’t a free lunch. I had to listen to you for two hours!”

When my book Economics on Trial (1991) was pub­lished, I prepared an advertisement with the headline: “Japan and Germany Win World War III,” followed by these words: “Their formula multiplies wealth so rapidly that they will achieve their goal of world domination by the year 2000.” In the ad, I referenced the sound economic model that had transformed war-torn Germany and Japan into economic powerhouses and strengthened their stock markets in one generation. The principles were high savings rates, low taxes on capital and investment, low inflation, balanced budgets, and free markets.

I sent a copy of my ad to Friedman, and he took no time debunking it. “This prediction is a bunch of nonsense,” he scribbled over the ad copy. “I will not live long enough to see it falsified, but you will. In the year 2000, the U.S. standard of living will be higher than the Japanese.” He was, of course, proven right.

Friedman’s anger flared again in the late 1990s, when we gathered in Vancouver for a Mont Pelerin Society meet­ing. Milton and Rose Friedman were in charge of the conference program. Its title was “Can Creeping Socialism Be Stopped?” In one of the breakout sessions I asked Friedman about his easy-money solution to Japan’s economic problems. I held up an article he published in The Wall Street Journal, “Rx for Japan,” in which he advocated a massive printing of yen to jumpstart the Japanese economy, while ignoring such free-market solutions as cutting taxes, deregulating, or open­ing up the Japanese economy. “Isn’t printing more money another example of creeping socialism?” I asked. He was not amused, and noted that, historically, increasing the money supply has stimulated economic recovery, and that fast monetary growth was necessary, given Japan’s fragile condition. I countered, “Ah, so there is a free lunch, after all, Dr. Friedman?” “A free disaster!” he interjected with high emotion. Afterward, Professor Jim Gwartney came up to me and said, “You attacked God today!” Indeed. Yet even free-market icons can make mistakes.

A year later, Milton and Rose were invited to speak at the New Orleans Gold Conference, an annual gathering of hard-money investors. After Milton spoke, he took questions from the audience. I tempted him with the question, “Who’s the better economist, Ludwig von Mises or John Maynard Keynes?” I knew Milton would answer straight; he didn’t care what gold bugs thought. “Keynes,” he proclaimed to a shocked audience. When asked who was the greatest economist ever, he didn’t say Adam Smith, but settled on Alfred Marshall, the British economist who invented supply and demand curves.

Rose dissented. I had never seen her disagree with her husband in public, but she stood up and said that Marshall was infamous for treating his wife poorly and refusing to support her professional career as an economist. In all my private meetings with the Friedmans, Rose was always graciously reserved and seldom if ever argued with her husband. I had heard a rumor that she differed with Milton on Austrian capital theory, and one time I asked her if this was true. She simply smiled and winked.

My most embarrassing moment with the Friedmans came later that evening when I invited them to dinner at the best restaurant in New Orleans, Commander’s Palace, along with two friends, Gary North and Van Simmons. After we ordered and exchanged greetings, Milton turned to me and asked in a serious tone, “Mark, why are gold bugs so passionate about gold?” It was a perfect opportunity to talk about the importance of “honest money,” a theme that Ludwig von Mises, Henry Hazlitt, and other Austrian economists have taught for years. I pulled out of my jacket pocket a large oversized $20 banknote, a “gold certificate” issued in the 1920s. Together we read the words spelled out on it: “This certifies that there has been deposited in the Treasury of the United States of America TWENTY DOLLARS IN GOLD COIN payable to the bearer on demand.” I then explained, “Milton, we’re passionate about gold because under the gold standard, there’s a contract between the government and its citizens. For every gold certificate issued, the government had to back it up with a $20 gold coin. Under a genuine gold standard, the Treasury can’t just print up money to pay their bills. It’s honest money.”

All along, I felt that Friedman was simply playing along, since after all, he was the world’s foremost monetary historian. I went on, “So, what kind of contract exists today between the government and its citizens? Milton, do you have a $20 bill?” He reached into his pocket and handed over a $20 bill. “See, the contract has completely disappeared. Now it only says ‘Federal Reserve Note.’ And the Fed doesn’t even pay interest!” I paused and said, “Milton, this $20 bill isn’t worth the paper it’s printed on.” And I tore it up! I ripped Milton Friedman’s $20 Federal Reserve Note into a half-dozen pieces.

