New Chairman of Investment U

On this Veteran’s Day, I’m happy to announce that I’ve just been made chairman of Investment U.  Investment U is published by the Oxford Club in Baltimore and is one of the fastest growing online financial services in the world.  I’m honored to have been selected as its new chairman.  I write two columns a week–commentary on the markets, financial theories, and investment strategies.  It’s a free newsletter.  To sign up, all you have to do is give them your email address at  Unlike other e-services, you do not have to provide them with any personal details about your life.

I won’t give specific stock market advice in this column; that is reserved for Forecasts & Strategies (  But I do offer important economic and geopolitical insights in the Investment U column.

Come join me, will you?

AEIOU, Mark Skousen

The Necessary Evil

Today libertarians spend most of their time lamenting the consequences of big government. And rightly so. Today government is less a defender of freedom and more a Hobbesian leviathan that undermines prosperity. When we do talk about limited government, it is often seen solely as “a necessary evil.” Too much government and the economy chokes. Too little, and it cannot function. Is there a Golden Mean? George Washington best summarized the libertarian view: “Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master.” Read the article below

Liberty Magazine
The Necessary Evil
by Mark Skousen

Too much government and the economy chokes. Too little, and it cannot function. Is there a Golden Mean?

Today libertarians spend most of their time lamenting the consequences of big government. And rightly so. Today government is less a defender of freedom and more a Hobbesian leviathan that undermines prosperity. When we do talk about limited government, it is often seen solely as “a necessary evil.”1 Too much government and the economy chokes. Too little, and it cannot function. Is there a Golden Mean?

George Washington best summarized the libertarian view: “Government is not reason; it is not eloquence; it is force! Like fire, it is a dangerous servant and a fearful master.”2 So it is with some trepidation that I suggest that societies or countries may not have enough good or legitimate government. In the never-ending battle against big government, it might be well to consider what constitutes “good government” to see how far we have strayed from the proper role of the state.

Each year the Fraser Institute publishes their Economic Freedom of the World Index (see, which measures five major areas of government activity in more than 100 countries: size of government, legal structure, sound money, trade, and regulation. The most surprising thing about the study, according to its author James Gwartney, a professor of economics at Florida State University, is the importance of legal structure as the key to maximum performance for an economy. “It turns out,” he told me in a recent interview, “that the legal system — the rule of law, security of property rights, an independent judiciary, and an impartial court system — is the most important function of government, and the central element of both economic freedom and a civil society, and is far more statistically significant than the other variables.”

Gwartney pointed to a number of countries that lack a decent legal system, and as a result suffer from corruption,insecure property rights, poorly enforced contracts, and inconsistent regulatory environments, particularly in Latin America, Africa, and the Middle East. “The enormous benefits of the market network — gains from trade, specialization, expansion of the market, and mass production techniques — cannot be achieved without a sound legal system.” 3

The Proper Role of the State

Milton Friedman identifies the legitimate roles of the state: “The scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow- citizens: to preserve law and order, to enforce private contracts, to foster competitive markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally.” 4

Adam Smith suggests that this “system of natural liberty” will lead to a free and prosperous society. As Smith declares, “Little else is required to carry a state to the highest degree of opulence from the lowest level of barbarism, but peace, easy taxes, and a tolerable administration of justice.”5

The division between the positive and negative role of government can be represented visually. In the diagram on the next page, we have on the vertical axis “socio-economic well-being”: some general measure of the quality of life in a free and civil society. For empirical studies, economists might want to use changes in real per capita income, but this may be too confining. On the horizontal axis we have “government activity.” At point O, we have zero government, and as we move along the horizontal axis, the size and scope of government activity increase. The ultimate extreme is the totalitarian regime, which institutes “total government,” though I would hesitate to label this “100% government,” since no government can control all activity.

Too Little vs. Too Much Government

My thesis is that as a society moves from zero government to point P, economic well-being increases to peak performance. Then, as it adopts a larger and less necessary government, its growth diminishes, and can even turn negative if government becomes too burdensome and controlling. Looking at the left side of the mountain, point O (zero government) to P (optimal government) constitutes “too little” government. For example, a nation may spend too few of its resources on personal protection, property control, and government administration. Here we see how increasing the size and scope of government activity initially leads to increased well-being, as measured by individual freedom and prosperity. Point P represents the right amount of government and the optimal amount of expenditure necessary to fulfill its legitimate functions.

This is the ideal of the minimalist state. Any point to the right of P represents too much government, when the central authority becomes a burden rather than a blessing. I’ve drawn it as a gradual downward slope, so that the more bad government a country adopts, the greater the decline in performance, even to the point X where government is so large and so intrusive that it results in the destruction of economic and social well-being, which is probably worse than the costs of anarchy.

