Yes, The Rich Are Different — They’re Better

Personal Snapshots
Forecasts & Strategies
March 2000

by Mark Skousen

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

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

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

Millionaires Are Model Citizens!

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

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

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

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

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

Greed is Good — NOT!

Personal Snapshots
Forecasts & Strategies
February 2000

by Mark Skousen

“Unbridled avarice is not in the least the equivalent of capitalism, still less its ‘spirit.'” — Max Weber

Recently I heard free-market economist Walter Williams speak at a local college about capitalism. He quoted approvingly from Gordon Gekko, the fictional character of the film Wall Street, “Greed is good.”

I normally agree with most everything Walter Williams says, but not this statement. Too often, defenders of capitalism go overboard in defending pejorative phrases, such as “greed is good” or, in the case of Ayn Rand, her book title The Virtue of Selfishness. But selfishness is not a virtue, nor is greed, whether in business or finance. Selfishness leads to unethical behavior — deceptive advertising, fraud, and even theft. It often means taking advantage of another person. Greed and selfishness could land you in jail.

Adam Smith’s Model of Enlightened Self-Interest

Adam Smith, the father of free-market capitalism, did not write approvingly of selfishness or greed. He favored enlightened self-interest and industriousness. He believed that his “system of natural liberty,” his phrase for capitalism, would actually reduce greed, selfishness and fraud. Commercial society, he said, encourages people to be educated and industrious. It “cultivates patience, industry, fortitude and application of thought.” The fear of losing customers “restrains his frauds and corrects his negligence,” Adam Smith wrote in The Wealth of Nations. In contrast to political societies, which depend on flattery, favoritism and deceit, capitalist societies foster self-control, cooperation, punctuality, benevolence and deferred gratification.

Financial Advice: Don’t Get Greedy!

In the financial field, we know that the two greatest enemies to profits are fear and greed. Contrarians take advantage of inexperienced investors who panic when prices are dropping and often sell out in desperation at the bottom. Unseasoned investors also tend to buy heavily at the top, only to see their investments disappear. In short, greed is a disaster for investors. This is a vital lesson given the high-wire act Wall Street is following these days, especially with regard to Internet stocks.

The Real Significance of the Millennium

A friend of mine wrote me saying that the year 2000 was no big deal, and this new millennium was nothing unusual in terms of other calendars: For Moslems, it was 1420, for Jews it was 5760, for Buddhists it was 5119, etc. Well, he’s wrong. There is no universal celebration of the Moslem, Jewish or Buddhist calendar, yet on New Year’s Eve, what did we witness on television? Magnificent celebrations across the globe even in China, Israel, Africa and other places that are not Christian. Why? Western capitalism, which uses the Christian calendar, has captured the world — in business, in dress, in culture.

The For-Profit Antipoverty Agency

Ideas Matter
November 15, 1999

The For-Profit Antipoverty Agency
by Mark Skousen

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

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

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

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

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

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

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

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

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

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

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

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

A Private-Sector Solution to Poverty

Economics on Trial NOVEMBER 1999

by Mark Skousen

“The able bodied poor don’t want or need charity. . . . All they need is financial capital.” -MUHAMMAD YUNUS

For years free-market economists have protested the waste and abuse of foreign aid programs, International Monetary Fund loans, and World Bank projects.(1) P.T. Bauer has been in the forefront as a dissenter against government development programs. For the past 50 years, he has argued forcefully that government assistance in developing nations only retards economic growth.(2)

But if IMF lending, foreign aid, and the World Bank are abolished, what should be done to alleviate poverty? Bauer and other classical liberals advocate reducing trade barriers; increasing foreign investment; establishing property rights, the rule of law, and a stable monetary policy; and encouraging free markets and limited government domestically.

Private-Sector Micro Lending

Yet market advocates have been surprisingly silent on a burgeoning private-sector success story known as “micro lending,” the lending of extremely small amounts of money to self-employed entrepreneurs in the Third World by independent banks and institutions. The most famous of these micro-lenders is the Grameen Bank, founded by Muhammad Yunus in Bangladesh, the world’s poorest country, in 1983. Yunus is an economics pro- fessor at Chittagong University in Bangladesh.

