Mark Skousen's Personal Website for the Best of Money & Economics
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“Capitalism is turning luxuries into necessities.” — Andrew Carnegie
Watching the shouting matches occurring at the town hall meetings across America, do you ever wonder why nobody holds town hall meetings or writes complaining letters to Congress about food and housing?
After all, food and housing are even more important than medical help. Most Americans don’t need to go to the doctor every day, but you do need to eat every day and live under a roof.
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“This was the best FreedomFest yet. Congratulations!” –John Mackey, CEO, Whole Foods Market
Highlights of FreedomFest 2009:
Dear Friends of Liberty,
One attendee called this year’s FreedomFest a “phenomenon.” Over 100 speakers, 95 exhibitors and 1700 attendees showed up at “the world’s largest gathering of free minds” July 9-11, 2009, at Bally’s Events Center in Las Vegas — a record turnout, 21% increase over last year. (This number does not include several hundred supporters of Ron Paul’s Campaign for Liberty who attended FreedomFest on Friday and Saturday.)
They attended some 150 sessions on geo-politics, the economy, investments, philosophy, science & technology, art & literature, and healthy living. As June Arunga said, “FreedomFest is a festival of ideas — exciting, new, and refreshing.”
John Mackey calls it “The Trade Show for Liberty.” Mark Mullins (Fraser Institute) identifies it as “the new Mecca for libertarians.” I see it as the “focal point for free thinkers,” where independent thinkers and free minds break away from their busy schedule to come together once a year to learn, network, socialize, and re-energize their spirits.
The fight for freedom has never been more apparent since the end of the cold war. As one attendee put it, “This is THE year to attend FreedomFest, when our freedoms and financial assets are threatened more than ever.”
Given the deep recession and uncertainty this nation faces, I was surprised by the record turnout. According to a local Las Vegas business leader, FreedomFest was the only conference this year with higher attendance.
Many more will see the Friday general sessions on C-SPAN (to be aired soon).
Attendees came from every state of the union, and as far away as Australia, Japan, Argentina, and Kenya. Dozens of students took advantage of the $99 student discount rate.
You could feel the electricity as soon as you walked into the Exhibit Hall and the giant Laissez Faire Bookstore, run by Jim Peron and Jim Elswood.
One attendee told me, “FreedomFest changed my life and my entire way of thinking.”
I learned a lot myself as a moderator, speaker, and attendee. For every one who comes, FreedomFest is a personal creation, because so much is going on that no two people experience it the same way. As Jerry Cameron says, “It’s like having access to all the greatest intellectual food in the world and you just couldn’t eat fast enough to sample it all!”
Many buy the CDs of the entire conference every year just to keep up. (The first thing I do when I arrive is sign up for all the recorded sessions. If you are so inclined, check out the list of audioCDs here, or call 1-866-254-2057 to order by telephone.)
The program was huge, with over 150 speeches, panels and debates. “Liberty Watch” published the entire program in its July issue. I recommend you subscribe to this top quality libertarian publication. Go to http://www.liberty-watch.com.
The World Economic Summit:
“The financial crisis is not over!”
The first day of the conference, entitled “Clear and Present Danger,” was devoted to the on-going financial crisis. Many of the financial sessions were standing room only. Charles Gasparino, CNBC’s #1 reporter, was our first keynote speaker. He told the audience not to depend on the government to protect their wealth from losses or fraud. “The SEC has failed to uncover a single major scandal in the past 30 years,” he said. “It should be abolished.”
Other speakers throughout the conference included Steve Forbes, Larry Kudlow, Congressman Ron Paul, bestselling author Tom Woods (“Meltdown”), and John Fund. Rick Rule (Global Resource Investments) moderated a panel on energy, telling attendees to expect oil & gas supplies to be tight in the future. I gave a special 3-hour pre-conference seminar on “EconoPower: Seven Power Tools for Investors, Managers, and Citizens” that was well attended.
In the “All Star Prediction Panel” last year, all the participants (Peter Schiff, Bert Dohmen, Fred Foldvary, Dennis Slothower) warned attendees about the impending crisis while the media was painting a rosy picture. What were our prognosticators saying this year? They remained pessimistic and recommended staying heavily in cash, gold, or foreign stocks. Some are still shorting the market. Bert Dohmen, editor of the highly-acclaimed Wellington Letter, remains bearish, adding as an example, “How can a company like Boeing stay in business when they have received only one major order so far this year?” His breakout session attracted a large crowd.
Author Charles Murray (American Enterprise Institute) was more optimistic in the long run. In his luncheon address, he spoke of three factors that will work in favor of liberty — technology that liberates individuals from centralized institutions, a coming moral crisis among social democrats, and rediscovery of the role of freedom in imbuing life with meaning.
The Trial of the Century: Free-Market Capitalism on Trial
What caused the 2008 crisis: free-market capitalism or bad government policies? Friday night was the “big event” with defending attorney Steve Moore (Wall Street Journal Editorial Board) taking on prosecuting attorney Jeff Madrick (Emmy-award winning author of “The Case for Big Government”), with star witnesses Steve Forbes, Charles Gasparino, John Mackey, and Doug Casey.
Colorful Las Vegas Mayor Oscar Goodman was the Judge, and he stole the show with his irreverent remarks throughout the trial. What a showman. (He’s the former criminal defense attorney for the mob in Las Vegas!) The ending took everyone by surprise (see the C-SPAN coverage to find out what happened). The entire audience gave the judge and everyone involved a long standing ovation. (Thanks to estate planning attorney Jeff Verdon for arranging for Mayor Goodman to come.) As one attendee, Brandon Bond, said, “I’ve been attending these kinds of events for 30 years–and this one was the best ever!”
Another attendee enthused, “The Trial of the Century was so good it should be made into a Broadway play!”
Steve Forbes and John Mackey Attend All 3 Days
Steve Forbes has caught the vision of FreedomFest and makes a point of staying all three days. At a luncheon on Friday, he spoke about his penetrating new book “Power Ambition Glory,” which applies Greek and Roman history to today. He also appeared on several panels and spoke at the gala Saturday night banquet.