Suddenly, the atmosphere changed. He turned to me and said angrily, “Mark, you had no right to destroy my property!” Rose chimed in, “Yes, Mark, you shouldn’t have done that. That was Milton’s private property.” Gary North and Van Simmons stared in horror and didn’t say a word. Milton’s voice rose, and other dinner guests looked over at us and could see emotions rising. At this point, I was worried. My relationship with the Friedmans seemed to be ending that very night. Finally, I said, “Well, I suppose you want your money back?”

They assented heartily. So I reached into my pocket and pulled out a $20 St. Gaudens Double Eagle gold coin, handed it to Milton, and said, “Okay, here’s your $20!”

He looked startled and stared at the coin. I thought he would be pleased, but I was wrong. Suddenly, he handed it back to me. “I don’t want it!”

I gulped, struggling for words. “But Milton, it’s a gift. Here, take it. It’s a $20 gold coin, worth a lot more than a $20 Federal Reserve Note.”

“No,” he repeated emphatically. “I don’t want it.”

After an agonizingly pregnant pause, I finally figured out a solution. Setting the coin aside, I reached into my pocket, pulled out a fresh new $20 paper note, and handed it to him. “There, okay, will this help?”

He calmed down and took the $20 bill. Gathering up some courage, I brought out the gold coin again. “Look,” I said, as I handed it over to him, “look at the date.” He examined the coin again. “Oh, 1912 — my birth year!” He laughed haltingly. Rose looked on and smiled.

I explained that the entire evening was a set-up, an opportunity for me to give him a St. Gaudens Double Eagle gold coin minted in the year he was born. The coin was in a PCGS certificated plastic container with the words, “To the Golden Milton Friedman.” I told Milton and Rose that my friend across the table, Van Simmons, was a coin dealer and had gone to great lengths to find a 1912 Double Eagle, which was rare. Van added that it had been shipped overnight from Switzerland and had arrived only an hour before dinner. I think that only then did the Friedmans recognize what was going on. The next morning they came up and thanked me for the coin and my gesture of appreciation.

Throughout the evening Gary North — a well-known economic historian and gold bug — said nothing. But in the morning, he came up to me at the conference and said something profound. “Mark, I’ve thought all night about what happened at dinner at Commander’s Palace. You and I have an ideology of gold. And Milton has an ideology of paper money. Mark, last night you attacked his ideology!”

Milton and I never discussed the coin incident again. (I keep his torn-up $20 bill in my wallet as a keepsake.) We met on many other occasions, but I shall never forget our last lunch together in San Francisco. There for the Money Show, I took the opportunity to call him. We met at his favorite Italian restaurant, the North Beach. For the past few years he had walked with a cane and traveled only on cruises or in private jets. At age 94, he had weak legs, a serious heart condition (after two open heart surgeries in the 1980s), and was losing his eyesight. Yet his mind was still sharp.

We discussed the latest Nobel laureates in economics. “We’re running out of good names,” he said. I showed him a Photoshopped picture I had created of him standing next to the 6 foot 10 inch John Kenneth Galbraith, the premier Keynesian and welfare statist of the 20th century. Galbraith towered over the diminutive Friedman. Beneath the picture* was a funny line from economist George Stigler: “All great economists are tall. There are two exceptions: John Kenneth Galbraith and Milton Friedman.” Milton was so pleased with the photo and caption that he sent it to all his friends.

As we left, I asked him, “Do you think you’ll live to be 100?” He answered quickly, “I hope not!” But he was almost always upbeat about life, even to the end. He was not a religious man, but he expressed interest in religious topics near the end of his life. His favorite poem was Keats’ “Ode on a Grecian Urn” which ends, “ ‘Beauty is truth, truth beauty’ — that is all / Ye know on earth, and all ye need to know.” He discovered both in a full and complete life. I consider it a privilege and honor that I knew him.

Friedman’s Less Familiar Quotations

Milton Friedman was not only a great economist, but a memorable quotesmith. Besides the standard-bearers, such as “Inflation is always and everywhere a monetary phenomenon” and “There’s no such thing as a free lunch” (which he popularized), here are some others less well known:

“If a tax cut increases government revenues, you haven’t cut taxes enough.”