Quantifying the Right Amount of Government

Can we quantify P, the optimal size of government? Several economists have attempted to determine the ideal level of government spending as a percentage of GDP. In the1940s, Australian economist Colin Clark said that the maximum size of government should not exceed 25% of GDP. Anything higher would hurt economic growth.6 Professor Gerald W. Scully, of the University of Texas at Dallas suggests that the tax rate ought not to exceed 23%.7 World Bank economists Vito Tanzi and Ludger Schuknecht analyzed 17 countries during the period 1870 to 1990 and concluded that public spending in newly industrialized countries should not exceed 20% and in industrialized countries not more than 30%.8 Is optimal government (point P) the same for every country?

This would make an interesting study, but I suspect that differences in culture and socio-economic circumstances suggest that some nations require more government than others. As Benjamin Franklin states, “A virtuous and laborious [industrious] people may be cheaply governed.”9 And a lazy, dishonest people must be expensively governed.

Optimistically, I would think that if all nations were featured together on the diagram above, the various points P would constitute a fairly narrow mountain range. Almost every country in the world today is to the right of Point P, and could grow faster and enjoy a higher quality of life by reducing the size and scope of government. Countries from China to Ireland to Chile have demonstrated how dramatically the economy can improve by cutting back the state. I’m sure even Hong Kong, #1 in the Fraser Institute’s study in terms of performance and freedom, could benefit from some improvements by scaling back some types of government services.

According to the latest surveys of economic freedom by the Fraser Institute and Heritage Foundation, countries on average are becoming more free, and not surprisingly, the world’s economic growth rate is rising.10 After noting that government represents 40–50% of GDP in most developed nations, Tanzi and Schuknecht conclude, “we have argued that most of the important social and economic gains can be achieved with a drastically lower level of public spending than what prevails today.”11

Two Case Studies in Little or No Government

Are there any examples of countries to the left of point P, that have too little government? The United States suffered from too little government under the Articles of Confederation, which was the basic law of the land from its adoption in 1781 until 1789, when they were replaced by the Constitution. The Articles limited the federal government to conducting foreign affairs, making treaties, declaring war, maintaining an army and navy, coining money, and establishing post offices. But it could not collect taxes, it had no control over foreign or interstate commerce, it could not force states to comply with its laws, and it was unable to payoff the massive debts incurred during the Revolutionary War. States were already putting up trade barriers, striking a serious blow to free trade, and the economy struggled. After the Constitution became law, the United States flourished because of improved government finances, protection of legal rights, and free trade among the 13 states.

A modern-day example of too little government is Somalia, located east of Ethiopia and Kenya, where life has been difficult and often dangerous without any central authority since 1991. For example, drivers pass seven checkpoints, each run by a different militia, on their way to the capital. At each of these “border crossings” all vehicles must pay an “entry fee” ranging from $3 to $300, depending on the value of goods being transported. Competing warlords vie for control of the countryside, which has frequently collapsed into civil war. Only an estimated 15% of children go to school, compared to 75% in neighboring states. However, a recent report by the World Bank indicates that an innovative private sector is flourishing in Somalia. This vindicates the Coase theorem, named for economist Ronald Coase, which argues that in the absence of government authority, the private sector will step in to provide alternative services, depending on the transaction costs.12 The central market in Bakara is thriving: all kinds of consumer goods, from bananas to AK-47s, are readily sold; mobile phones proliferate and internet cafes prosper. But with no public spending, the roads and utilities are deteriorating. Private companies have yet to appear to build roads — the transaction costs are apparently too prohibitive. Public water is limited to urban areas, and is not considered safe, but a private system extends to all parts of the country as entrepreneurs have built cement catchments, drilled private boreholes, or shipped water from public systems in the city.

There are now 15 airline companies providing service to six international destinations, and airplane safety can be checked at foreign airports. After the public court system collapsed, disputes have been settled at the clan level by traditional systems run by elders, with the clan collecting damages. But there is still no contract law, company law, or commercial law in Somalia. Sharp inflation in 1994–96 and 2000–01 destroyed confidence in the three local currencies, and the U.S. dollar is now commonly used. Because of a lack of reliable data, neither the Fraser Institute nor the Heritage Foundation’s economic freedom indexes rank Somalia. The World Bank concludes, “The achievements of the Somali private sector form a surprisingly long list. Where the private sector has failed — the list is long here too — there is a clear role for government intervention. But most such interventions appear to be failing. Government schools are of lower quality than private schools. Subsidized power isbeing supplied not to the rural areas that need it but to urban areas, hurting a well-functioning private industry. Road tolls are not spent on roads. Judges seem more interested in grabbing power than in developing laws and courts. Conclusion: A more productive role for government would be to build on the strengths of the private sector.”13

In short, most countries could use less government, but a few countries could use more of the right kind of authority. There is an optimal size and structure of government, and when it is reached, the result is, in the words of Adam Smith, “universal opulence which extends itself to the lowest ranks of the people.”14 ��


1. Thomas Paine, “The Thomas Paine Reader” (Penguin, 1987), p. 66.

2. George Washington, “Quotations of George Washington” (Applewood Books, 2003), p. 29.

3. James Gwartney and Robert Lawson, “Economic Freedom of the World, 2004 Annual Report” (Fraser Institute, 2005), p. 35.

