The Making of Modern Economics Wins 2009 Choice Award

My book The Making of Modern Economics has just won the Choice Book Award for Outstanding Academic Title for 2009. Choice is the reviewing journal for academic libraries. I was delighted by this surprise announcement, especially for a 2nd edition!

Winner of 2009 Choice Award for Outstanding Academic Title

Winner of 2009 Choice Award for Outstanding Academic Title

Some of the unique characteristics of The Making of Modern Economics:

1. A major critique of Karl Marx’s theories of capitalism, labor, imperialism and exploitation, and why most of his predictions have utterly failed. (Many former Marxists report that that this chapter alone converted them to the free market.)
2. Two chapters on Keynes and Keynesian economics, what one economist has called “the most devastating critique of Keynesian economics ever written.”
3. Five full chapters on the Austrian and Chicago schools of free-market economics. It is the only one-volume history of economics written by a free-market economist (all previous histories had been written by socialists, Keynesians and Marxists).
4. How Keynes saved capitalism — from Marxism!
5. Over 100 illustrations, portraits, and photographs.
6. Provocative sidebars, humorous anecdotes, even musical selections reflecting the spirit of each major economist.

Choice Review: “With a supreme, lively blend of economics and sociology, Skousen has magnificently managed to put flesh, blood, and DNA on the skeleton of economics in this survey of great economic thinkers. This new work is must reading for economists who want to acquire professional depth and richness. Essential. All economics collections and all levels of readers.”

Description: Here is a bold, updated history of economics–the dramatic story of how the great economic thinkers built today’s rigorous social science. Noted financial writer and economist Mark Skousen has revised this popular work to provide more material on Adam Smith, Marx, and Keynes, and expanded coverage of Joseph Stiglitz, “imperfect” markets, the financial crisis of 2008, and behavioral economics.

Available in hardback and paperback on Amazon.com.

Other quotes about The Making of Modern Economics:

“Mark’s book is fun to read on every page. I have read it three times, and listened to it on audio tape on my summer hike. It deserves to stay in print for many decades. I love this book and have recommended it to dozens of my friends.” — John Mackey, CEO/President, Whole Foods Market

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

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

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

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

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

“One of the most original books ever published in economics.”–Richard Swedberg, University of Stockholm

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

“Having no previous interest in economics, I was honestly surprised to find your book so captivating.” –Haila Williams, Production Manager, Blackstone Audio Books

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

“One of the most readable ‘tell all’ histories of the 20th century.”–Richard Ebeling, Hillsdale College

“I couldn’t put it down! The musical accompaniments for each chapter are a wonderful touch. Humor permeates the book and makes it accessible like no other history. It will set the standard.”–Steven Kates, chief economist, Australian Chamber of Commerce

“The most fascinating, entertaining and readable history I have ever seen. I highly recommend it for translation abroad.”–Ken Schoolland, Hawaii Pacific University

“My students love The Making of Modern Economics! Mark Skousen makes the history of economics come alive like no other textbook.”– Roger W. Garrison, Auburn University.

“It’s unputdownable!”–Mark Blaug, University of Amsterdam

“Skousen is the only economist I know who I can understand. He writes for the common man!” — Dr. Laurence Hayek, U. K.

“Mark Skousen has a genius for explaining complex issues in a clear way and connecting ideas. He is the Henry Hazlitt of our time.” –Steve Mariotti, President, NFTE

“Mark Skousen is a great economist, great philosopher, great entrepreneur, and great friend. He should win the Nobel in economics.” — Steve Forbes

Available in hardback and paperback on Amazon.com.

The Art of Letting Go

Tranquility
Liberty Magazine
March 2007

by Mark Skousen

“How many a man has dated a new era in his life from the reading of a book.”— Henry David Thoreau, Walden

Would you do me a favor? Find an easy chair, or better yet, go outside to a secluded spot and read this essay at your leisure.

Ever since my family and I lived in the Bahamas for two years,1 I’ve had an interest in leisure, the lure of breaking away from business and just relaxing, wandering, and letting my mind go. It seems like a very libertarian thing to do. Along with a photo of my family in the Bahamas, I have on my bookshelf a whole list of titles to remind me to walk away from work: The Idle Thoughts of an Idle Fellow; Leisure: The Basis of Culture; and Bertrand Russell’s In Praise of Idleness.

But before I go on, would you mind indulging me? As I write this, it’s a beautiful sunny day here in New York, and my wife has just beckoned me to join her at the swimming pool along the Hudson River. I’ll be back in a not-so New York minute . . . (While you wait, go ahead and read the rest of this issue of Liberty, or just listen to the birds sing.) There’s nothing like an opportunity to think, meditate, and relax with friends on a balmy summer day.