“I favor tax reductions under any circumstances, for any excuse, for any reason, at any time.”

“A society that puts equality ahead of freedom will end up with neither equality nor freedom.”

“Competition is a tough weed” (George Stigler). “Freedom is a rare and delicate flower” (Milton Friedman).

“Nothing is so permanent as a temporary government program.”

“Inflation is taxation without legislation.”

“The economy and the stock market are two different things.”

“If government is to exercise power, better in the county than in the state, better in the state than in Washington.”

“The great advances of civilization, whether in archi­tecture or painting, in science or in literature, in indus­try or agriculture, have never come from centralized government.”

“The minimum wage law is one of the most, if not the most, anti-black laws on the statute books.”

“Nobody spends somebody else’s money as carefully as he spends his own.”

“The government solution to a problem is usually as bad as the problem.”

Today’s Most Influential Economist?

Economics on Trial — THE FREEMAN May 1998

by Mark Skousen

“But half a century later, it is Keynes who has been toppled and [______________], the fierce advocate of free markets, who is preeminent.”

–DANIEL YERGIN and JOSEPH STANISLAW, The Commanding Heights 1

Fill in the blank.  Who is the mysterious economist named above?  Most of my colleagues named Milton Friedman, but in Daniel Yergin and Joseph Stanislaw’s bestseller, the Chicago economist runs a close second to….

F.A. Hayek, the Austrian economist!

Why Hayek?  Because, according to Yergin and Stanislaw, Hayek has done more than any other economist to debunk socialism in its many forms–Marxism, communism, and industrial planning–and to promote free markets as an alternative system.  Hayek’s influence perfectly illustrates John Maynard Keynes’s remark that politicians, “madmen in authority,” are the “slaves of some defunct economist.”2

Indeed, Hayek’s influence has been ubiquitous.  As Yergin and Stanislaw point out, The Road to Serfdom greatly affected Margaret Thatcher in reforming Great Britain and raised doubts about industrial planning.  Hayek’s criticisms of Keynesianism (A Tiger by the Tail) called into question deficit spending and the ability of the state to fine-tune the economy.  His theory of decentralized knowledge and competition as a discovery process has had an impact on microeconomic theory and experimental economics.  His work on the trade cycle and the denationalization of currencies has influenced monetary policy.  His co-founding of the Mont Pelerin Society spread the gospel of free markets, property rights, and libertarian thought throughout the globe.3

A Surprising Victory

Yergin and Stanislaw’s revelation in The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the World is a monumental victory for Austrian economics.  It is all the more remarkable given Yergin’s background as an establishment journalist and author of The Prize, a Pulitzer Prize-winning book about big oil.

At the beginning of this decade, I argued in Economics on Trial that the “next economics” would be the Austrian model, with its focus on entrepreneurship, microeconomics, deregulation, savings, free enterprise, and sound money.4 But even I am surprised how rapidly Hayek and the Austrian school have achieved recognition.

The next step is to see how quickly the economics profession absorbs Austrian economics in its theories and textbooks.  A quick review of the current top-ten textbooks reveals only two with significant entries on Hayek and the Austrians: Roy Ruffin and Paul Gregory’s sixth edition of Principles of Economics, and James Gwartney and Richard Stroup’s eighth edition of Economics: Private and Public Choice.  Ruffin and Gregory give credit to Hayek (and Mises) for the fall of socialism, one of Ruffin and Gregory’s “defining moments in economics.”  Curious note: Ruffin and Gregory’s fifth edition had no references to Hayek or Mises; clearly Ruffin and Gregory are quick to recognize a paradigm shift.

Other textbook writers are not so prescient. Samuelson’s 16th (50th anniversary) edition highlights only Joseph A. Schumpeter.  Textbooks by David Collander, John Taylor, and Joseph Stiglitz cite Hayek only once, while top sellers by Roger LeRoy Miller; Michael Parkin; William Baumol and Alan Blinder; Campbell McConnell and Stanley Brue; and Paul Heyne make no references to Hayek and the Austrians.