4. Milton Friedman, “Capitalism and Freedom” (University of Chicago Press, 1962), p. 2.

5. Quoted in Clyde E. Danhert, editor, “Adam Smith, Man of Letters and Economist” (Exposition Press, 1974), p. 218.

6. Colin Clark, “Taxmanship” (Hobart Paper 26, Institute of Economic Affairs, 1964).

7. Gerald W. Scully, “Tax Rates, Tax Revenues and Economic Growth” (National Center for Policy Analysis, 1991).

8. Vito Tanzi and Ludger Schuknecht, “Public Spending in the 20th Century: A Global Perspective” (Cambridge University Press, 2000).

9. Benjamin Franklin, letter to Charles de Weissenstein, July 1, 1778, in “The Papers of Benjamin Franklin” (Yale University Press), vol. 27, p. 4. I discovered this quotation in my research for my forthcoming book, “The Compleated Autobiography of Benjamin Franklin” (Regnery Books, 2006).

10. According to the 2005 Index of Economic Freedom published by the Heritage Foundation, “the scores of 86 countries are better, the scores of 57 are worse, and the scores of 12 are unchanged.” (p. 2).

11. Tanzi and Schuknecht, “Public Spending in the 20th Century,” p. 34.

12. Ronald H. Coase, “The Problem of Social Cost,” The Journal of Law and Economics 3 (October 1960), reprinted in “The Firm, the Market and the Law” (University of Chicago Press, 1988), pp. 95–156.

13. For an analysis of Somalia’s ability to survive without government for over ten years, see Tatiana Nenova and Tim Harrford, “Anarchy and Invention: How Does Somalia’s Private Sector Cope Without Government?” Public Policy Journal 280 (November 2004):

14. Adam Smith, “The Wealth of Nations” (Modern Library, 1965 [1776]), p. 11.

Columbia Business School Interviews Professor Mark Skousen

I was featured on the front page of this week’s “Bottom Line,” published by Columbia Business School, about Grantham University’s renaming its business school “The Mark Skousen School of Business.”  In the interview, I talk about the dramatic growth in online education, how the Skousen School is different from the hundreds of MBA programs out there, and how investors can profit.  Here is the full interview….

Mark Skousen

An Interview with Professor Mark Skousen

By Gabriella Barufi, Editor, BottomLine, Columbia Business School, September 15, 2005

Earlier this year Prof. Mark Skousen was surprised to hear that Grantham University, one of the country’s fastest growing online universities, decided to rename their business school “The Mark Skousen School of Business.”  Prof. Skousen has taught at Columbia Business School and at Barnard College.  He has authored twenty books, and is now working on a new textbook, “Economic Logic” and also on a new book, “The Compleated Autobiography of Benjamin Franklin,” to be published this fall by Regnery (  Grantham University ( currently has over six thousand enrolled students in graduate and undergraduate course, including business, criminal justice and computer science.  Prof. Skousen will play a key role in further developing the business school curriculum, as he explained in an interview with the BottomLine.

1. Can you describe your reaction to having a business school named after you? Also, could you speak about your role in developing The Skousen School’s curriculum?

I must say that I was rather surprised by this honor. As one friend said, “Only billionaires and dead people have schools named after them” — unless the honoree has discovered a new model of business management and decision-making. I’d like to think I’ve created a new business paradigm, which incorporates “market-based management,” based largely on “Austrian” and “Chicago” schools of economics and finance. The term “market-based management” is an invention of Charles Koch of Koch Industries, the second largest private company in the United States. Grantham, the nation’s fastest growing on-line/distance learning university, has asked me to develop such a program in their undergraduate business and MBA programs, course work that will be very different from what is taught at most schools. They will use my “market-based” textbooks such as Economic Logic.

2. Still on the new curriculum, how do you and Grantham University intend to set it apart from the existing tens or perhaps hundreds of business school programs?

As far as I know, The Skousen B School at Grantham will be the only one in the country to teach explicitly the “market-based” business technique, based on the concepts and tools created by such “Austrian” giants as Peter Drucker, Joseph Schumpeter, Ludwig von Mises, and Friedrich Hayek, and now being adopted by many of the fastest growing businesses in the country, such as Whole Foods Market and Koch Industries. Most business students have heard of Drucker, but his breakthrough ideas are not always discussed in depth. Few MBA students have heard of Mises and Hayek. In the finance world, I also rely on the work of Gary Becker, Milton Friedman, Richard Thaler and other “Chicago” economists to create my unique brand of behaviorial economics, tools I’ve used to build a successful financial advising service.

My “Austrian/Chicago” business model emphasizes marketplace disequilibrium, uncertainty, decentralized decision making, opportunity costs, and a theory of business errors. Our case studies include two of the fastest growing businesses in the world that use this unique “market-based management” system: Whole Foods Market, run by CEO John Mackey (who was 2004 Entrepreneur of the Year), and Koch Industries.