In my travels, I make a point of wandering aimlessly around the city or neighborhood I’m visiting, and usually end up at some used-book store. In the mid-’80s, I happened to be in Durango, Colo., a small college town, and came across a first edition of a book called The Importance of Living by Lin Yutang. I’d tried to read Chinese philosophers before, but never found them appealing until this book came along. What makes Lin Yutang so different from Confucius, Mencius, and Lao Tzu? He lived in both the East and the West, and consequently does an extraordinary job of contrasting the cultures. His book was so refreshing and shocking, so charming and witty, that I found myself underlining something on practically every page. And though Lin wrote in 1937, he sounds very modern.

Lin was a 20th-century Taoist known for his philosophy of leisure and “letting go.” He was also a libertarian who despised all forms of government control, especially Marxism-Leninism and Maoism in Red China. Born in southeastern China in 1895 to Christian missionaries, he learned English at St. John’s University in Shanghai and pursued a doctoral degree at Harvard University. He left Harvard early and went to France and then Germany, where he earned a Ph.D. at the University of Leipzig. After 1928, he lived most of his life in New York, where he translated Chinese texts and wrote prolifically. His objective was to bridge the gap between East and West, teaching Westerners about the old Chinese culture in such bestsellers as My Country and My People (1935) and The Importance of Living (1937). Refused permission to return to China by the Communists, Lin moved to Taipei, Taiwan, where he died in 1976.

The Age of Busy-ness

To understand Lin’s Chinese philosophy, I begin by quoting his most famous line, a line that mystifies workaholic Americans: “Those who are wise won’t be busy, and those who are too busy can’t be wise.”

I made the mistake of writing this statement on the blackboard on my first day of class as a professor at Columbia Business School. A third of the students immediately left, and dropped the class. (Fortunately, the majority had an open mind about pursuing interests other than a 24/7 lifestyle, and later rated my class highly.)

Yet there is wisdom in Lin’s statement. If you are too busy in your work, you don’t have time to learn new ideas, to discover new truths, to enjoy life’s little pleasures, or perhaps to pick a winning stock! Beating the market requires you to look down untrodden paths, and you need the free time to do it.

Lin Yutang criticizes most Americans for being too busy, and therefore slaves to the business culture and the old ways. They worry themselves to death. In another startling statement, Lin writes, “The three American vices seem to be efficiency, punctuality and the desire for achievement and success. They are the things that make the Americans so unhappy and so nervous.”2 Gee, I thought they were American virtues!

Life in the West, according to Lin, is “too complex, too serious, too somber, and too involved.” He would agree with Henry David Thoreau: “Our life is frittered away by detail. Simplify, simplify.” Following Taoist philosophy, Lin warned against “over doing, over achieving, over action . . . of being too prominent, too useful, and too serviceable.” The “perfectly square” house, the “perfectly clean” room, and the “perfectly straight” road rankle in him. He goes on to say, “O wise humanity, terribly wise humanity! How inscrutable is the civilization where men toil and work and worry their hair gray to get a living and forget to play!”

The Art of Loafing

Lin says not to worry: “The Chinese philosoph[er] . . . is seldom disillusioned because he has no illusions, and seldom disappointed because he never had extravagant hopes. In this way his spirit is emancipated.”

Culture, says Lin, is essentially a product of leisure. “The art of culture is therefore essentially the art of loafing. From the Chinese point of view, the man who is wisely idle is the most cultured man.” He likes a messy room, a crooked road, and a leaky faucet!

Lin offers the secret to success for the businessman (busy man?) in this statement: “Actually, many business men who pride themselves on rushing about in the morning and afternoon and keeping three desk telephones busy all the time on their desk, never realize that they could make twice the amount of money, if they would give themselves one hour’s solitude awake in bed, at one o’clock in the morning or even at seven. There, comfortably free, the real business head can think, he can ponder over his achievements and his mistakes of yesterday and single out the important from the trivial in the day’s program ahead of him.”

But the West won the cultural war. Today, 70 years after Lin’s critique of the three American vices, it is the Japanese, the Chinese, the Koreans, and the Indians who dress in Western business suits and spout the Western philosophy of efficiency, punctuality, and goal-setting, and who work 14-hour days and forget to play. In the new China, the roads are straight, the houses are perfect, and everything works. I suspect Lin Yutang would not like the new Asia, especially the regimented Singapore. It’s a paradise lost.

The Individual and the State

Lin Yutang is a champion of the individual and “its unreasonableness, its inveterate prejudices, and its waywardness and unpredictability.” But in today’s society, warns Lin, the individual free thinker is being replaced by the soldier as the ideal. “Instead of wayward, incalculable, unpredictable free individuals, we are going to have rationalized, disciplined, regimented and uniformed, patriotic coolies, so efficiently controlled and organized that a nation of fifty or sixty millions can believe in the same creed, think the same thoughts, and like the same food.” Lin goes on to warn, “Clearly two opposite views of human dignity are possible: the one believing that a person who retains his freedom and individuality is the noblest type, and the other believing that a person who has completely lost independent judgment and surrendered all rights to private beliefs and opinions to the ruler or the state is the best and noblest being.”