When I say “small loans,” I mean minuscule. The Grameen Bank lends only $30 to $200 per borrower. Applicants don’t have to read or write to qualify. No collateral or credit check is required. Amazingly, the Grameen Bank has made these micro loans to millions of poverty-stricken people in Bangladesh, $2.5 billion so far. These loans are not interest-free. The Grameen Bank is a for-profit private-sector self-help bank that charges 18 percent interest rates. The default rate? Less than 2 percent. This remarkable record is due to the requirement that borrowers must join small support groups. If anyone in the group defaults, no one else can borrow more.

The bank lends to entrepreneurs, overwhelmingly female, who need only a few dollars to buy supplies and tools. Borrowers might be makers of bamboo chairs, sellers of goat’s milk, or drivers of rickshaws. By avoiding the outrageous rates charged by other money-lenders (often 20 percent a month), these people are finally able to break the cycle of poverty. Their small businesses grow, and some use their profits to build new homes or repair existing ones (often using a $300 Grameen house loan). Thousands of Grameen borrowers now own land, homes, and even cell phones. And they are no longer starving. Yunus has plans to issue private stock and eventually go public with his antipoverty program.

His bank has been so successful that other micro-lending institutions have sprung up throughout the world. The concept has gained credence everywhere, to the point that even the World Bank and other government agencies have gotten into the million-dollar micro-loans business.

Saying No to the World Bank

But Yunus won’t have anything to do with the World Bank. In his new autobiography, Banker to the Poor (highly recommended), Yunus decries the World Bank: “We at the Grameen Bank have never wanted or accepted World Bank funding because we do not like the way the bank conducts business.” Nor does he much like foreign aid: “Most rich nations use their foreign aid budgets mainly to employ their own people and to sell their own goods, with poverty reduction as an afterthought. . . . Aid-funding projects create massive bureaucracies, which quickly become corrupt and inefficient, incurring huge losses. . . . Aid money still goes to expand government spending, often acting against the interests of the market economy. Foreign aid becomes a kind of charity for the powerful while the poor get poorer.”(3) Peter Bauer couldn’t have said it better.

From Marxism to Marketism

Yunus’s statements are all the more amazing given that he grew up under the influence of Marxist economics. But after getting a Ph.D. in economics at Vanderbilt University he saw firsthand “how the market [in the United States] liberates the individual” and rejected socialism. “I do believe in the power of the global free-market economy and in using capitalist tools. . . . I also believe that providing unemployment benefits is not the best way to address poverty.” Believing that “all human beings are potential entrepreneurs,”Yunus is convinced that poverty can be eradicated by lending poor people the capital they need to engage in profitable businesses, not by giving them a government handout or engaging in population control. His former Marxist colleagues call it a capitalist conspiracy. “What you are really doing,” a communist professor told him, “is giving little bits of opium to the poor people. Their revolutionary zeal cools down. Therefore, Grameen is the enemy of the revolution.”(4) Precisely.

1. The latest examples are Paul Craig Roberts and Karen LaFol- lette Araujo, The Capitalist Revolution in Latin America (New York: Oxford University Press, 1997) and James A. Dorn, Steve H. Hanke, and Alan A. Walters, eds., The Revolution in Development Economics (Washington, D.C.: Cato Institute, 1998).
2. See P. T. Bauer, The Development Frontier (Cambridge, Mass.: Harvard University Press, 1991), Equality, the Third World and Economic Delusion (Cambridge, Mass.: Harvard University Press, 1981), and Dissent on Development (Cambridge, Mass.: Har- vard University Press, 1976).
3. Muhammad Yunus, Banker for the Poor (New York: Public- Affairs, 1999), pp. 145-46.
4. Ibid., pp. 203-205.


Forecasts & Strategies Personal Snapshots

by Mark Skousen

Which famous economist endorses the deficit-spending actions the federal government took during the Great Depression, prefers John Maynard Keynes over Austrian School economist Ludwig von Mises, recommends printing more money as a short-term solution to Japan’s problems, and is strongly opposed to the gold standard? Paul Samuelson? John Kenneth Galbraith? Paul Krugman?