The Skousen B School will do two things differently:

First, it will emphasize applied economics and finance in the management world. For example, we will apply the “Austrian” theory of the business cycle to show how businesses can survive and prosper during the boom-bust cycle. We show students how to use “opportunity cost” in accounting by adopting Economic Value Added (EVA). More and more companies are using EVA effectively to control costs and create profit centers, so successful business students must be familiar with this tool. Both Whole Foods Markets and Koch Industries use EVA. Joel Stern, one of its creators, is an adjunct here at CBS.

Second, the Skousen School of Business will take an historical, evolutionary approach to business and finance, with heavy emphasis on how business and financial markets have developed over the years. In my investment courses, I always integrate the history of business and finance, with lots of story telling and case studies, both past and present. Unfortunately, many of today’s MBAs are taught very little history, and therefore, in my judgment, are vulnerable to making mistakes when history repeats itself. They know modern theory and modern business strategies and modern accounting, but may not know how these disciplines developed historically. They should be aware of “the plungers and the peacocks,” as one historian calls them, and the models that worked and didn’t work over time. In the Skousen B school, we will explore the history of great American and foreign businesses, and the biographies of Rockefeller, Carnegie, J. P. Morgan, Alfred Sloan, Joe Kennedy, Ben Graham, J. P. Morgan, and modern giants such as Sam Walton and Warren Buffett.

By the way, I should tell you that I taught my “market-based management” course in Austrian/Chicago economics & finance at CBS last year, following in the footsteps of CBS professor John Whitney, who developed the course originally (he is now emeritus status). As part of the course, I invited John Mackey of Whole Foods Market to speak at CBS to a packed audience of nearly 300 MBA students. Students here seem eager to learn about Mackey’s new “market based” approach to business. My course, “Free Market Strategies for Managers” was well received, with a 4.6 student rating. I hope to be able to teach this course again this year.

3. Could you share with us your views on online education, both from the academic and investor points of view?

Online education has been one of the most surprising growth industries since the early 1990s, and demand is growing 35-40% a year. It caters to the non-traditional student, those over 25 who want to finish up their college education, or earn additional degrees, often while working full time. Major corporations and the US armed forces are making online degrees a top priority, because it allows their employees to advance their education and skills while remaining on the job. It attracts adults of all ages who want an affordable education that accommodates their schedule. And online is very cheap, maybe a tenth of what it costs to go to Columbia or another top academic school.

The University of Phoenix pioneered the concept, and its stock is up 10,000% since going public in 1994, one of the best performing IPOs in history. Grantham University’s annual enrollment and revenues are growing at 100%, with profit margins of over 25%. As a business and investment, it’s hard to beat.

4. How do you expect online teaching to evolve and do you foresee an impact on traditional education?

I’ve seen how online technology has dramatically affected my business as an investment writer and advisor. My publisher, Eagle Publishing, no longer depends solely on a printed version ( In order to stay competitive and update to date, we now offer an online investment letter. The internet has also allowed us to expand into three trading services where we give short-term buy and sell recommendations over the internet. In addition, I’ve just been made chairman of Investment U, published by Agora Inc., which has 350,000 e-subscribers ( This service aims to educate individual investors around the world with a twice-weekly e-letter that focuses on core investment principles and indicators, and how to apply them to current trends and events. It’s one of the world’s fastest growing investment services, and with the popularity of the internet and search engines, this kind of educational service can reach out to millions of investors around the world almost instantly.

I am convinced that the same kind of revolution is happening in degree-seeking education. Top establishment institutions are going to face serious competition from the online schools in the near future. Many studies have shown that success in the business world is uncorrelated to where students earn their degree. And given the flexibility and low cost of an online degree, more and more students are choosing this option.

5. Over the past few years of rapid technological advancement, we at Columbia Business School have witnessed a growing presence of the Internet and online tools on campus, including systems for course selection, online polls and posting of lectures and additional reading materials. How do you think traditional universities can further leverage on online tools that could improve both teaching and the learning experience?

Eventually, Columbia and other B schools will have to start offering online courses.

Many major universities have already recognized the natural advantages of going online and are offering more and more online courses. Harvard University’s Harvard Extension School, for example, offers several dozen online courses that qualify for a undergraduate and graduate degrees, and you can take the online courses from anywhere in the world. Chinese students can start getting a Harvard degree from China! Or American soldier can continue their degree from Iraq. Grantham is already doing this, and has a strong degree-seeking program geared to the US armed forces and corporate clients.

6. Your world travels and international experience seem to have contributed greatly and are often imprinted in much of your published work. Likewise, U.S. business schools including Columbia pursue international diversity through the curriculum, faculty and student body. In your view, what are the benefits of this approach and how (if at all) can it be further expanded?

Located in New York City, the center of global capitalism, Columbia University has done a great job in attracting a worldwide faculty and student body. I enjoyed very much the interaction with the foreign students, who had broad business experience around the world. Teaching them was a tremendous learning experience for me.