I daresay which of the two applies to Liberty readers! Lin dislikes the popular trend of sorting people into groups and classes. “We no longer think of a man as a man, but as a cog in a wheel, a member of a union or a class, a ‘capitalist’ to be denounced, or a ‘worker’ to be regarded as a comrade. . . . We are no longer individuals, no longer men, but only classes.”

Lin Yutang experienced the brutality of Chinese communism and the heavy-handed bureaucracy of Washington durng the New Deal era. Needless to say, he had a low opinion of government: “I hate censors and all agencies and forms of government that try to control our thoughts.”

Favoring persuasion over force, Lin distrusts laws and law enforcement. Quoting Lao Tzu, Lin says government regulation “represents a symptom of weakness.” Lin adds, “the great art of government is to leave the people alone.” Quoting Confucius, Lin suggests that if you regulate people by law, “people will try to keep out of jail, but will have no sense of honor.” But if you regulate the people by moral teaching, “the people will have a sense of honor and will reach out toward the good.” War is never ideal, even when your side is right. Again Lin quotes Lao Tzu: “Where armies are, thorns and brambles grow.”

Lin opposed Mao and the Communists because they placed society above the individual. The Soviet model was “disastrous” and Maoism “the worst and most terroristic regime.” Lin favored a “silent revolution, of social reform based on individual reform and on education, of self-cultivation.”3

He also questioned the establishment economist and forecaster:

“Perhaps I don’t understand economics, but economics does not understand me, either. The sad thing about economics is that it is no science if it stops at commodities and does not go beyond human motives . . . It remains true that the stock exchange cannot, with the best assemblage of world economic data, scientifically predict the rise and fall of gold or silver or commodities, as the weather bureau can forecast the weather. The reason clearly lies in the fact that there is a human element in it, and when too many people are selling out, some will start buying in. . . . This is merely an illustration of the incalculableness and waywardness of human behavior, which is true not only in the hard and matter-of-fact dealings of business, but also in the shape of the course of history.”

He was probably unfamiliar with the one school of economics that does take into account human behavior: the Austrian school of Ludwig von Mises and Friedrich Hayek. Undoubtedly Lin would like the title of Mises’ magnum opus Human Action.

Lin Yutang has many more things to say about our culture and how to live a happy and fulfilling life: about growing old gracefully (“The East and West take exactly opposite points of view. In China, the first question they ask is, ‘What is your glorious age?’ ”); the need for women at dinner (“the soul of conversation”); the evils of Western wear (“inhuman”); the only way to travel (“buy a one-way ticket”); and his controversial views on smoking (“one of the greatest pleasures of mankind”). I’ve only scratched the surface of this brilliant Chinese philosopher.

On Buddhism and Christianity

For Lin, Buddhism’s outlook (“life is suffering”) was too pessimistic and its path to happiness (“suppress one’s desires”) too austere. In a chapter called “Why I am a Pagan” in “The Importance of Living,” Lin renounced his parents’ Christianity, which in his age forbade enjoying sex, dancing, food, smoking, drinking, and the good life, in favor of an ascetic lifestyle that suppressed all sinful pleasures to obtain salvation.

Although Lin approved of the Christian emphasis on technology and education, and its banishment of foot binding and drug use in China, he rejected the austerity and social isolationism. “Chinese Christians virtually excommunicated themselves from the Chinese community,” he wrote. While at college, Lin discovered “the vast world of pagan wisdom.” His personal philosophy: “If I had to make a choice between contemplating sin exclusively in some dark, cavernous cor­ner of my soul, and eating bananas with a half-naked girl in Tahiti, entirely unconscious of sin, I would choose the latter.”

Yet in the 1950s, he returned to his Christian roots, although it was a liberal, tolerant, forgiving Christianity. What reconverted him? Not the catechism, but Christian charity, the showing of love, kindness, and good works toward his fellow man as Jesus proclaimed in the Sermon on the Mount. “Once this original emphasis is restored and Christians ‘bear fruit’ in their lives, nothing can withstand the power of Christianity.”4

But for now, it is Lin Yutang and his works that are bearing fruit. There is a growing hunger for leisure in a speedy world and for individualism in a conformist globalization. As if speaking today, Lin states, “I am quite sure that amidst the hustle and bustle of American life, there is a great deal of wistfulness, of the divine desire to lie in a plot of grass under tall beautiful trees of an idle afternoon and just do nothing.”