A Tale of Two Cities

Yergin and Stanislaw rightly point to two schools of free-market economics responsible for the shift from government to private enterprise as the solution to world economic problems.  “And the eventual victory of this viewpoint was really a tale of two cities–Vienna and Chicago,” declare the authors.5

In the judgment of many economists, Milton Friedman and the Chicago school have had even a greater influence than Hayek and the Austrians.  Yergin acknowledges Friedman as “the world’s best-known economist,” noting that “the Chicago School loomed very large” in its sway on monetarism at the Federal Reserve and economic policy (under Ronald Reagan).  And, of course, all top-ten textbooks in economics have significant sections on Friedman and his theories (monetarism, natural rate of unemployment, welfare reform, privatization).  Friedman and the Chicago school have mounted an effective counter-revolution to Keynesianism.

The Great U-Turn

But Keynes’s principal rival in the 1930s was Hayek.  Teaching at the London School of Economics, Hayek defended the classical model of thrift, balanced budgets, the gold standard, and free markets, while Keynes (Cambridge University) promoted the “new economics” of consumption, deficit spending, easy money, and big government. Keynes won the first battle for the hearts of economists, and his brand of “mixed economy” swept the profession.  Hayek fell out of favor and went on to write about law and political science.  The task of dethroning Keynes fell to Friedman; he has accomplished it masterfully.

Since winning the Nobel Prize in economics in 1974, Hayek and the Austrians have had a rebirth.  Equally, Friedman and the Chicago school have come out of obscurity into prominence. Fifty years ago the Keynesian-collectivist consensus expressed the sentiment, “The state is wise and the market is stupid.”  Today, the growing consensus is just the opposite: “The market is wise and the state is stupid.”

Break out the champagne. It’s time to celebrate.

1. Daniel Yergin and Joseph Stanislaw, The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World (Simon & Schuster, 1998), p. 15.

2. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936), p. 383.

3. For a good overview of Hayek’s works, see The Essence of Hayek, ed. Chiaka Nishiyama and Kurt R. Leube (Stanford, Calif.: Hoover Institution, 1984).  For a partial autobiography, see Hayek on Hayek (Chicago: University of Chicago Press, 1994).  A full-scale intellectual biography of Hayek has been completed by Alan Ebenstein, Hayek: Philosopher of Libertarianism (forthcoming).

4. Mark Skousen, “The Next Economics,” Economics on Trial (Baldwinsville, N.Y.: Irwin, 1991), pp. 274-90.

5. Yergin and Stanislaw, p. 141.  See my Freeman column, “Vienna and Chicago: A Tale of Two Schools,” February 1998.

Reprinted with permission

Economics on Trial
The Freeman
Foundation for Economic Education
30 South Broadway
Irving-on-Hudson, NY  10533

Interview Resources

Highlights and Key Points of Mark Skousen, Current Books, Forecasts & Strategies and FreedomFest with interview topics:

Mark Skousen Biographical Information

  • Professional economist, financial advisor, university professor, best-selling author
  • Has held important positions in government (CIA economic analyst), business (entrepreneur, consultant), non-profit (president of Foundation for Economic Education) and media (writer and columnist)
  • Editor-in-chief of award-winning Forecasts & Strategies investment newsletter since 1980
  • Author of more than 20 books on economics, personal finance, investing and history
  • Named one of the top 20 most influential living economists by Super Scholar
  • Popular speaker on investing and economics at investment conferences around the world
  • Founder of FreedomFest, an annual non-partisan libertarian conference held in Las Vegas each July
  • Grantham University named him as Chair of Management at Grantham University, and renamed its business school “The Mark Skousen School of Business”
  • Regular contributor on network and cable television news and financial programs, radio, internet blogs and shows, and print media, including CNBC’s Kudlow & Company, PBS’s Nightly Business Report, The Structure of Production (NYU Press, 2007), Forbes, Reason and Liberty magazines, The Wall Street Journal, Human Events Online, The Daily Caller, and Investment U
  • Born in San Diego, California and raised in Portland, Oregon
  • Married to Jo Ann Skousen (writer, professor, founding director of Anthem Film Festival), with five children and four grandchildren
  • Lived in eight nations; visited and given speeches in over 80 countries
  • Direct descendant of Benjamin Franklin, Founding Father of America