John Mackey, CEO of Whole Foods Market, is also a big fan who attends the entire conference. He appeared on the always popular Libertarian Entrepreneurs Panel (with Newsmax president Chris Ruddy; Rick O’Donnell, president of the Acton Foundation for Entrepreneurial Excellence; and successful New York money manager Donald Smith). In the debate between “Randian vs. Conscious Capitalism,” he noted significant differences between his philosophy of “conscious capitalism” and that of Ayn Rand. “Randian capitalism is all about making profits; conscious capitalism is about seeking a greater purpose.”
John also spoke to a SRO audience about the “Whole Foods Longevity Diet: How to Live to be 100 and Avoid Heart Disease, Cancer, Obesity, and Diabetes.” John is a vegan. Based on the findings of a group of health experts, he recommended reducing or eliminating meat and diary products from one’s diety, and emphasizing fruits and vegetables. He surprised everyone when he said, “The more vegetables you eat, the more you lose weight.” And according to John, eating vegetables and fruit is the least expensive diet.
The $100 Trillion Zimbabwe Dollar vs. the American Eagle Silver Dollar
There were lots of sessions for investors, entrepreneurs, and retirees. In one of the tax planning sessions organized by Vern Jacobs, international tax attorney Marshall Langer spoke to a SRO crowd about “Saving Lots of Taxes by Moving to Another State or Country.” When asked the crowd which part they were interested in, Langer was surprised that 90% said they were more interested in moving “offshore.”
Investing in gold and silver was as popular as ever. In the closing panel, I showed a $100 trillion Zimbabwe dollar bill and asked the panelists, “Are we headed toward hyperinflation in the United States?” David Boaz (Cato Institute), Steve Forbes, and Richard Viguerie didn’t think so, but Peter Schiff and Doug Casey thought it was a real possibility with the government bent on out-of-control spending and entitlements (Scott Tips of the National Health Federal and Michael Tanner of Cato warned attendees about the dangers of nationalized health care).
Rick Rule, president of Global Resource Investments, offered guidance in investing in mining and natural resource stocks in several well-attended sessions. Other investment specialists included Frank Trotter (Everbank) on the future of the US dollar (not good), Keith Fitz-Gerald on what Chinese insiders are buying now (Taiwan stocks), Van Simmons (David Hall’s Rare Coins) on the benefits of private collecting….Lou Petrossi on finding good money managers, Martin Truax on income investing, Jon Nadler (Kitco) on investing in gold, Paul Wigdor (Superfund) on beating the market with futures, Michael Checkan (Assets Strategies International) on currencies and precious metals, Peter Zipper on banking in Belize, and Adrian Day on foreign markets. Joe Bradley (Investors Hotline), Gary Alexander, Ron Holland, and Jon Golding served as moderators.
Peter Schiff, president of EuroPacific Capital and author of the bestseller “Crash Proof,” was adamant that investing in foreign stocks and commodities was the best way to go, and that investors should “get out of the dollar.”
I suggested that the US government could readily shift to a sound money system by circulating its own gold and silver bullion coins. I held up a American Eagle silver dollar, and gave one to each of the panelists. I told the audience that the silver dollar is our symbol of sound money and freedom, and encouraged each attendee to buy one from the coin dealers in the exhibit hall to keep as a good luck piece, a tip, a gift, or a nice bonus to employees.
Douglas R. Casey, chairman of Casey Research, was controversial as usual. His luncheon speech on “My Misadventures in the Third World” included an update on his efforts to privatize a small country and take it public on the New York Stock Exchange. He said it’s now a real possibility.
Estate and tax planning is always a major topic at FreedomFest, with experts Jeff Verdon, David T. Phillips, Joe Gandolfo, Vern Jacobs, Marshall Langer, and Bill Black, among others.
Conservative marketing guru Floyd Brown led a 4-session series on powerful techniques in email, blogging, and other new media, with the world’s most successful experts. Richard Viguerie (American Target) spoke on “Magnify Your Business or Resign!”; Craig Huey on 16 strategies for business owners; and Marsha Friedman on her new book, “Celebritize Yourself”…and Nathan Tabor on “Building a Political Following on Twitter, Facebook and Blogosphere.”
Chris Ruddy (Newsmax) also moderated a popular panel, carried on C-SPAN, called “The Future of Conservatism,” with Richard Viguerie (American Target), Jon Utley (American Conservative), Tom Phillips (Eagle Publishing), and Tom Fuente (California Republican).
Sacred Text Project: A Muslim Makes the Case for Pacifism!
Attendees had the unique opportunity to hear sessions by Jewish Mel Hecht, Christian minister Joseph Fuiten, Muslim Aslam Abdullah, Sikh Gurucharan Khalsa, and BYU Professor Dan Peterson shed light on their sacred scriptures, and then debate the role of religion in a no-holds-bar roundtable with Michael Shermer, editor of Skeptic magazine and Scientific American. Abdullah, director of the Islamic Center of Nevada, made the case for a peaceful coexistence with Muslim neighbors, and all the panelists seemed to be in a forgiving mood at FreedomFest.
In the exhibit hall each morning, Sikh Gurucharan Khalsa led about 30 individuals in yoga exercises.
Big Debates on Wal-Mart, Illegal Immigration, and the Fed
FreedomFest wouldn’t be complete without some great debates. This year, “Wal-Mart, Good or Bad?” pitted Ohio professor Richard Vedder against anti-Wal-Mart activist Al Norman. I was surprised to learn that many Wal-Mart employees are paid so little that they are subsidized with Medicaid, low-income housing, and other government welfare. In “Immigration: Will Mexico Explode?,” Roberto Salinas (Mexico Business Forum) defended his country against Dr. Eric Olsen, a Tucson chiropractor. In “Fed Up with the Fed?,” Gene Epstein (Barron’s economics editor) and Tom Woods took on Warren Coats (former IMF official) and John Fund (Wall Street Journal); and, as mentioned earlier, John Mackey (Whole Foods) and Michael Strong (FLOW) debated the Objectivists Ed Hudgins and Rob Bradley in “Randian vs. Conscious Capitalism.”