The online universities offer greater flexibility and less cost to the international student….They can start and even finish their degree without the cost of moving to and living in New York. The online universities also offer good personal contact with the professors, who are required to make themselves available by telephone and e-mail to help the students. No closed door policy and limited office hours as there are at brick-and-mortar universities! Of course, many students thrive better in the traditional classroom with its structured schedule and interaction with classmates. I’m sure both kinds of education will continue, but there’s no reason to expect the status quo.

If CBS opened its doors to students both here and abroad via online coursework, they would be ahead of the establishment crowd.

Announcing my controversial new book…Vienna and Chicago: Friends or Foes?


“You’re all a bunch of socialists!” — Ludwig von Mises (Vienna)
“We are friends and foes!” — Milton Friedman (Chicago)
Austrian and Chicago economists have battled Keynesians, Marxists and socialists alike, but they often fight each other as well. What are the differences between the Austrian and Chicago schools, and why do free-market economists disagree so much?

After years of research and interviews in both camps, I have uncovered the strengths and weaknesses of each, and determine who’s right and who’s wrong at the end of each chapter by declaring either “Advantage, Vienna” or “Advantage, Chicago.” The book ends with a chapter on how they could reconcile on major issues.
Chapters from Vienna and Chicago, Friends or Foes?
1. Introduction: A Tale of Two Schools
2. Old and New Vienna: The Rise, Fall, and Rebirth of the Austrian School
3. The Imperialist Chicago School
4. Methodenstreit: Should a Theory be Empirically Tested?
5. Gold vs. Fiat Money: What is the Ideal Monetary Standard?
6. Macroeconomics, the Great Depression, and the Business Cycle
7. Antitrust, Public Choice and Political Economy: What is the Proper Role of Government?
8. Who Are the Great Economists?
9. Faith and Reason in Capitalism
10. The Future of Free-Market Economics: How Far is Vienna from Chicago?
  • Whose methodology is more controversial–Mises or Friedman?
  • A debate that the Austrians have clearly won.
  • Why Chicago economists have won more Nobel Prizes than the Austrians.
  • Why did Israel Kirzner call George Stigler’s essay on politics “bizarre, disturbing, unfortunate, and an affront to common sense”?
  • Emotional fights at the Mont Pelerin Society, Foundation for Economic Education, and other freedom organizations.
  • Why Friedman and Mises admire Adam Smith, and Murray Rothbard despises him.
  • Why some Austrians call Friedman a “Keynesian” and “a statist” while Friedman calls Mises and Ayn Rand “intolerant” and “extremist.”
  • Major differences between Mises and Hayek…..and between Stigler and Friedman.
  • The “fortress” mentality: Why the Mises Institute doesn’t advertise, or appear on TV.
  • Amazing similarities between Austrians and Marxists, and between Chicagoans and Keynesians.
  • Why Mises refused to use graphs and charts in his books.
  • How Friedman shocked the audience when asked “Who is the better economist, Keynes or Mises?”
  • Why Austrians are usually pessimists and Chicagoans optimists.
  • Powerful contributions by the “new” generation of Austrian and Chicago economists…..
From the Chicago school: “This tale is thorough, thoughtful, even-handed, and highly readable. All economists, of whatever school, will find it both instructive and entertaining.” –Milton Friedman

From the Austrian school: “In his upbeat tale of two schools, Skousen gives us a delightful blend of theory, history, and political science, and shows that there is much common ground and scope for development.” –Roger W. Garrison
From an anonymous reviewer: “A novel approach. Skousen sells neither school short and takes a non-doctrinaire view. He spices up his narrative with materials from personal correspondence and one-on-one discussions. No one other than Skousen could have written this book. Advantage, Skousen!”
How to Order this Book
Vienna and Chicago is a 320-page quality paperback available now from the publisher Capital Press (, Laissez Faire Books (, Amazon, or directly from the author (see below). The book normally retails for $24.95, but readers pay only $20.
Or mail a check for $20 plus $3 shipping and handling per copy. (For foreign deliveries, pay $20 plus $10 for air mail per copy.) Make checks payable to Skousen Publishing Co., P.O. BOX 229, IRVINGTON, NY 10533.