No, believe it or not, it’s Milton Friedman, the Nobel Prize winning “free-market” economist!

Now, I have a lot of respect and admiration for Milton Friedman, the winner of the Nobel Prize for Economics in 1976. For the most part, he is a tireless and eloquent advocate of economic and political liberty. I consider him a good friend.

His magnificent Monetary History of the United States demonstrated conclusively that government bungling, not free enterprise, caused the Great Depression. I highly recommend his books, Capitalism and Freedom and Free to Choose (available through Laissez Faire Books, 800/326-0996).

However, most of us were pretty shocked at the New Orleans conference when Friedman answered my question, “Who is the greater economist, Ludwig von Mises or John Maynard Keynes?” He did not hesitate: “Keynes!”

Friedman has written elsewhere that he regards Keynes as a brilliant economist who contributed much to the profession. He even defends deficit spending, Keynes’s cure for the Great Depression, while attacking Mises’s and Friedrich Hayek’s “non interventionist” approach during the 1930s. Friedman is a critic of the Austrian theory of the business cycle and personally considers Mises “intolerant” and “fanatic” (though he does not feel that way about Hayek).

Does this mean that Friedman, the famed free-market economist, is a closet Keynesian? Frankly, I’m mystified by Friedman’s favorable comments about John Maynard Keynes. The British economist was the prime mover behind the thesis that the free market is inherently unstable and that big government is necessary to stabilize the economy. Keynes was a sharp critic of classical economics–balanced budgets, laissez faire government, the gold standard and the virtue of thrift—and advocated deficit spending, progressive taxation, fiat money and the “socialization of investment.” Lately Friedman, like Keynes, has advocated an activist monetary policy, that Japan should “print more money” as a short-term solution to its problems. Say again? Printing more money is what caused the economic crisis in Japan and Southeast Asia in the first place. What about tax cuts, deregulation of the banking industry, and other “supply side” solutions? He advocates them too, but not as forcefully.

Like Keynes, Friedman is also anti-gold. He prefers paper money without any backing. I’ve had numerous discussions with Friedman on this vital issue. At New Orleans, he told me he can’t understand the ideology of gold and why gold bugs are so passionate about the gold standard.

“Because it’s honest money,” I explained. I pointed out that under the classic gold standard, the U.S. Treasury backed up every U.S. $20 gold certificate with a $20 gold coin. Hence, if the government wanted to issue another $20 banknote, it had to mint another gold coin–at considerable expense. But today there is no backing and the government can print all the currency it wishes for only 3 cents per banknote. As a result, Washington can depreciate the value of its currency at will.

That’s where Ludwig von Mises comes in. The great Austrian economist demonstrated that monetary inflation is beneficial only in the short run, and that it causes a boom/bust cycle that eventually destroys the assets and savings of its citizens.

Near the end of his talk in New Orleans, Milton Friedman said that despite the academic victory of liberty, “government has become larger and more intrusive since the collapse of the Berlin Wall.” And who is the father of big government? Keynes! Who favors smaller government? Mises. In my judgment, a hundred years from now, Mises will be a major figure in all the economics textbooks, and Keynes will be a mere foot-note.

For an introduction to Mises and Austrian economics, get a copy of Planning for Freedom, 4th edition, which contains “The Essential Von Mises,” by Murray Rothbard (available for $9.95 from Laissez Faire Books, 800/326-0996). You might also find my booklet, Austrian Economics for Investors: Ludwig von Mises Goes to Wall Street, ($9.95 from Laissez Faire Books, 800/326-0996 to be helpful.


Is the drug war worth it? More than 11,000 American inspectors, agents and other officials are deployed along the Mexican border. In 1996 (latest figures) there were 254 million crossings by people, including 75 million cars and 3.5 million trucks and railway cars entering the U.S. Last year the U.S. border inspectors searched slightly more than a million trucks and cars, and guess how many cocaine busts they made? Six! Gen. McCaffrey, the White House director of drug control policy, called the figure “dispiriting.” I’d call it a “bust.” Clearly the benefit doesn’t meet the cost ($16 billion a year in budget funds). (Source: New York Times Sept. 20, 1998)

The Battle for Diamond Head: A Case of Market Failure?