The Liberty Editors Conference is a perennial favorite, and every session was packed, with people hanging out the doors. Speakers included Stephen Cox, Drew Ferguson, Jim Walsh, Randal O’Toole, David Friedman, and Jo Ann Skousen. The panels were especially popular — on the Obama administration, the bailout, and a debate on religion and liberty. There was also a spirited debate on “Anarchy vs. Limited Government,” with me defending limited government against anarchists David Friedman and Doug Casey. I said that we now have a case study of how well anarchy does, since the African state of Somalia has had no central government since 1991. (The results are a mix of private services and poor public services, and a deteriorating economy.) I challenged Friedman and Casey to provide evidence of how utopian countries would deal with (1) disease control, (2) inefficiencies in public transportation and utilities, and (3) the justice system, i.e., how to deal with criminals who refuse to acknowledge private courts. At one point, I heard David Friedman say that a criminal who refuses to come to court would be “forced” to do so. That sounds like some form of government to me!
Major Media and Think Tanks at FreedomFest
We had representatives from most of the major financial media at FreedomFest, including the Wall Street Journal (Steve Moore and John Fund), Barron’s (Gene Epstein), and Investors Business Daily (Terry Jones and Michael Ramirez). Think tanks and freedom organizations were well represented: Ed Feulner and Teri Ruddy from Heritage: David Boaz, Dan Mitchell, Richard Rahn, and Michael Tanner from Cato; David Nott, Matt Welch, and Brian Doherty from Reason; Larry Reed from FEE; Julian Morris (IPN in London); Robert Enlow from the Friedman Foundation for Educational Choice; Charles Murray from AEI; Byron Scholmach from the Goldwater Institute; John Taylor from the Virginia Institute; and Holly Jackson from State Policy Network (SPN).
Ron Paul’s Campaign for Liberty at FreedomFest
Over 1,200 attendees came to the Bally’s Events Center Friday night, July 10, to hear bestselling author Tom Woods and Congressman Ron Paul update us on the machinations of Death Star (Doug Casey’s name for Washington). Paul is not optimistic about prospects in Washington, but was buoyed by the strong turnout in Las Vegas.
Unusual Speakers at FreedomFest
There’s always something for everyone at FreedomFest, even for those who don’t care about politics or money. We had a science fiction mini-series with Jo Ann Skousen on “Fantasy, Science Fiction and Romance,” commenting especially on Mary Shelley’s Frankenstein, and Brian Doherty on Robert Heinlein. They also participated in a popular panel on libertarian science fiction/fantasy with L. Neil Smith and J. Neil Schulman.
NYTimes columnist and GMU Professor Tyler Cowen answered the question, “Does Capitalism Destroy Culture?” He concluded that global capitalism actually encourages a variety in products and services, including language and cultural differences. Missouri history professor Steven Watts spoke on “Fantasyland, Walt Disney, and the American Dream,” followed by “Playboy, Hugh Hefner, and the American Dream”…..and Don Hauptman gave details on Ayn Rand’s famous Playboy interview, based on his purchase of the original documents with Rand’s own hand-written notes.
We also had several sessions on healthy living, including talks by John Mackey, and George and Mimi Murdock. The Murdocks spoke on “How to Avoid America’s Impending Health Catastrophe,” and recommended the book “The China Study.”
French Canadians Julie Barlow and Jean-Benoit Nadeau spoke on their bestsellers “Sixty Million Frenchmen Can’t be Wrong” and “The Story of French”…..David Wang explained the unusual connection between Confucius and America’s Founding Fathers (especially Franklin and Jefferson)….C-SPAN filmed Alex Green on his new book, “The Secret of Shelter Island”…..FIRE president Greg Lukianoff on “Unlearning Liberty: FIRE on Campus”….Dick Bishirjian (Yorktown University) on the profit potential of “for profit” education….This year we celebrated the 200th anniversary of the birth of two famous individuals, so we had Michael Shermer speak on Charles Darwin, and Hillsdale Professor Tom Krannawitter on “Vindicating Abe Lincoln Against his Libertarian Critics”….Santa Clara Professor Fred Foldvary defended Henry George and his single tax on land….Troy Dayton and John Mackey teamed up to discuss “Should Drugs be Legalized?”….Nelson Hultberg, author of “The Golden Mean,” on the need for a third party….And last but not least, our mystery guest speaker was Harvey Mudd Professor Art Benjamin on “The Joys and Mysteries of Mathematics.” He held the crowd spellbound, and sold dozens of his books and tapes.
Each Room Dedicated to a Fallen Patriot
Each year we dedicate the rooms at FreedomFest to a free-market leader who has recently passed away. This year the rooms were dedicated to: Sir John Templeton; former Congressman Jack Kemp; Habitat for Humanity founder Millard Fuller; Anti-Communist crusader Fred Schwarz; conservative leader Paul Weyrich; investment writer Larry Abraham; private education enthusiast Marshall Fritz; ISIL founder Vince Miller; coin dealer Burt Blumert; and FEE managing editor Beth Hoffman.
Free Market Hall of Fame at Gala Saturday Banquet
Every night was filled with events at FreedomFest: On Thursday, Everbank sponsored a speakers dinner and Newsmax an attendees dinner; on Friday, Campaign for Liberty sponsored a Ron Paul reception and program in the Bally’s Events Center.
The capstone of the conference was the gala Saturday night banquet, led by emcee extraordinaire Chip Wood. After CNBC’s Larry Kudlow spoke for 20 minutes on the current state of the nation, five American writers and economists were inducted into the Free Market Hall of Fame: Henry Hazlitt, Murray N. Rothbard, Rose Wilder Lane, H. L. Mencken, and Booker T. Washington. After each name was announced, Chip Wood rang the Liberty Bell. Following the ceremony, Steve Forbes paid tribute to the five inductees.