While enjoying that idle afternoon, may I suggest you take along a copy of Lin Yutang’s “The Importance of Living”? In the United States, a Little, Brown edition came out in 2003, although I’m disappointed that it is without Chinese art on the cover or running heads inside the book. Lin would not approve of such an austere edition! A Singapore edition by Cultured Lotus recaptures the beauty of the original and is far superior. Yet I personally prefer the 1937 edition by John Day Company, available by wandering through any dusty, dank, disorganized bookstore.

Notes
1. See “Easy Living: My Two Years in the Bahamas” (Liberty, December 1987).
2. Lin Yutang, “The Importance of Living” (John Day and Company, 1937), p. 150.
3. Lin Yutang, “From Pagan to Christian” (World Publishing, 1959), p. 78.
4. “From Pagan to Christian,” p. 236.

A Year of Miracles — 1776

Personal Snapshots
Forecasts & Strategies
August 2002

“The cause of America is in great measure the cause of all mankind.”

— Tom Paine, Common Sense (1776)

A Year of Miracles

Like most Americans, I’ve always been fascinated by the events of 1776. It was a year of earth-shattering events that transformed forever the Western world.

It is, of course, the year the American colonies broke off relations with the Mother Country, declared political independence from monarchy, and established the words of Thomas Jefferson that “all men are born equal” and endowed with certain “inalienable rights.”

It is the year that Adam Smith’s monumental Wealth of Nations was published, a powerful declaration of economic independence. Smith proclaimed the establishment of a “system of natural liberty” and the “invisible hand” doctrine that private enterprise would benefit the public wealth.

It is the year the eminent British historian Edward Gibbon published the first volume of his classic history, The Decline and Fall of the Roman Empire. It was considered a scandalous book because it blamed the decline and fall of Rome after it adopted Christianity as its state religion. Through his review of the Roman world, Gibbon emphasized the principles of “liberty, virtue and courage.”

Last but not least, 1776 is the year Thomas Paine’s Common Sense was printed, and Paine, more than any other revolutionary figure, symbolized the Age of Enlightenment. Paine’s philosophy encompassed the entire compass of liberty. He was a radical who advanced democratic emancipation, individual rights, religious tolerance and competitive capitalism.

Just as Adam Smith, Thomas Jefferson, Edward Gibbon and Tom Paine were radicals of their day, so the Foundation for Economic Education and its supporters are the radicals of our day, supporting maximum political, economic and religious freedom.

 

The Origin of the 21-Gun Salute

Personal Snapshots
Forecasts & Strategies
July 2002

“Is anybody there? Does anybody care? Does anyone see what I see?”

— George Washington, 1776

The 21-gun salute is considered the highest expression of honor and respect, given to recognize the presence or the passing of a great military hero or political leader. What is the origin of the 21-gun salute? In ancient times, warships fired seven-gun salutes based on the lucky number seven. Seven is also an important biblical number — e.g., God rested on the seventh day.

In 1810, the War Department of the United States defined the “national salute” as equal to the number of states in the Union, at the time 17. This salute was fired by all U.S. military installations at 1 p.m. (later at noon) on Independence Day. Today 50 guns are fired when the president visits a military installation, or when a president or ex-president dies.

In 1842, the presidential salute was formally established at 21 guns. Why 21? Some say it is a multiple of three based on another significant biblical number. At Independence Hall in Philadelphia, tour guides report that the 21-gun salute reflects the founding of our country. Independence was declared on July 4, 1776. If you add up the numbers 1 + 7 + 7 + 6, what do you get? 21! In Las Vegas, “21” is a lucky number. Not only does it represent winning at Blackjack, but if you add the 1 and the 6 in 1776, you get 777, the lucky winning combination in slot machines. And my friend Bert Dohmen, a financial technical analyst, noted that “21” is a Fibonacci number, a number that is found often in nature (the numbers in a Fibonacci sequence are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, … where you add the previous number to get the next Fibonacci number). Fibonacci numbers are used frequently by mathematicians and technical analysts on Wall Street.

What Is the 1776 Club?

To honor our Founding Fathers and the Spirit of 1776, I’ve created the new 1776 Club. The purpose of the 1776 Club is to help deserving students learn the principles of free-market economics and the freedom philosophy in several ways: by attending seminars at FEE headquarters and other centers of liberty around the world; by attending on-campus lectures, regional seminars and international conferences; and taking accredited Internet classes in sound economics. (I’m working right now with Grantham University — www.grantham.org — to create courses in investments, economics and finance, to be announced soon.)

We chose the 1776 Club as the name of this Foundation for Economic Education (FEE) program in honor of our Founding Fathers who declared economic, political and religious independence, and thus created the freest, most prosperous nation in the world.