Economics on Trial
APRIL 1999

The Battle for Diamond Head: A Case of Market Failure?

by Mark Skousen

“Hawaii’s great and beloved landmark … is too precious an asset to be sacrificed.”
Honolulu Advertiser editorial ( 1967)

Last month I addressed the theory of entrepreneurial error in conjunction with the year 2000 computer problem. This month I raise another issue dealing with the possibility of market failure: Should government protect a local landmark from commercial development? Are zoning laws and other building restrictions necessary in a free society to stop “greedy” speculators and “fast buck” promoters from creating “urban sprawl” and unsightly commerce?

Recently my family and I spent a few days in Hawaii. Walking along famed Waikiki Beach, I couldn’t help noticing how a string of high-rise apartments and hotels halted abruptly along the Diamond Head shoreline.

The Story of Diamond Head

Why the sudden abatement? In the late 1960s Diamond Head was the center of a fierce debate between the developers and the conservationists. Following statehood in 1959, tourists flocked to this paradise of the Pacific, and Waikiki Beach, sandwiched between downtown Honolulu and Diamond Head, became the hottest real estate market for resort hotels and condominiums. Honolulu newspapers ran photos of a rapidly disappearing view of Diamond Head, and local citizens became alarmed. A grassroots organization, Save Diamond Head Association, was formed in 1967 and demanded a halt to building any more skyscrapers along the shoreline.

Why save Diamond Head? In the nineteenth century, British sailors found crystalline rocks on its slopes and mistook them for diamonds. Conservationists argue that Diamond Head is a symbol of paradise, the mid-Pacific’s most famous beacon. One visitor wrote during the debate, “I found Diamond Head, which has been declared a state monument, in imminent danger of turning into a monument for the fast buck, its craggy profile threatened with disappearance behind a palisade of tall concrete buildings.”1

Here’s the conflict: Hawaii’s natural beauty and delightful climate attracted millions of new tourists in the 1960s. The tourist boom in turn created a rush in real estate development. But the high-rise buildings along with enormous billboards-were blocking out the natural beauty that attracted tourists in the first place. What to do?

The fight between the developers and environmentalists came to a head in December 1967. After a packed four-hour public hearing, five members of the nine-member city council voted against further commercial development. The other four members abstained. In 1968, Diamond Head was designated an official national landmark.

Is There a Market Solution?

Could the market properly plan for a growing Hawaii without destroying its natural beauty and aloha spirit, or must government intervene?

Sometimes the market faces a difficult choice between two conflicting goals. In the case of Diamond Head, it was the battle between development and a landmark symbol. Unfortunately, it’s events like these that give capitalism a bad name. Could private developers have done better? Could it have been in their own self-interest to limit the height of hotels and condos and preserve Oahu’s historic skyline while still making a profit? Can progress and profit go together?

What do free-market economists have to say about zoning and building codes? In The Constitution of Liberty, FA Hayek notes that local governments have often done a poor job of city planning, sometimes amounting to “administrative despotism.”2 He cites rent controls, zoning regulations, and excessive taxation as examples. Nevertheless, he does support “some regulation of buildings permitted in cities,” including minimum building codes.3

Economists have often been critical of zoning laws as an infringement of property rights. In a recent book on the subject, Tom Bethell asserts that zoning laws hurt the poor, cause urban sprawl, and invite political corruption. He points to Houston as an example of a dynamic city which has grown without zoning regulations.4

If conservationists really wanted to save Diamond Head, why didn’t they buy the shoreline property and keep developers out? Instead of running to the City of Honolulu, Save Diamond Head Association should have raised the capital to stave off builders. Since 1953, Nature Conservancy, a nonprofit environmental organization with 900,000 members, has been buying and preserving land and habitats (now totaling over 10 million acres in the United States). Of course, such a plan would have been costly, with Waikiki property prices around $1 million an acre in 1967-68.