Current Books and Publications

  • A Viennese Waltz Down Wall Street: Austrian Economics for Investors (Laissez Faire Books, 2013)
  • Maxims of Wall Street: A Compilation of Financial Adages, Ancient Proverbs and Worldly Wisdom (Skousen Publishing, 2011, 2012)
  • Economic Logic (economics textbook) (Capital Press, 2010, 2014)
  • The Making of Modern Economics (M.E. Sharpe, 2009) (Winner 2009 Choice Book Award)
  • Investing in One Lesson (Regnery Publishing, 2007)
  • The Structure of Production (NYU Press, 1990, 2007 paperback)
  • The Compleated Autobiography by Benjamin Franklin (Regnery Publishing, 2006)
  • Vienna vs Chicago: Friends or Foes? (Capital Press, 2005)

About Forecasts & Strategies

  • Award-winning monthly subscription service that offers investment recommendations since 1980 with monthly newsletter, weekly hotline, and quarterly supplements
  • In 1981, Dr. Skousen predicted, “Reaganomics will work!” He recommended selling gold and silver and other inflation hedges, and to buy stocks and bonds. Starting in 1982, a year after Skousen’s prediction, the stock and bond markets started their long-run bull market.
  • In 1987, six weeks before the October 1987 crash, Skousen warned his subscribers, “Get out of stocks now.” He was one of the few advisors to anticipate the crash.
  • In October, 1989, Skousen startled subscribers and investors at an Orlando investment conference by predicting, “The Berlin Wall will be torn down!” In the same conference, he predicted that the Federal deficit would turn into a surplus in the 1990s. Both predicted were greeted with jeers and laughter.
  • In the early 1990s, at the height of skepticism about junk bonds and other high income investments, Skousen began recommending high income investments, and his successful formula for earning high income and capital gains has remained one of the most popular features of his newsletter.
  • Throughout the 1990s, Skousen predicted that the 1990s would turn out to be the best decade ever for the U. S. stock market. In January 1995, Skousen startled his subscribers that predicting, “The Nasdaq will double and then double again.” Nasdaq was at 750 at the time and closed the decade over 3,000.
  • In June, 2001, three months before the September 11, 2001, terrorist attacks on the United States, Skousen warned subscribers of the growing threat of terrorism from Middle East extremists.
  • In his April, 2003, issue, Skousen gave a strong “buy signal” on the stock market, very close to the bottom of the market. At this time, he also introduced the Anti-Terrorist Portfolio, which has been remarkably profitable so far.
  • In the height of the 2009 economic woes, he predicted the Dow would hit 10,000 by the end of 2009, and was right!

About FreedomFest

  • Annual non-partisan libertarian conference, started in 2002
  • Meets each July in Las Vegas, the world’s most libertarian city
  • Billed as “the world’s largest libertarian gathering” by The Washington Post (2500 attendees in 2013)
  • Fox Business Channel’s “Stossel” broadcast its national show from FreedomFest
  • Features debates, panels, speeches, general and break-out sessions on themes of liberty and personal freedom as they relate to economics, geo-politics, investing, science and technology, education, health and nutrition, arts and literature, philosophy and history
  • Features a three-day investment conference
  • Features the Anthem Libertarian Film Festival
  • Known as the “Tradeshow for Liberty” and attracts hundreds of think tanks, non-profit organizations, and businesses
  • CSPAN BookTV covers the event each year

Interview Topics

  • Current investment recommendations and stock market trends
  • Geo-politics and its effect on U.S. and global economic conditions
  • Austrian economic principles
  • Capitalism and free market economics
  • Libertarian principles
  • FreedomFest
  • Current book projects:
    • A Viennese Waltz Down Wall Street (Austrian economics for investors)
    • The Making of Modern Economics (a history of economic thought with Adam Smith as the main protagonist)
    • Maxims of Wall Street (a compilation of quotes, advice, adages, stories and sayings about Wall Street, investing, finance and business)
    • Benjamin Franklin (Skousen is a direct descendant of Franklin, who completed Franklin’s autobiography using Franklin’s own writings in The Compleated Autobiography by Benjamin Franklin. Skousen can appear as Ben Franklin for speeches and events)


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The Other Austrian

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.


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.