Then band leader Billy Tragesser led the audience in the singing of the FreedomFest anthem, “Freedom and Gold,” sung to an Irish tune attributed to an old pirate song.
The grand finale was the appearance on stage of the world’s #1 Beatles tribute band, “Yesterday.” From the first chord of the first song, a large crowd immediately gathered on the dance floor and didn’t quit until an hour and a half later, dancing and singing to the classics of the Fab Four. I’ve never seen anything like it at a libertarian or conservative event. Even Steve Forbes got out there and did a jig.
Everyone sang along with the band singing a libertarian version of John Lennon’s “Imagine”:
Imagine there’s no taxation
It’s easy if you try
No IRS below us
Above us only sky
Imagine all the people
Living to be free.
Imagine no politicians.
Telling us what to do.
No forms to fill out for.
And no inflation too
Imagine all the people
Living without Social Security.
You may say that I’m a dreamer
But I’m not the only one
I hope someday they’ll join us
And liberty will have won.
Imagine no regulations.
I wonder if you can
No need for laws to control us
A brotherhood of man
Imagine all the people
Competing in the world
You may say that I’m a dreamer
But I’m not the only one
I hope someday they’ll join us
And liberty will have won.
Next Year’s Big Event: “Declare Your Own Independence.”
We’ve already set the dates for the 7th annual FreedomFest, which promises to be bigger and better than ever before: July 7-11, 2010, at Bally’s/Paris Resort in Las Vegas. Just think7-11 in Vegas.
We think next year’s FreedomFest will sell out (we have a maximum capacity of 2000). So you might want to take advantage of the “early bird” special ($100 off the retail price).
We’ve also planned several other events for the coming year:
In liberty, AEIOU,
Mark
Mark Skousen
Producer, FreedomFest
“The world’s largest gathering of free minds”
www.freedomfest.com
7-11 in Las Vegas (July 7-11, 2010)
Suggestion – Liberty Magazine
The Necessary Evil
by Mark Skousen
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 www.fraserinstitute.org), 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
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Atlas Shrugged – 50 years later – At a time of rampant collectivism, Ayn Rand renewed the promise of liberty. But her ethics are dangerous. When Ayn Rand finished writing “Atlas Shrugged” 50 years ago this month, she set off an intellectual shock wave that is still felt today. It’s credited for helping to halt the communist tide and ushering in the currents of capitalism. Many readers say it transformed their lives. A 1991 poll rated it the second-most influential book (after the Bible) for Americans. Read the article below.
Atlas Shrugged – 50 Years Later
by Mark Skousen
Christian Science Monitor
March 6, 2007
When Ayn Rand finished writing “Atlas Shrugged” 50 years ago this month, she set off an intellectual shock wave that is still felt today. It’s credited for helping to halt the communist tide and ushering in the currents of capitalism. Many readers say it transformed their lives. A 1991 poll rated it the second-most influential book (after the Bible) for Americans.
At one level, “Atlas Shrugged” is a steamy soap opera fused into a page- turning political thriller. At nearly 1,200 pages, it has to be. But the epic account of capitalist heroes versus collectivist villains is merely the vehicle for Ms. Rand’s philosophical ideal: “man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute.”
In addition to founding her own philosophical system, objectivism, Rand is honored as the modern fountainhead of laissez-faire capitalism, and as an impassioned, uncompromising, and unapologetic proponent of reason, liberty, individualism, and rational self-interest.
There is much to commend, and much to condemn, in “Atlas Shrugged.” Its object – to restore man to his rightful place in a free society – is wholesome. But its ethical basis – an inversion of the Christian values that predicate authentic capitalism – poisons its teachings.
Mixed lessons from Rand’s heroes
Rand articulates like no other writer the evils of totalitarianism, interventionism, corporate welfarism, and the socialist mindset. “Atlas Shrugged” describes in wretched detail how collective “we” thinking and middle-of-the-road interventionism leads a nation down a road to serfdom. No one has written more persuasively about property rights, honest money (a gold-backed dollar), and the right of an individual to safeguard his wealth and property from the agents of coercion (“taxation is theft”). And long before Gordon Gekko, icon of the movie “Wall Street,” she made greed seem good.
I applaud her effort to counter the negative image of big business as robber barons. Her entrepreneurs are high-minded, principled achievers who relish the competitive edge and have the creative genius to invent exciting new products, manage businesses efficiently, and produce great symphonies without cutting corners. Such actions are often highly risky and financially dangerous and are often met with derision at first. Rand rightly points out that these enterprising leaders are a major cause of economic progress. History is full of examples of “men who took first steps down new roads armed with nothing but their own vision.” In the novel, protagonist Hank Reardon defends his philosophy before a court: “I refuse to apologize for my ability – I refuse to apologize for my success – I refuse to apologize for my money.”
But there’s a dark side to Rand’s teachings. Her defense of greed and selfishness, her diatribes against religion and charitable sacrificing for others who are less fortunate, and her criticism of the Judeo- Christian virtues under the guise of rational Objectivism have tarnished her advocacy of unfettered capitalism. Still, Rand’s extreme canard is a brilliant invention that serves as an essential counterpoint in the battle of ideas.
The Atlas characters are exceptionally memorable. They are the unabashed “immovable movers” of the world who think of nothing but their own business and making money. “… I want to be prepared to claim the greatest virtue of them all – that I was a man who made money,” says copper titan Francisco d’Anconia. But these men are regarded as ruthless, greedy, single-minded individualists. They are men (except for Dagny Taggart, who could be confused for a man) who always talk shop and give scant attention to their family. In fact, no children appear in Rand’s magnum opus.
Her chief protagonist, John Galt, is an uncompromising superman. He is the proverbial Atlas who holds the world on his shoulders. He has invented a fantastic motor, yet is so frustrated with state authority that he withdraws his talents – hence the title, “Atlas Shrugged” – and spends the next dozen years working as a manual laborer for Taggart International.