Property rights should include the right to be left alone from noise and air pollution. Should these rights also include the right of original owners to view Diamond Head?

1. Kenneth Lamott, Holiday Magazine, July 14, 1967, quoted in Helen Geracimos Chapin, Shaping History. The Role of Newspapers in Hawaii (Honolulu: University of Hawaii Press, 1996), p. 268. Chapter 26 of Chapin’s book, “Above Ground: The Battle for Diamond Head,” summarizes the history of this conflict through the eyes of two local newspapers, the Star-Bulletin and the Advertiser.

2. F.A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960), p. 355. Hayek devotes an entire chapter to “Housing and Town Planning,” an area often ignored by economists.

3. Ibid., pp. 35457.

4. Tom Bethell, The Noblest Triumph: Property and Prosperity Through the Ages (New York: St Martin’s Press, 1998), pp. 297-99.

TEXTBOOKS TAKE FREE-MARKET TACK But Many Welfare-State Myths Still Are Taught

NATIONAL ISSUE — Investor’s Business Daily

TEXTBOOKS TAKE FREE-MARKET TACK But Many Welfare-State Myths Still Are Taught

Date: 10/22/98
Author: Michael Chapman

Many students today learn a lot about free-market economics. Problem is, John Maynard Keynes, the godfather of the welfare state, is doing the teaching.

Still, in recent years, textbooks have improved. Free-market economists like Milton Friedman and Friedrich Hayek get some play. But their successful ideas still aren’t getting the coverage they deserve.

The problem is what’s not taught, the ”sins of omission,” said economist Mark Skousen, author of ”Economics on Trial: Lies, Myths, and Realities.”

”I give the textbooks higher marks now,” he said, ”but there’s still much more to do.”

Free enterprise and private property are what America was built on. The idea of private property – ”life, liberty and the pursuit of happiness” – is enshrined in the Declaration of Independence.

Economic freedom is essential to political freedom, says Nobel Prize winner Friedman.

In countries with little economic freedom, such as China or the former Soviet Union, he says, there’s little political liberty. You can’t have one without the other.

So it’s vital that American students learn the facts about free enterprise. But do they?

A few textbooks at the high school and college undergraduate levels are good, says Burton Folsom Jr., a former college professor and now senior fellow at the Michigan- based Mackinac Center for Public Policy.

”The new high school textbooks are moving away from Keynes,” he said. ”But they’re still bad on antitrust, taxes and the Great Depression. They repeat myths about (John D.) Rockefeller and Reagan.”

Professor Richard Ebeling, head of the department of economics and business at Hillsdale College, agrees.

Some college texts now cite free-market economists such as Friedman and the monetarists or Hayek and the so-called Austrians, Ebeling says. But these schools of thought ”are explained in terms of a general Keynesian model or theory.”

”The Keynesian mind-set still dominates,” he said.

With that mind- set come many economic myths, false beliefs about markets and a skewed view of how the world works.

Folsom and his colleagues at the Mackinac Center are finishing a study of 16 high school textbooks. The books were reviewed to find whether students were getting a good economics education. So far, three books earned A’s, six got D’s, and two wound up with F’s.

Texts in their fifth or sixth editions still rely on Keynes, Folsom says. But the new texts are kinder to free enterprise.

”They’re good on trade issues and entrepreneurship – and there is some skepticism of big government,” Folsom said. However, they’re bad on antitrust, he says.

For instance, they repeat the myths about John D. Rockefeller and the robber barons, Folsom says.

”Rockefeller never had a monopoly. He had an oligopoly (a market controlled by a handful of firms),” Folsom said. ”The price of refined oil fell from 30 cents to 6 cents a gallon . . . (and) Standard Oil’s market share declined to 64% (in 1911 from 88% in 1890) because of competition – before the government broke it up.”

Standard’s share of oil production had dropped from 34% in 1890 to 11% in 1911 before antitrust enforcers broke this ”monopoly.”

Folsom also notes that U.S. Steel was the largest steel company in 1901; it held 61% of the market.

But because of competition, not antitrust laws, U.S. Steel’s market share fell to 39% by the mid-’20s.