At the FEE Fest 2002 in Las Vegas in May, we encouraged attendees to donate any amount of money using the numbers “76” or “1776” in them, from 76 cents to $1,776. So far we have raised nearly $15,000 in the 1776 Club. Please feel free to donate any amount, such as $76, $760 or $1,776, to this good cause. If you donate $1,776 or more, you become a Founding Member of the 1776 Club. Some of the first to become Founding Members are: Andrew Westhem, president of Westhem Grant Group of La Jolla, California; Mel Adams, president of Adams Bank in Nebraska; Bert Dohmen of Dohmen Capital Management of Hawaii; Conrad Denke, president of American Production Services of Hollywood, California; and our new FEE chairman, Ed Barr.

What are the benefits of being a Founding Member of the 1776 Club? First, you receive a lifetime subscription to our monthly publication, Ideas on Liberty. Second, you receive a complimentary copy of Leonard E. Read’s classic work, Government — An Ideal Concept. And third, you receive special discounts for our annual FEE Fest and other FEE seminars throughout the year. Most importantly, you share in the joy of helping young people learn the principles of sound economics.

Throughout the month of July, we are planning to ring FEE’s Liberty Bell in honor of all those who send in donations to the 1776 Club. If you send in a donation, we will ring the bell once. If you donate $1,776 or more, we will ring the Liberty Bell 21 times in your name as a way of showing our appreciation for your patriotism and support. Send your donation to the Foundation for Economic Education, 30 South Broadway, Irvington, New York 10533, call 800/960-4FEE, ext. 209, or go to www.FEE.org.

One Capitalist’s Advice: Attract Attention!

November 2001
From the President’s Desk
Ideas on Liberty

by Mark Skousen

“Individualism, private property, the law of accumulation of wealth, and the law of competition . . . are the highest result of human experience, the soil in which society, so far, has produced the best fruit.” —ANDREW CARNEGIE’

A few days after my move to New York, I paid my respects to an icon of capitalism, Andrew Carnegie (1835-1919), whose tombstone is appropriately located only a few miles up from FEE headquarters, in Sleepy Hollow Cemetery. In three ways, Carnegie reflects the spirit of FEE—he was a fierce defender of free-enterprise capitalism; he gave generously to good causes; and he worked hard for the cause of world peace and democracy. All three are in short supply in today’s uncertain world of regulatory state capitalism, welfarism, and terrorism.

As a joint creator (along with J. P. Morgan) of U.S. Steel, the first billion-dollar corporation in the world, Carnegie was a successful entrepreneur who benefited humanity by offering cheaper and better steel with which to build a modern world. He would reject the “robber baron” title. Capitalism was not a device to enrich the rich at the expense of the poor, as the Marxists contend; “Capitalism,” he said, “is about turning luxuries into necessities.” He started out as a poor Scottish immigrant, a classic Horatio Alger hero. He liked to be different; his favorite advice to young men was, “Attract attention.”

For Carnegie, there were in the world other values than those of the business culture: he loved books, and became friends with intellectuals, writers, and statesmen such as Herbert Spencer, Mark Twain, and William Gladstone. He was intensely competitive, even glorying in beating his friends in golf. In business, he drove down the cost of steel, even as he improved the quality. “Cheaper and better” became the American way. “Watch the costs, and the profits will take care of themselves,” he explained.2 He made no apologies for his ruthless competitive spirit, which he justified as a Darwinian form of “survival of the fittest” and as a fulfillment of Jesus’ parable of the talents. Like an old-fashioned Hank Rearden in Ayn Rand’s novel Atlas Shrugged, Carnegie wasn’t merely an apologist for anarchic individualism; he was its celebrant.

Carnegie objected strenuously to the “progressives” who favored socialism and communism over individualism. “To those who propose to substitute Communism for this intense Individualism, the answer therefore is: The race has tried that. All progress from that barbarous day to the present time has resulted from its displacement.”3

“The Man Who Dies Rich Dies Disgraced”

Following his retirement in 1901, the Man of Steel did not live it up with ostentatious mansions, limousines, and hundred-dollar cigars, which Thorstein Veblen labeled “conspicuous consumption” of the idle rich. Carnegie spoke of the millionaire’s duty to live a “modest” lifestyle, shunning extravagant living and administering his wealth for the benefit of the community. To do otherwise, he warned, would encourage an age of envy and invite socialistic legislation attacking the rich through progressive taxation and other onerous anti-business regulations.

Carnegie practiced what he preached, giving away over $350 million in his lifetime. One of his first acts after U.S. Steel went public was to put $5 million into a pension and benefit plan for his workers. He was careful in his philanthropy, avoiding at all costs “indiscriminate charity.” He disdained the conventional practice of accumulating wealth solely to be bequeathed to heirs, which he regarded as “sterile” and even “perverse” if it resulted in profligate living. Instead, he spent millions building 2,811 public libraries, donating 7,689 organs to churches, and establishing Carnegie Hall in New York and the Carnegie Institution in Washington. He financed technical training at the Carnegie Institute of Technology and established a pension fund for teachers through the Carnegie Foundation for the Advancement of Teaching. I cannot help but think that were he alive today, he would be a major donor to FEE!