Grantham University Renames Its Business School

“I’m excited that Grantham University is naming its Business School after Mark Skousen. Mark represents everything a successful Business school should produce – a skilled investor, creative entrepreneur, and a first-rate thinker, writer and practitioner of sound economics. By choosing Mark Skousen as its torchbearer for teaching sound business and economics, Grantham University will be building its school on a very solid foundation.” – John Mackey, CEO, Whole Foods Market

Grantham University, the nation’s fastest growing online university, has just renamed its Business department “the Mark Skousen School of Business.” I’m deeply honored. Grantham has asked me to develop a world-class curriculum in applied business and economic skills that will set the Skousen School apart from other business schools. The Skousen School of Business at Grantham offers an MBA and undergraduate business degree, and students will be using my textbooks, Economic Logic, The Making of Modern Economics, and The Structure of Production. Over the next year, I will create a special program focusing on the Austrian school of economics, finance, and management, as reflected in the works of management guru Peter F. Drucker, economists Ludwig von Mises and Friedrich Hayek, and modern-day practitioners such as John Mackey of Whole Foods Market and Charles Koch of Koch Industries. To read the entire press release, go to

Grantham University, founded in 1951, has over 6,000 adult students, and offers degrees in engineering, criminal justice, and business. Under the brilliant leadership of CEO Tom Macon, Grantham is growing rapidly and is scheduled to go public later this year. For more information, go to My curriculum in Austrian economics, finance and management will be available starting next year. I’m pleased to be involved with this first-rate online university.

Until then, this is Mark Skousen saying AEIOU.

Lectures with the Sutherland Institute

Last week at the invitation of Paul Mero and Stan Rasmussen of the Sutherland Institute (, I gave two lectures before a group of Utah legislators.

First was a lecture about my pamphlet, “Persuasion vs. Force” (see I made the point that legislators are often too quick to pass new legislation to solve a problem without fully relying on private alternatives, such as churches, charities, schools and colleges, foundations, clubs, private companies, and other non-government programs. Thus, passing a new law is often a sign of failure, not success, that they had to resort to force over persuasion to accomplish a social goal.

Taxation is not the price we pay for civilization, but rather the price we pay for not building a civilized world. The higher the tax rate, the higher the failure. A truly successful society is based on persuasion, not force.

I gave a modern-day example of persuasion vs. force: two books had recently been published on dealing with the giant company Wal-Mart. “How Wal-Mart is Destroying America and What You Can Do About It,” by Bill Quinn, outlines a strategy to get city and county boards to reject Wal-Mart’s bid to open a new store. It’s all about force. “Up Against the Wal-Marts: How Your Business Can Prosper in the Shadow of the Giants,” by Don Taylor, takes the higher road of persuasion. It outlines a wide variety of management techniques to compete with Wal-Mart and persuade customers to shop at local stores.

By the way, last week I received a letter from a Canadian wanting to pass around copies of “Persuasion Vs. Force” to Canadian legislators who were considering a law requiring motorcyclists to wear helmets. I hope it helps!

The A & W Solution

My second lecture was based upon my new book, “The Power of Economic Thinking” (Foundation for Economic Education, 2002). I focused on two simple but powerful principles that can help legislators decide between good and bad law.

I call the two principles “A & W”–Accountability and Welfare Principles.

The “Accountability” principle is also known as the “benefit” principle. That is, those who benefit from a good or service should pay for it; the user pays. When someone else pays for your food, clothing, car, or medical expenses, you don’t pay much attention to what it costs.

The accountability principle is helpful in business, government and your personal life. For example, students who pay for their own education choose their majors sooner, get better grades, and graduate on time.

Why have medical costs risen so rapidly? Because most of the time a third party pays–either the employer, an insurance company, or the government. When someone else pays for your medical bills, expect increasing costs, less quality service, and more fraud. Medicare is a clear example of a law that violates the accountability principle.

The “Welfare” principle is straight-forward: You help those who need help; but you don’t help those who don’t need help. Otherwise you destroy their initiative and independence. A minister has an obligation to help the needy; but what if the preacher decides to help everyone in his congregation, irrespective of their needs? It might be a popular welfare program, but it inevitably becomes a burden when the minister tries to pay for everyone’s material needs.

The same holds true in the government. The food stamp program honors the welfare program in the sense that only the needy qualify for food stamps; there’s a means test. Not so with Medicare or Social Security. Both violate the welfare principle. They are universal plans for anyone 65 or older, whether they need help or not. Millions of Americans are on Social Security and Medicare, when they could afford their own private pension plan and private medical insurance. Why should the government pay for Bill Gates retirement and medical bills? It’s clearly a waste.

Note that during the Presidential Debates in October, there was lots of talk about Social Security and Medicare, but did either candidate say a word about the food stamp program? No, because it is one of the few welfare programs under control. It does not violate the welfare principle, but Social Security and Medicare do. If we are ever going to get control of these costs, we must impose a means test on Social Security and Medicare. And then we can start talking about reducing payroll taxes.

The response to “Persuasion vs. Force” and the A&W principle was good. I think the legislators came away with a new sense of direction. The next time they are faced with voting on a new bill, they will have some sound economic principles to use to make a wise decision.

At the end of the lectures, we passed around some A&W root beer and toasted the A&W principles.

Until next Monday, this is Mark Skousen saying AEIOU.

All the best, AEIOU, M. Skousen

My Debut with Neil Cavuto on the Fox News Channel

I appeared today on Your World with Neil Cavuto on the Fox News Channel, discussing my Anti-Terrorism Portfolio (see for more information). Here’s a clip from the interview if you missed it! And stay tuned to Fox News where hopefully this was just a first appearance for yours truly…

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AEIOU, Mark Skousen

Napoleon’s Dynamite!