”This is never mentioned in the textbooks,” Folsom said. The same holds true for American Sugar, he says, which held 98% of the market in the 1890s only to see its share decline due to competition.

A second myth, Folsom found, concerns taxes.

”Supply-side still hasn’t sunk in. Tax cuts in the ’20s produced more federal revenue, and cuts in the ’80s doubled federal revenue.” Only two texts were fair on this topic, Folsom says.

College texts still don’t treat supply-side economics right, Skousen says. ”It still gets a lot of criticism.”

A third myth is that laissez- faire capitalism caused the Great Depression and government spending cured it, say Folsom, Skousen and Ebeling.

”Almost every textbook misses on this,” Folsom said. ”Friedman proved that the Federal Reserve caused it, and government programs didn’t get us out of the Depression.”

Walter Williams, chairman of the economics department at George Mason University, agrees.

”Some textbooks say that runaway capitalism caused the Depression, when it was the Fed and the Smoot-Hawley tariff that did it,” Williams told IBD. ”Friedman confirmed this.”

Among economists, only those of the Austrian School, such as Hayek and Ludwig von Mises, clearly predicted the ’29 stock market crash and the Depression that followed.

They both blamed the Fed’s manipulation of the money supply, years before Friedman documented it. Yet the Austrian School rarely gets a mention in textbooks.

Williams adds that other related myths are that ”World War II brought us out of the Depression and that war is good for the economy.”

In fact, war means less money for real investment, he said, because money that could be going to factories and equipment is instead spent on troops and arms.

The minimum wage and the business cycle got fair treatment in about half the texts, Folsom said, but it’s still ”a mixed bag.”

Many texts still view the Fed as ”the savior” of the business cycle, he said, ”but we had more stability under the gold standard.”

There’s little debate among academic economists anymore that the minimum wage causes unemployment, Williams says. ”The debate is the magnitude.”

If money’s a problem, why not just make the minimum wage $25 an hour? Or $100? Obviously, supply and demand would intercede, and people would see the danger, Ebeling says.

Ditto for Fed control of the money supply. ”(Interest) rates are real. Why not make the rate zero? It’s like setting the price of shoes at zero.”

The myth that the minimum wage ”is a wonderful way of helping poor people,” however, is peddled by professors in other fields, said Donald Boudreaux, a former economics professor and now president of the Foundation for Economic Education.

”There is a knee-jerk reaction for government intervention at universities, even among those who’ve had economic training,” Boudreaux said. ”It’s a statist culture.”

Boudreaux adds that the problem with the textbooks began with Paul Samuelson. He’s a Keynesian and Nobel Prize winner whose books have dominated economics teaching since the ’40s.

Samuelson argues that economics is a science, Boudreaux says.

”He sees the economy as a machine that government can manipulate,” he said. ”The ideology is that if we get good people, we can master the economy.”

Ebeling adds that the myth is that ”the market is a planned mechanism” and planning is needed because markets fail.

This thinking pervades college textbooks, he says. It ignores the entrepreneur, who is the prime mover, and myriad complex and intricate relationships at the microeconomic level.

In some ways, the teaching of college economics has grown worse, Boudreaux says.

”By and large, the top schools, they teach technique, mathematical manipulation of economic models, a series of equations. They’re divorced from reality.”

But Skousen also sees a shift away from Keynes in newer college texts.

”All textbooks have shifted more toward free markets,” he said. They are going back to the classical, long-term growth model first and the Keynesian, short-term equilibrium model second. Friedman is cited more often, he said, and the Austrians get a little credit.

One of the biggest myths still peddled, however, is that the economy is consumer- driven, Skousen says.

”You see this all the time,” he said, ”references to retail sales, consumer spending. Consumption should be almost ignored. Focus on production. The economy is investment-driven.”