Mr. Galt somehow succeeds in getting the world’s top capitalists to go on strike and, in many cases, strike back at an increasingly oppressive collectivist government. Rand’s plot violates a key tenet of business existence, which is to constantly work within the system to find ways to make money. Real-world entrepreneurs are compromisers and dealmakers, not true believers. They wouldn’t give a hoot for Galt.
Rand, of course, knows this. And that’s OK, because “Atlas Shrugged” is about philosophy, not business. In her world, there are two kinds of people: those who serve and satisfy themselves only and those who believe that they should strive to serve and satisfy others. She calls the latter “altruists.”
Rand is truly revolutionary because she makes the first serious attempt to protest against altruism. She rejects the heart over the mind and faith beyond reason. Indeed, she denies the existence of any god or higher being, or any other authority over one’s own mind. For her, the highest form of happiness is fulfilling one’s own dreams, not someone else’s – or the public’s.
Galt crystallizes the Randian motto: “I swear by my life and my love of it that I will never live for the sake of another man nor ask another man to live for mine.” No sacrifice, no altruism, no feelings, just pure egotistical selfishness, which Rand declares to be supreme logic and reason.
This philosophy transcends politics and economics into romance. The novel’s sex scenes are narcissistic, mechanical, and violent. Are the lessons of her book any way to run a marriage, a family, a business, a charity, or a community?
To be sure, Rand makes a key point about altruism. A philosophy of sacrificing for others can lead to a political system that mandates sacrificing for others. That, Rand shows with frightening clarity, leads to a dysfunctional society of deadbeats and bleeding-heart do-gooders (Rand calls them “looters”) who are corrupted by benefits and unearned income, and constantly tax the productive citizens to pay for their pet philanthropic missions. According to Rand, they are “anti-life.”
But is the only alternative to embrace the opposite, Rand’s philosophy of extreme self-centeredness? Must we accept her materialist metaphysics in which, as Whittaker Chambers wrote in 1957, “Randian Man, like Marxian Man, is made the center of a godless world”?
No, there is another choice. If society is to survive and prosper, citizens must find a balance between the two extremes of self-interest and public interest.
Adam Smith, the founder of modern economics, may have found that Aristotelian mean in his “system of natural liberty.” Mr. Smith and Rand agree on the universal benefits of a free, capitalistic society. But Smith rejects Rand’s vision of selfish independence. He asserts two driving forces behind man’s actions.
In “The Theory of Moral Sentiments,” he identifies the first as “sympathy” or “benevolence” toward others in society. In his later work, “The Wealth of Nations,” he focuses on the second – self-interest – which he defines as the right to pursue one’s own business. Both, he argues, are essential to achieve “universal opulence.”
Smith’s self-interest never reaches the Randian selfishness that ignores the interest of others. In Smith’s mind, an individual’s goals cannot be fully achieved in business unless he appeals to the needs of others. This insight was beautifully stated two centuries later by free-market champion Ludwig von Mises. In his book, “The Anti-Capitalist Mentality,” he writes: “Wealth can be acquired only by serving the consumers.”
Golden rule anchors true capitalism
Smith’s theme echoes his Christian heritage, particularly the Golden rule, “Therefore all things whatsoever ye would that men should do to you, do ye even so to them” (Matt. 7:12). Perhaps a true capitalist spirit can best be summed up in the commandment, “Love thy neighbour as thyself” (Lev. 19:18; Matt. 22:39). Smith and Mr. von Mises would undoubtedly agree with this creed, but the heroes of “Atlas Shrugged” – and their creator – would agree with only half.
Today’s most successful libertarian CEOs, such as John Mackey of Whole Foods Markets and Charles Koch of Koch Industries, have adopted the authentic spirit of capitalism that is more in keeping with Smith than Rand.
Theirs is a “stakeholder” philosophy that works within the system to fulfill the needs of customers, employees, shareholders, the community, and themselves. Their balanced business model of self- interest and public interest shows how the marketplace can grow globally in harmony with the interests of workers, capitalists, and the community – and can even displace bad government.
The golden rule is the correct solution in business and life. But would we have recognized this Aristotelian mean without sampling Rand’s anthem, or for that matter, the other extreme of Marxism-Leninism? As Benjamin Franklin said, “By the collision of different sentiments, sparks of truth are struck out, and political light is obtained.”
John Galt – it’s time to come home and go to work.
• Mark Skousen has taught economics at Columbia University and is the author of more than 25 books, including, “The Big Three in Economics.”
December 2001
PERSONAL SNAPSHOTS
Forecasts & Strategies
by Mark Skousen
“A noble man cannot be lost in a crowd.” — Maori Saying
I just returned from my 25th appearance at the New Orleans Investment Conference. I know hundreds of you have been to this classic “granddaddy “of seminars. There’s a reason why this investment conference has lasted so long. Jim Blanchard, the founder, wanted to bring together investors who not only wanted to preserve their capital, but also cared about their country. As he used to say, “What’s the point of being a millionaire if you are on the Titanic?” His conferences always mingle solid investment advice with a hefty dose of sound money and free-market ideas. Last month we heard from Milton Friedman and John Stossel, among other giants in the freedom movement.
Jim was first and foremost a teacher (he used to teach high school in New Orleans), and he wanted his subscribers and conference attendees to know that inflation and the ups-and-downs of the economy were caused by government, not capitalism. He urged his followers to read Ayn Rand’s novels (he named one of his children Anthem!) He was one of the original goldbugs, and he devoted his entire career to the cause of liberty and sound money. In the early 1970s, he formed the National Committee to Legalize Gold. Because of Jim’s untiring efforts, in 1974 it once again became legal for Americans to own gold. Jim saw gold ownership as a fundamental human right, a hedge against government mismanagement.
Jim was also an entrepreneur who turned a $50 investment into a $115-million precious-metals coin business. He started the Blanchard group of mutual funds. He used his profits for many good causes, and his love of liberty led him to support pro-freedom forces and anti-Communist causes in Africa and Europe.
Finally, Jim overcame personal tragedy. He was nearly killed in an automobile accident at age 17 and was unable to walk. But his handicap only spurred him on. He became a powerful figure for liberty, entrepreneurship and sound money.