My son’s first major film (he was first asst director) is a surprise hit! It’s now been in the theaters for three months and grossed $40 million. “Napoleon Dynamite” is taking the high schools by storm. Here is a report from my friend Cris Lewis in Portland:

“Thought you’d enjoy knowing that Napoleon Dynamite is taking over the high school. Everyone’s mimicking the movie’s star. Tell Tim thanks a lot for creating teenage America’s latest ‘cult’ following! (And to think they did it without profanity, vulgarity, sex…nice job!)

Vivienne and I saw it and thought it was the dumbest movie we’d ever seen. We turned to each other in the middle of it and said, ‘Why are we watching this’?

But we come home and now have laughed for hours as our children (who have seen it many times) have mimicked and laughed about every character. I think our generation knew too many Napoleons in our school and felt sorry for them that we can’t laugh at this character. But, for some reason, our children can’t get enough of the movie and talk about it constantly. And kids are mimicking it everywhere. My 6th grade daughter said a candidate for student body officer even sang a song in his political speech mimicking the closing song by Napoleon’s brother…to get a laugh. Go figure!

I’m just glad a clean movie has become a hit! (I hope Tim is getting some royalties on it.)”

Here are a few quotes from reviewers from around the country:

“One of the most winning movie creations in years.” — Stephen Hunter, WASHINGTON POST

“…a wonderfully skewed story that weaves together tater tot fetishism, a voracious llama, tether ball, Internet dating, and the high school presidential race…” — Spence D., IGN FILMFORCE

“Too low-wattage to be a true nerd anthem, but it’s charming in retrospect, when you’re freed from the narcoleptic pace to think back on the … beautiful tableaux and well-timed gags.” — David Edelstein, SLATE

All the best, AEIOU, M. Skousen

Tribute to my uncle, W. Cleon Skousen

“There were giants in the earth in those days….might men which were of old, men of renown.” (Genesis 6:4)

My uncle, W. Cleon Skousen, turned 90 years old on January 20. Over 200 relatives came to Salt Lake City to honor him.

I speak and travel all around the country, and wherever I go, one of the most frequent questions asked is, “Are you related to W. Cleon Skousen?” He is known far and wide as a powerful spokesman for liberty, indomitable defender of the Constitution, and indefatigable critic of Communism. He is the author of several dozen books, including The Naked Communist, The Naked Capitalist, and The Miracle of America. He founded the Center for Constitutional Studies, famous for its constitutional seminars around the country. He is also known among Christians as the author of the “Thousand Year” series of lively histories and commentaries on the Bible from a Mormon perspective. Anyone who has read The First 2,000 Years is hooked and can’t wait to read the other volumes. I wished I had his felicity of expression.

W. Cleon Skousen was born in Canada in 1913, a terrible year in the history of freedom. 1913 is the year the federal income tax and the Federal Reserve were created. I can’t think of two events more destructive to our daily lives. I firmly believe our standard of living could be double or triple what it is today if it weren’t for the havoc the progressive income tax and central banking have done in this country and around the world. (War would be the third great destroyer.)

God sent us W. Cleon Skousen to counter the influence of these two evils. Maybe God will let him live until we see the end of these two relics of modern barbarism.

Uncle Cleon became a dad to me when my own father, Leroy B. Skousen, passed away at the young age of 46. My father loved Cleon. Leroy followed in his older brother’s footsteps in many ways, becoming an FBI agent and an attorney. Leroy also fathered a large family–11 children. We grew up in Portland, Oregon, until my father suddenly came down with lung cancer (though he never smoked) and died in 1964. My mother moved to Utah, ten surviving children in tow, so that we children could attend Brigham Young University without having to pay dormitory fees. It was a tough time, and my uncle, who lived in Salt Lake, helped us and gave us a lot of guidance. Ever since then, I’ve always been close to my Uncle Cleon, and sought his counsel throughout my career.

Let me tell you one recent example of his influence in my life. In 1995, I decided to write a history of the great economic thinkers, from Adam Smith to the present. All previous histories of economics had been written by socialists, Keynesians, and Marxists. A free-market perspective was long overdue. I had commissioned the libertarian economist Murray Rothbard to write an alternative to Robert Heilbroner’s The Worldly Philosophers, but he only finished half the book before he died in 1995. So I decided to write it myself. In researching my book, I was heavily influenced by Murray Rothbard’s negative assessment of Adam Smith. Almost all conservatives and libertarians admire Adam Smith, author of The Wealth of Nations, but not Murray. He chastised Smith for his defective value theory, which he said gave much ammunition to the socialists and Marxists. Murray was one of my personal heroes, and I was influenced by his view. My book was skeptical of Smith, and the whole tenor of my book was negative. My initial title was “The Propensity to Confuse” (a play on Keynes’s phrase, “propensity to consume”).