Finally, Carnegie devoted the rest of his life to promoting world peace and democracy. He was convinced that the United States surpassed Europe economically in part because Europe was constantly embroiled in wars with its neighbors while the United States largely avoided such conflicts. He campaigned against imperialistic entanglements with other nations and in favor of peaceful arbitration as a means to end conflicts. He was a passionate believer in democracy, universal suffrage, and equality of opportunity through free public education. But he opposed equality of property or ability, and argued that all citizens had the right to choose their own occupation and had the right to earn income in any amount and spend it as they wished. He expressed distaste for royalty, aristocracy, and any form of state religion.

The Spirit of Andrew Carnegie Lives at FEE

Today I am happy to report that the world has a goodly share of modern-day Andrew Carnegies. As the new president of FEE, I have had the pleasure of becoming aware of these unique men and women of the business world who have not only added value to the global economy through their entrepreneurial efforts, but have sacrificed time and money to promote FEE and its mission. For example, last week Larry Reed, president of the Mackinac Center for Public Policy and a FEE trustee, told me about a FEE donor who spent half his life sponsoring FEE seminars on free-market economics in his hometown, often at considerable personal sacrifice of time and financial resources. Another individual, on hearing that a FEE student seminar might have to be canceled due to a lack of attendees, arranged for several dozen students to attend. The seminar turned out to be a great success. Hundreds of other FEE supporters have arranged conferences, raised funds, and distributed copies of Ideas on Liberty to their friends and acquaintances. And with your help we are planning many new programs to spread the gospel of FEE and to “attract attention,” as Andrew Carnegie would advise.

When barbaric terrorists destroyed the Twin Towers at the World Trade Center a symbol of global capitalism and individual creativity, and built with Carnegie steel—I was heartened to read how thousands of private business leaders stepped forward and provided $200 million in financial aid to rebuild the area. I salute them for being living examples of FEE’s gospel of peace, prosperity, and freedom.

1. Andrew Carnegie, The Gospel of Wealth and Other Timely Essays (Cambridge: Harvard University Press, 1962 [1900]). p. 19.
2. Michael Kiepper and Robert Gunther, “Andrew Carnegie,” in The Wealthy 100 (New York: Carol Publishing Group. 1996). p. 31.
3. Carnegie, p. 18.

This Icon of Capitalism Had the Answers

October 2001
PERSONAL SNAPSHOTS
Forecasts & Strategies

by Mark Skousen

“The business career is a stern school of all the virtues. The business man pursues fortune.”— Andrew Carnegie

After moving to New York last month to become the president of the Foundation for Economic Education (FEE), I took the opportunity to pay my respects to an icon of capitalism, Andrew Carnegie (1835-1919). His body is buried only a few miles up from FEE headquarters in Sleepy Hollow cemetery. In three ways, Carnegie reflects the spirit of FEE — was a fierce defender of free-enterprise capitalism, he gave generously to good causes, and he worked hard for the cause of world peace and democracy.

“CAPITALISM IS MORE NOBLE THAN COMMUNISM “

As a joint creator (along with J.P. Morgan) of U.S. Steel, the first billion-dollar corporation in the world, Carnegie was a successful entrepreneur who benefited humanity by offering cheaper and better steel with which to build a modern world. He rejected the “robber baron “title. Capitalism was not a device to enrich the rich at the expense of the poor, as the Marxists contend; “Capitalism,” he said, “is about turning luxuries into necessities.” He started out as a poor Scotch immigrant, a classic Horatio Alger. He liked to be different; his favorite advice to young men was, “Attract attention.”

For him, there were other values in the world than just those of the business culture: He loved books and became friends with intellectuals, writers and statesmen such as Herbert Spencer, Mark Twain and William Gladstone. He was intensely competitive, even glorying in beating his friends in golf. In business, he drove down the cost of steel, even as he improved the quality. “Cheaper and better ” became the American way. “Watch the costs, and the profits will take care of themselves,” he explained in his book, The Gospel of Wealth, first published in 1900. He made no apologies for his ruthless competitive spirit, which he justified as a Darwinian form of “survival of the fittest “and as a fulfillment of Jesus ’s parable of the talents. Like an old-fashioned Hank Reardon in Ayn Rand’s novel, Atlas Shrugged, Carnegie wasn’t merely an apologist for anarchic individualism; he was its celebrant. Carnegie objected strenuously to the “progressives “who favored socialism and communism over individualism. He said communism had been tried, and failed.

“The Man Who Dies Rich Dies Disgraced.”

Following his retirement in 1901,the Man of Steel did not live it up with ostentatious mansions, limousines and hundred-dollar cigars, which Thorstein Velben labeled “conspicuous consumption “of the idle rich. Like The Millionaire Next Door, Carnegie spoke of the millionaire’s duty to live a “modest” lifestyle, shunning extravagant living and administering his wealth for the benefit of the community. To do otherwise, he warned, would encourage an age of envy and invite socialistic legislation attacking the rich through progressive taxation and other onerous anti-business regulations.