Tragically, Jim died of a heart attack in 1999 at age 55.His family issued a formal notice with the sentence: “James U. Blanchard III was a man who accomplished much against great odds, and changed more people’s lives than he ever knew.”
How to Honor Jim’s Life: The Blanchard Scholarship Fund
Since Jim’s untimely death, I’ve often wondered how we — untold numbers of friends and followers who were inspired by Jim’s example — honor our friend ’s memory. When I became the president of the Foundation for Economic Education (FEE), I thought of a way to honor Jim ’s life: to create the James U. Blanchard III Memorial Scholarship Fund. The scholarship fund will help teach students all over the world the principles of sound money and free markets. To qualify to become a Blanchard Scholar, students will be required to write an essay on inflation, sound money, entrepreneurship, limited government and other topics Jim advocated. Once chosen, Blanchard scholars will qualify to attend a weeklong course at FEE headquarters in Irvington-on-Hudson, New York, on free-market economics. We hold several of these seminars each summer (go to www.fee.org for the current schedule). Typically, it costs about $1,000 to pay for one student at a weeklong FEE seminar, including room and board, tuition, books and materials, and airfare. But through the generous support of the Blanchard Scholarship Fund, students will be able to attend and learn about the freedom philosophy. And their lives will be changed forever.
Jim, by the way, was a strong supporter of FEE, and read regularly the monthly magazine, The Freeman (now called Ideas on Liberty). He was a friend of Leonard Read, the founder of FEE. And FEE, by the way, is one of the few free-market organizations that favors a gold standard. It’s a perfect match.
So far the response has been incredible. Friends everywhere have come forward and made contributions. Will you join us? You can make donations by check, credit card, securities or other assets. All donations to the Blanchard Fund are tax deductible through the Foundation for Economic Education, which is an IRS-approved 501(c) 3 educational organization.(Rick Rule, one of my recommended brokers, has offered at no charge to assist anyone who wishes to donate stock — him at Global Resource Investments at 800/477-7853). For more information on FEE, go to our website, www.fee.org. Send your donation to: The Foundation for Economic Education, 30 South Broadway, Irvington-on-Hudson, New York 10533. For donations by credit card, call 800/960-4FEE (4333). Be sure to designate “Blanchard Scholarship Fund,” which will be kept as a segregated account. Thank you!
P.S. Any donation above $100 will receive a complimentary one-year subscription to our flagship monthly publication, Ideas on Liberty. You’ll love it!
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Published in January, 2001, issue of Liberty Magazine:
THE TROUBLED ECONOMICS OF AYN RAND
by Mark Skousen
“No creator was prompted by a desire to serve his brothers…”
–Howard Roark, The Fountainhead (1994:710)
Ayn Rand, author of the celebrated Capitalism: The Unknown Idea, is honored almost universally as the fountainhead of market capitalism, an impassioned proponent of reason, individualism, and rational self-interest.
There is much to praise in Ayn Rand’s novels and writings, especially her uncompromising defense of freedom and her unrelenting denunciations of collectivism. No one has written more persuasively about property rights, the right of an individual to safeguard his wealth and property from the agents of coercion. Her novels The Fountainhead and Atlas Shrugged have probably done more than any other works of fiction to vindicate and honor the glories of “making money.”
Yet in reading her novels and writings, I was surprised to learn that her work often portrays a strange, distorted view of the money-making process. In a perverse way, her model of business may even give aid to the cause of the enemies of liberty–by giving capitalism a bad name.
Consumer Sovereign in The Fountainhead
Take, for example, Howard Roark’s philosophy toward his architectural work in The Fountainhead. In the beginning, Roark indicates that he chose architecture as a profession because he loves his work. He seeks to set the highest standards of excellence. He tries to be creative. All of these traits are to be admired.
But then Roark denies a basic tenet of sound economics–the principle of consumer sovereignty. When the dean of the architectural school tells Roark, “Your only purpose is to serve him [the client],” Roark objects. “I don’t intend to build in order to serve or help anyone. I don’t intend to build in order to have clients. I intend to have clients in order to build.” (1994:14) This bizarre, almost anti-social, attitude sounds like a perverse rending of Say’s Law, “supply creates its own demand,” or the statement made in the film Field of Dreams, “If you build it, they will come.” But supply only creates demand if the supply can be sold to customers; and people come to a new baseball field only if they want to play or watch. Supply must satisfy demand, or it becomes a wasted resource.
Now I have no problem with an architect who tries to set new standards of design, just as I would applaud entrepreneurs who seek to invent a new product or design a new process. Such actions are often highly risky and financially dangerous, and are often met with derision at first. Ayn Rand rightly points out that they are a major cause of economic progress. History is full of examples of “men who took first steps down new roads armed with nothing but their own vision.” (Rand 1994:710)
But the goal of all rational entrepreneurship must be to satisfy the needs of consumers, not to ignore them! Discovering and fulfilling the needs of customers is the essence of market capitalism. Imagine how far a TV manufacturer would get if he decides to build TVs that only tune into his five favorite channels, the consumer be damned. It wouldn’t be long before he would be on the road to bankruptcy.
Rand Denies the Essence of Business Enterprise
In short, Howard Roark’s conviction is irrational and contradicts a basic premise of Rand’s Objectivist philosophy. For Roark, A is not A. He wants A to be B–his B, not his customer’s A. Thus, Ayn Rand’s ideal man misconceives the very nature and logic of capitalism–to fulfill the needs of customers and thereby advance the general welfare. As Ludwig von Mises writes in his book, The Anti-Capitalist Mentality, “The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way. Wealth can be acquired only by serving the consumers.” (1972:2) Apparently Howard Roark doesn’t believe in consumer sovereignty. As he states in his final court defense, “An architect needs clients, but he dos not subordinate his work to their wishes.” (1994:714) Really?