On a trip to Utah a year later, I took the first chapter with me when I visited Uncle Cleon in Salt Lake City, and told him about my project. He looked at me and made a statement, “You know, Adam Smith’s doctrine of the invisible hand is inspired of God.”

I was taken aback. If my uncle was right, Murray Rothbard was wrong–and my book’s entire approach was a mistake. But Cleon was not a professional economist. Perhaps Murray was right. I was in a quandry. I decided there was only one way to find out who was right. So I returned home determined to make up my own mind by reading page by page, cover to cover, the entire thousand page copy of The Wealth of Nations. A month later, I had come to a very firm conclusion: Murray Rothbard was wrong, and my Uncle Cleon was right. Despite committing some serious errors of analysis, Adam Smith’s development of his “system of natural liberty” was a brilliant vision of a free and prosperous society under limited government.

My change of heart caused a complete revision of my work, allowing me to write a history of high drama, with a plot, an heroic figure (Adam Smith and his system of natural liberty), and even a good ending (the triumph of free-market capitalism, at least temporarily).

I even changed the title of the book to The Making of Modern Economics. Published by M. E. Sharpe in 2001, it is now in its third printing and being translated into several languages.

Knowing the story above, you won’t be surprised to learn that the book is dedicated to my uncle, W. Cleon Skousen.

Entreprenuerialship is Alive and Well in the Soviet Union

by Jo Ann Skousen

It was the final day of our trip to Russia, and our worst fears were being realized: as the children and I rushed toward the Moscow airport and home, my husband, Mark Skousen, was being taken to the police station at Red Square. And time was running out.

Two days before our departure had started innocently enough, with typical plans for a day of sightseeing — Red Square, Lenin’s tomb, and St. Basil’s Cathedral in the morning, followed by shopping at the massive state-run GUM department store in the afternoon before attending the Moscow circus that evening. But the morning had barely begun when we found ourselves hurried through twisting alleys in the drizzling rain by two unknown Russians toward every conservative American’s nightmare: the Soviet police station at Red Square. Instinctively I pulled the children closer, keeping them between my husband and myself. Then we stopped, and the head inspector looked up, eyeing each of us in turn. “How can I help you?” he asked through our interpreter. Our video camera had been left in the taxi, and the two young Russians we had met the night before, Igor and Sergei, horrified at the thought of a loss so dear, had insisted that we report it to the police.

To our surprise, the police station was not the somber fortress we had expected it to be. I looked around at the peeling yellow paint, the dilapidated veneer-topped desks, the fist-sized hole punched through a door. The inspector, who appeared to be about 30 years old, was not even wearing a uniform, but was dressed instead in a striped knit sports shirt, the kind you might buy at J.C. Penney.

We gave our report, and our Russian friend assured us privately that, if we brought the inspector a couple of cartons of American cigarettes, our camera would very likely be recovered and restored to us. The black market, we were discovering, was the only system keeping this crumbling ship afloat.

Igor and Sergei spent the next two days as our personal guides, driving us all over the city and even inviting us to their tiny but clean apartment. Igor had been to the United States on a visit and now his life’s goal was to get out of Russian permanently. To leave would require money–dollars, not rubles — and lots of it. He had smuggled a personal computer back with him, and sold it for an amount equal to three years’ salary — no wonder he felt the loss of our expensive video camera so keenly! With his profits he was able to quit his government job and become an entrepreneur, mostly exchanging currency for tourists at ten times the official rate, and providing other services. The penalty for changing money was a minimum of five years in jail, so we were amazed at how freely the two moved among the tourists, entering hotels and restaurants where local Muscovites were clearly forbidden. There was a buoyant brightness about them, in stark contrast to the vast majority of beaten down Russians standing in lines wherever we went. Imagine having to get your drivers license renewed every day of your life, and you get some idea of what it is like to be a Soviet citizen.

Even more amazing was the immediate trust our two friends put in us. After exchanging our money and selling us several hundred dollars worth of art objects, they gave all the dollars back to us, asking us to deposit the money in an account Igor had set up in the States during his visit. Even now my heart swells as I think of their courage and friendship.

We were saying our farewells at the hotel when the call came from the police station. They had found our taxi driver and insisted that Mark come down to the station to identify him, even though our plane was scheduled to leave in less than two hours. It seemed innocent enough, but as the car took him away, a lifetime of fearing “the Reds” overtook me. Did they know about Mark’s CIA background? Had this whole experience been an elaborate hoax to keep him there? Finally, with only minutes to spare, he came running through the airport, Igor and Sergei clearing the way. The police had indeed found our taxi driver, but when Mark learned what they planned to do to him — accuse him of money exchanging so they could sentence him to five years in prison — Mark’s memory faltered and he just wasn’t able to identify the fellow.

(It is now a year since our visit to Moscow. Igor is living with his wife in Norfolk Virginia, and Sergei is living in Paris, hoping for a visa to the States. They are all working hard at whatever jobs they can find, grateful to be in the West where they know that someday they will be extremely successful.)