Carnegie practiced what he preached, giving away over $350 million in his lifetime. One of his first acts after U.S. Steel went public was to put $5 million into a pension and benefit plan for his workers. He was careful in his philanthropy, avoiding at all costs “indiscriminate charity.” He disdained the conventional practice of accumulating wealth solely to be bequeathed to heirs, which he regarded as “sterile” and even “perverse” if it resulted in profligate living. Instead, he spent millions building 2,811 public libraries, donating 7,689 organs to churches, and establishing Carnegie Hall in New York and the Carnegie Institution in Washington. He financed technical training at the Carnegie Institute of Technology, and established a pension fund for teachers through the Carnegie Foundation for the Advancement of Teaching. I cannot help but think that were he alive today, he would be a major donor to FEE!

“Democracy Means That Privilege Shall Cease.”

Finally, Carnegie devoted the rest of his life to promoting world peace and democracy. He was convinced that the United States surpassed Europe economically in part because Europe was constantly embroiled in wars with its neighbors while the United States largely avoided such conflicts.(If the U.S. must maintain a high defense budget to eradicate terrorism, it could severely retard economic growth.) He was a passionate believer in democracy, universal suffrage and equality of opportunity through free public education. But he opposed equality of property or ability, and argued that all citizens had the right to choose their own occupation and had the right to earn income in any amount and spend it as they wished. He expressed distaste for royalty, aristocracy and any form of state religion.

The Spirit of Andrew Carnegie Lives at FEE

Today I am happy to report that the world has a goodly share of modern-day Andrew Carnegies. As the new president of FEE,I have had the pleasure of becoming aware of these unique men and women of the business world who have not only added value to the global economy through their entrepreneurial efforts, but have sacrificed time and money to promote FEE and its mission. For example, last week Larry Reed, president of the Mackinac Center for Public Policy and a FEE trustee, told me about a FEE donor who spent half his life sponsoring FEE seminars on free-market economics in his hometown, often a considerable personal sacrifice of time and financial resources. Another individual, upon hearing that a FEE student seminar might need to be canceled due to a lack of attendees, stepped up and arranged for several dozen students to attend. The seminar turned out to be a great success. Hundreds of other FEE supporters have arranged conferences, raised funds and distributed copies of our flagship publication, Ideas on Liberty, to their friends and acquaintances. And with your help we are planning many new programs to spread of the gospel of FEE and to “attract attention,” as Andrew Carnegie would advise.

How to Help FEE

I am developing some new ways to help FEE teach Americans and the rest of the world the simple but powerful principles of economics. One goal is to dramatically increase the circulation of Ideas on Liberty. If you haven ’t subscribed yet, you should —$30 for a 12 subscription to: Foundation for Economic Education, Irvington on Hudson, New York 10533, telephone 914/591-7230. We are also spending money to create a top-notch interactive website at www.fee.org. We are planning special seminars on “Fast Track Executive Economics Courses “at various investment conferences (Money Shows, New Orleans, Atlanta, etc) to explain the basics of the roller-coaster global economy. Plus we’re expanding our student and business seminars to teach future generations the benefits of the free market. If you give $100, you become a “Friend of FEE “and will receive many benefits. I look forward to hearing from you.

It All Started with Adam

Ideas On Liberty
Economics on Trial
May 2001

by Mark Skousen

Adam Smith, that is. Having just completed writing a history of economics,1 I have concluded that, despite the protestations of Murray Rothbard and other detractors, the eighteenth-century moral philosopher and celebrated author of The Wealth of Nations deserves to be named the founding father of modern economics.

The reason: Adam Smith is the first major figure to articulate in a profound way what has become known as the first fundamental theorem of welfare economics: that the invisible hand of competition automatically transforms self-interest into the common good. George Stigler rightly labels Smith’s model of laissez-faire capitalism (Smith never used the phrase) the “crown jewel” of The Wealth of Nations and “the most important substantive proposition in all of economics.” He states, “Smith had one overwhelmingly important triumph: he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interests under conditions of competition.”2

In short, Smith’s thesis is that a “system of natural liberty,” an economic system that allows individuals to pursue their own self-interest under conditions of competition and common law, would be a self-regulating and highly prosperous economy. Eliminating restrictions on prices, labor, and trade meant that universal prosperity could be maximized through lower prices, higher wages, and better products. Smith assured the reader that his model would result in “universal opulence which extends itself to the lowest ranks of the people.”3

Indeed it has. Published in 1776, The Wealth of Nations was the intellectual shot heard around the world, a declaration of economic independence to go along with Thomas Jefferson’s declaration of political independence. It was no accident that the industrial revolution and sharply higher economic growth began in earnest shortly after its publication. As Ludwig von Mises declares, “It paved the way for the unprecedented achievements of laissez-faire capitalism.”4

For or Against Smith

The most amazing discovery I made in researching and writing over the past three years is that every major economic figure—whether Marx, Mises, Keynes, or Friedman—could be judged by his support of or opposition to Adam Smith’s invisible-hand doctrine. Karl Marx, Thorstein Veblen, John Maynard Keynes, and even British disciples Thomas Robert Malthus and David Ricardo denigrated Adam Smith’s classical model of capitalism, while Alfred Marshall, Irving Fisher, Ludwig von Mises, and Milton Friedman, among others, remodeled and improved on Smithian economics.