Talk to any architects about The Fountainhead. Yes, they will tell you that there are a few self-centered, highly-egotistical, elitist Howard-Roark types in architecture who can get away with making monuments to their egos at their client’s expense. Frank Lloyd Wright, an architect Rand deeply admired, may be one of them. But the book’s thesis is entirely unrealistic in the everyday world of commercial building. Occasionally a client values more the notoriety of living in a home built by a signature designer than getting what he really wants, but not many. Almost all of Rand’s scenarios are extreme and idealistic, a strategy that works to sell novels, but does violence to all sense of reality. Normally architects work closely with the client and make numerous changes in order to fit the client’s needs.
Compromise is a necessary element to a successful completion of a project. And this consumer-oriented approach is true in all areas of capitalistic production. An architect or producer of any product who acts like Roark in The Fountainhead is likely to be out of work. Roark’s fate is even worse–he is guilty of his crime, blowing up a much-needed housing project rather than permit the slightest alteration in his designs. The jury may have exonerated him, but the market punishes his kind of behavior.
Ironically, Ayn Rand herself compromised in the making of the movie “The Fountainhead.” She insisted that only Frank Lloyd Wright would design the models for the film, but her demand was later rejected due to Wright’s outrageous fee. In the end, the models were done by a studio set designer. Rand called them “horrible” and “embarrassingly bad.” But the film was made and released. (Branden 1986:209) Oh, the agonies of dealing with other people!
The fact that Howard Roark represents the ideal man in Ayn Rand’s novel and the fact that she denigrates other characters in The Fountainhead who “compromise” with client’s demands suggest that Ayn Rand is philosophically in denial when it comes to comprehending the nature of business. She denies the very raison d’etre of capitalism–consumer sovereignty.
Assault on the Common Man
In this sense, Ayn Rand is not much different from other artists and intellectuals. Artists often bash the capitalist system. They hate the idea of subjecting their talents to crass commercialism and the crude tastes of the common man. Yet Ludwig von Mises chastised this snobbish attitude in The Anti-Capitalist Mentality: “The judgment about the merits of a work of art is entirely subjective. Some people praise what others disdain. There is no yardstick to measure the aesthetic worth of a poem or of a building.” (1972:75) Mises adds that only through economic progress — the creation of surplus wealth — has the level of taste and art been raised to meet the criteria of the more sophisticated artist. “When modern industry began to provide the masses with the paraphernalia of a better life, their main concern was to produce as cheaply as possible without any regard to aesthetic values. Later, when the progress of capitalism had raised the masses’ standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty.” (1972:80)
The Flaw in Atlas Shrugged
This brings us to the fatal flaw in Atlas Shrugged. Rand’s basic plot violates the whole rationale of business’s existence–constantly working within the system to find ways to make money. There will never be a Galt’s Gulch, where the world’s greatest entrepreneurs isolated themselves from the rest of the world. There will never be enough principled business leaders to fight the system. The business world does not typically attract ideologues and true believers; it attracts people primarily interested in money making by whatever means. They wouldn’t give John Galt the time of day. As Mises states, “There is little social intercourse between the successful businessmen and the nation’s eminent authors, artists and scientists…Most of the ‘socialites’ are not interested in books and ideas.” (Mises 1972:19) Ayn Rand admired Mises, but apparently she didn’t learn much from his writings. Pity.
Altruism Vs. Selfishness
Howard Roark’s diatribe against consumer sovereignty is undoubtedly a way to introduce Rand’s philosophy of selfishness. There are two extremes here: The philosophy of those who serve and satisfy themselves only, and the philosophy of those who believe that they should strive at all times to serve and sacrifice for others. Rand labels the latter “altruism.” In The Virtue of Selfishness, she opines, “Altruism declares that any action taken for the benefit of others is good, and any action taken for one’s own benefit is evil.” (Rand 1999:80) Obviously, Rand protests against altruism and espouses the opposite extreme. As Francisco d’Anconias tells Dagny Taggart in Atlas Shrugged: “Don’t consider our interests or our desires. You have no duty to anyone but yourself.” (Rand 1992:802) No sacrifice, no altruism, just pure egotistical selfishness.
The Adam Smith Solution
The founder of modern economics, Adam Smith, takes a different approach by trying to incorporate both concepts in his “system of natural liberty.” Smith and Rand are in agreement about the universal benefits of a free capitalistic society. But Smith rejects Rand’s vision of selfish independence. He teaches that there are two driving forces behind man’s actions–in his Theory of Moral Sentiments, he identifies the first as “sympathy” or “benevolence” toward others in society, while in his Wealth of Nations, he focuses on the second, “self interest,” the right to pursue one’s own business. Smith believes that as the market economy develops and individuals move away from their community, “self interest” becomes a more dominant force than “sympathy.” But both are essential to achieve “universal opulence.” (Smith 1965:11)
Adam Smith is famous for making a statement that sounds Randian in tone: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” (Smith 1965:14) But this statement is often taken out of context. Smith’s self-interest never reaches the Randian selfishness that ignores the interest of others. On the contrary, in Smith’s mind, an individual’s goals cannot be fully achieved in business unless he appeals to the self-interest of others. Smith says so in the very next sentence: “We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” (Ibid.) Moreover, he writes earlier on the same page, “He will be more likely to prevail if he can interest their self-love in his favour….Give me that which I want, and you shall have this which you want, is the mean of every such offer.” (Ibid.) Smith’s theme echoes his Christian heritage, particularly the golden rule, “do unto others as you would have them do unto you.” (See Matthew 7:12)
Perhaps a true capitalist spirit can best be summed up in the Christian commandment, “Love thy neighbor as thyself.” (Matthew 22:39) Adam Smith and Ludwig von Mises would undoubtedly agree with this creed, but apparently Howard Roark and John Galt — and their creator — would agree with only half. And that’s a great tragedy for the greatest novelist of the 20th century.
References
* Branden, Barbara. 1986. The Passion of Ayn Rand. Doubleday.
* Mises, Ludwig von. 1972 [1956]. The Anti-Capitalist Mentality. Libertarian Press.
* Rand, Ayn. 1992 [1957]. Atlas Shrugged. Dutton Books.