Darwin on Wall Street

Darwin on Wall Street
Mark Skousen
Forecasts & Strategies August 1998

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

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

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

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

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

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

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

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

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

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

A Better Alternative: Intelligent Design

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

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

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

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

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

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

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

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

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

Forecasts & Strategies
August 1998 issue

Keynesianism Defeated


By Mark Skousen

In 1992, Harvard Prof. Greg Mankiw was paid an unprecedented advance of $1.1 million to produce the “next Salmuelson”–a successor to Paul Samuelson’s “Economics,” the most successful economics textbook ever written, with more than four million copies sold in 15 editions and 41 foreign translations since 1948. Mr. Mankiw’s 800-page “Principles of Economics” has now been published, to great publicity. And for good reason: Mr. Mankiw has written a revolutionary–or rather, counterrevolutionary–work.

Virtually the entire book is devoted to classical economics, leaving the Keynesian model as an afterthought in the end chapters. Mr. Mankiw’s pedagogy is all the more remarkable given that he considers himself a “neo-Keynesian.” His liberal bias has allowed him to do what no other mainstream economist dares: He has betrayed Keynes.

Almost all economics textbooks published in the past 50 years have taken their cue from Mr. Samuelson, whose major influence was John Maynard Keynes’s “The General Theory of Employment, Interest and Money”  (1936).  Keynes’s book taught that Adam Smith’s classical model–founded on the virtues of thrift and balanced budgets, laissez faire capitalism and free trade–was a “special” case and only applied in times of full employment.

Keynes’s model portrayed the market as a driver without a steering wheel, a driver that could push the economy off the road at any time. He taught that the economy needed a large and activist government to steer it on the road of full employment. Keynesianism, or the “new economics,” became widespread–the “general” theory.

Modern economics textbooks thus focused primarily on the ups and downs of the capitalist system and how government policy could attempt to ameliorate the business cycle. They include many chapters studying cyclical fluctuations, while burying the study of economic growth and development–otherwise known as supply-side economics–in the back pages. Now Mr. Mankiw has changed all that, putting classical economics back at the forefront, where it belongs.

This is more than some free-market economists have been able to accomplish in tile past. James Gwartney and Richard Stroup, authors of “Economics: Private and Public Choice” (Dryden, 1997), don’t believe in the Keynesian model of aggregate supply and aggregate demand, or AS-AD, but they were forced to include it by their publisher’s review board, which consists of mainstream economists. Roger LeRoy Miller, author of another best-selling textbook, “Economics Today” (Addison-Wesley, 1997), told me, “AS-AD is a bunch of nonsense, but I’m required to teach it.” (One small victory: Paul Heyne refused to put AS-AD in his “The Economic Way of Thinking” (Prentice-Hall, 1997) and got away with it because he writes for a niche market.)

So, in a Nixon-goes-to-China twist, it took a Keynesian to accomplish what the free-market economists couldn’t–relegating Keynesian models to a minor role in textbooks.

Mr. Mankiw calls his classical model “the real economy in the long run.” His textbook, published by Harcourt Brace’s Dryden Press, teaches that increases in government spending crowd out private capital, producing higher interest rates. Higher thrift and greater savings produce lower interest rates and higher economic growth. Unemployment is caused not by greedy industrialists, but by minimum wage laws, collective bargaining, unemployment insurance and other regulations that raise the cost of labor.

Mr. Mankiw even approvingly quotes Milton Friedman: “inflation is always and everywhere a monetary phenomenon”–not the product of rising labor or supply costs, as many Keynesians believe. In fact, Mr. Mankiw cites Mr. Friedman more than he cites Keynes.

This is not to say that Mr. Mankiw’s textbook isn’t without a few sins of omission. He fails to tell students about the great postwar economic miracles of Japan, Germany, Hong Kong, Singapore and Chile. He also ignores the current debate over Social Security privatization. And there are no references to the great Austrian economists Ludwig von Mises and F.A. Hayek, or to Nobel laureate James Buchanan and the public choice theory he espouses.

But these complaints are small compared with the book’s overall message, that classical economics is now the “general” theory and Keynesian economics is the  “special” case.  Amazingly, Mr. Mankiw doesn’t mention most of the standard Keynesian analysis: No “consumption function,” no “Keynesian cross,” no “propensity to save,” no “paradox of thrift”– and only one short reference to the “multiplier”!

That’s quite a feat for Mr. Mankiw, a man who named his dog Keynes.