For example, Keynes is unsympathetic to Adam Smith’s worldview. “It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. . . . Nor is it true that self-interest generally is enlightening. . . . Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately.”5 The basic thesis of Keynes’s magnum opus, The General Theory of Employment, Interest, and Money (1936), is that laissez-faire capitalism is inherently unstable and requires heavy state intervention to survive. Keynesian disciple Paul Samuelson correctly understood the true meaning of Keynes: “With respect to the level of total purchasing power and employment, Keynes denies that there is an invisible hand channeling the self-centered action of each individual to the social optimum.”6 Thus, I conclude that Keynesian economics, rather than its savior, is an enemy of Adam Smith’s system of natural liberty.

Karl Marx went even further. Instead of creating a system of natural liberty, Marx set out to destroy it. Modern-day Marxist John Roemer agrees. The “main difference” between Smith and Marx is: “Smith argues that the individual’s pursuit of self-interest would lead to an outcome beneficial to all, whereas Marx argued that the pursuit of self-interest would lead to anarchy, crisis, and the dissolution of the private property-based system itself. . . . Smith spoke of the invisible hand guiding individual, self-interested agents to perform those actions that would be, despite their lack of concern for such an outcome, socially optimal; for Marxism the simile is the iron fist of competition, pulverizing the workers and making them worse off than they would be in another feasible system, namely, one based on the social or public ownership of property.”7

Adam Smith as a Heroic Figure

By measuring economists against a single standard, Adam Smith’s invisible-hand doctrine, I found a fresh way to unite the history of economic thought. Virtually all previous histories of economics, including Robert Heilbroner’s popular work, The Worldly Philosophers, present the story of economics as one conflicting idea after another without resolution or a running thread of truth. This hodgepodge approach to history leaves the reader confused and unable to separate the wheat from the chaff.

My approach places Adam Smith and his system of natural liberty at the center of the discipline. Think of it as a story of high drama with a singular heroic figure. Adam Smith and his classical model face one battle after another against the mercantilists, socialists, and other enemies of liberty. Sometimes even his “dismal” disciples (Malthus, Ricardo, and Mill) wound him. Marx and the radical socialists attack him with a vengeance and leave him for dead, only to have him resuscitated by the leaders of the marginalist revolution (Menger, Jevons, and Walras) and raised up to become the inspiration of a whole new science.

But the “neo-classical” model of capitalism faced its greatest threat from the Keynesian revolution during the Great Depression and the postwar era. Fortunately, the story has a good ending. Through the untiring efforts of free-market advocates, especially Milton Friedman and F. A. Hayek, Adam Smith’s model of capitalism is re-established and in the end triumphs. As Milton Friedman proclaims, “To judge from the climate of opinion, we have won the war of ideas. Everyone-left or right-talks about the virtues of markets, private property, competition, and limited government.”8

Long live Adam Smith!

1. The Making of Modern Economics (Annonk, N.Y.: M. E. Sharpe Publishers, 2001).
2. George Stigler, “The Successes and Failures of Professor Smith,” Journal of Political Economy, December 1976, p. 1201.
3. Adam Smith, The Wealth of Nations (New York: Modern Library, 1965 [1776]), p. 11.
4. Ludwig von Mises, “Why Read Adam Smith Today,” in The Wealth of Nations Washington, D.C.: Regnery, 1998), p. xi.
5. John Maynard Keynes, “The End of Laissez-Faire,” Essays in Persuasion (New York: Norton, 1963 [1931]), p. 312. Keynes’s speech was given in 1926, a full decade before The General Theory came out.
6. Paul A. Samuelson, “Lord Keynes and the General Theory,” The New Economics, ed. Seymour Harris (New York: Knopf, 1947), p.151.
7. John E. Roemer, Free to Lose (Cambridge, Mass.: Harvard University Press, 1988), pp. 2-3. Note the title, imitative, albeit negatively, of Milton and Rose Friedman’s popular Free to Choose (New York: Harcourt Brace Jovanovich, 1980).
8. Milton and Rose Friedman, Two Lucky People (Chicago: University of Chicago Press, 1998), p. 582.

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.”