* Rand, Ayn. 1994 [1943]. The Fountainhead. Penguin Books.
* Rand, Ayn. 1999. The Ayn Rand Reader, ed. by Gary Hull and Leonard Peikoff. Penguin Books.
* Smith, Adam. 1965 [1776]. The Wealth of Nations. Modern Library.
Economics on Trial
Ideas on Liberty
November 2000
by Mark Skousen
“In the excitement over the unfolding of his scientific and technical powers, modern man has built a system of production that ravishes nature and a type of society that mutilates man.” -E. F. SCHUMACHER (1)
In 1956, Ludwig von Mises countered myriad arguments against free enterprise in his insightful book, The AntiCapitalistic Mentality. “The great ideological conflict of our age,” he wrote, “is, which of the two systems, capitalism or socialism, warrants a higher productivity of human efforts to improve people’s standard of living.” (2)
Unfortunately, Mises’s counterattack has done little to stem the tide of anti-market sentiments. One that continues to be popular is E. F.Schumacher’s 1973 book, Small Is Beautiful which has recently been reprinted in an oversized text with commentaries by Paul Hawken and other admirers. Schumacher has a flourishing following, including Schumacher College (in Devon, England) and the Schumacher Society (in Great Barrington, Massachusetts). Hawken hails Schumacher as a visionary and author of “the most important book of [his] life.” (3) Schumacher’s message appeals to environmentalists, self-reliant communitarians, and advocates of “sustainable” growth (but not feminists the old fashioned Schumacher cited favorably the Buddhist view that “large-scale employment of women in offices or factories would be a sign of economic failure” (4) ).
From Austrian to Marxist to Buddhist
Oddly enough, Fritz Schumacher’s background is tied to the Austrians. Schumacher was born in Germany in 1911 and took a class from Joseph Schumpeter in the late 1920s in Bonn. It was Schumpeter’s course that convinced Schumacher to become an economist. While visiting England on a Rhodes scholarship in the early 1930s, Schumacher encountered F. A. Hayek at the London School of Economics and even wrote an article on “Inflation and the Structure of Production.” (5) But his flirtation with Austrian economics ended when he discovered Keynes and Marx. He renounced his Christian heritage and became a “revolutionary socialist.” The Nazi threat forced him to live in London, where he was “interned” as an “enemy alien” during World War II. After the war, he worked with Keynes and Sir William Beveridge and supported the nationalization of heavy industry in both Britain and Germany. But his real change of heart came during a visit to Burma in 1955, when he was converted to Buddhism. “The Burmese lived simply. They had few wants and they were happy,” he commented. “It was wants that made a man poor and this made the role of the West very dangerous.” (6)
Schumacher greatly admired Mahatma Gandhi and his saying, “Earth provides enough to satisfy every man’s need, but not for every man’s greed.” Eventually he wrote a series of essays that became his classic, Small Is Beautiful, published in 1973. In the 1970s, he became passionate about trees and began a campaign against deforestation. After a successful book tour in the United States, including a visit with President Jimmy Carter, he died in 1977 of an apparent heart attack.
The Lure of Buddhist Economics
Schumacher’s message is Malthusian in substance. Small Is Beautiful denounces big cities and big business, which “dehumanizes” the economy, strips the world of “nonrenewable” resources, and makes people too materialistic and overspecialized. According to Schumacher, individuals are better off working in smaller units and with less technology.
His most important chapter is “Buddhist Economics,” with its emphasis on “right livelihood” and “the maximum of wellbeing with the minimum of consumption.” Foreign trade does not fit into a Buddhist economy: “to satisfy human wants from faraway places rather than from sources nearby signifies failure rather than success.” (7) In sum, traditional Buddhism rejects labor-saving machinery, assembly-line production, large-scale multinational corporations, foreign trade, and the consumer society.
There are two problems with Schumacher’s glorification of Buddhist economics. First, it denies an individual’s freedom to choose a capitalistic mode of production; it enslaves everyone in a life of “nonmaterialistic” values. And second, it clearly results in a primitive economy. Mises responded to both these issues: “What separates East and West is . . . the fact that the peoples of the East never conceived the idea of liberty . . . . The age of capitalism has abolished all vestiges of slavery and serfdom.” And: “It may be true that there are among Buddhist mendicants, living on alms in dirt and penury, some who feel perfectly happy and do not envy any nabob. However, it is a fact that for the immense majority of people such a life would be unbearable.” (8)
I have no objection to preaching the Buddhist value that sees “the essence of civilization not in a multiplication of wants but in the purification of human character.” Nor do I disapprove of localized markets (see my favorable review last November of the Grameen Bank, which makes small-scale loans to the poor). But none of this idealism should be forced on any society. Ultimately we must let people choose their own patterns of work and enjoyment. Clearly, whenever Third World countries have been given their economic freedom, the vast majority have chosen capitalistic means of production and consumption. As a result, poor people have been given hope for the first time in their lives-a chance for their families to break away from the drudgery of hard labor, to become educated, see the world, and enjoy “right living.”
Freedom is beautiful!
1. E. F. Schumacher, Small is Beautiful Economics as if People Mattered: 25 Years Later with Commentary (Point Roberts, Wash.: Hanley & Marks, 1999 (1973)), p. 248.
2. Ludwig von Mises, The Anti-Capiaadatie Mentality (South Holland, Ill.; Libertartan Press, 1972 [1956]),p. 62.
3. Paul Hawken, Introduction to Schumacher, p. xiii.
4. Ibid., p. 40.
5. Sec The Economics of Inflation, ed. by H, P. Willis and J. A Chapman (New York: Columbia University Press, 1935).
6. Quoted in Barbara Wood, E. F. Schumacher: His Life and Thought (New York: Harper & Row, 1984), p. 245.
7. Schumacher, p. 42.
8. Mises, p. 74.
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Since 1980, Skousen has been editor in chief of Forecasts & Strategies, a popular award-winning investment newsletter. He also is editor of three trading services, Skousen Private Equity Trader; Skousen High-Income Alert and Fast Money Alert.
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