Econ 101: M. Skousen

What Harcourt Brace is hoping for is a blockbuster textbook that will shape the thinking of the 1.5 million college students who take Economics 101 each year. Paul Samuelson, the Nobel Prizewinning MIT economist, set the standard when his new Keynesian-style textbook took colleges by storm following World War II. Since its first edition in 1948,Samuelson's Economics has sold over 4 million copies and been trans lated into an estimated 41 languages. But Samuelson is 80 years old and his textbook, now in its 15th edition, is no longer consid ered avant garde. Can the youthful Professor Mankiw fillhis shoes? Frankly, I doubt it. Anyone who named his dog Keynes is not likely to write a breakthrough textbook reflecting the new realities of a market-driven global economy. The next breakthrough textbook must be Dr. Skousen is an economist at Rollins College and editor of Forecasts & Strategies, an invest ment newsletter.

post-Keynesian, if not anti-Keynesian, In tone. A Short Review of Samuelson's Textbook But do we really want another Samuelson textbook? I think not. His textbook may have been a bestseller, but it fails miserably on a number of counts to teach sound economics. As part of an independent study at Rollins College, one of my students and I systematically reviewed all 15 editions of Economics and found numerous errors of commission and omission. Among the sins of commission, Samuel son stressed time and again that the key to economic stability and growth was to en courage big government and a high propen sity to consume. Saving, he said, was only beneficial at times of full employment. But full employment was historically excep tional, which meant that most of time saving was "perverse" because it caused money to "leak" out of the system. According to Samuelson's "paradox of thrift," higher savings means lower economic growth, a conclusion that flies in the face of all his torical evidence. 1 In introducing the Keynesian' 'balanced budget multiplier," Samuelson argued that federal spending was more stimulative than a tax cut of equal size (because part of a tax cut would be saved).

He accepted at face value Soviet growth statistics, declaring in his 12th edition (1985) 668 that the Soviet economy since 1928 "has outpaced the long-term growth of the major market economies," including the U.S., the U.K., GermanY,and Japan. In his 13th edition, written a year before the collapse of the Berlin Wall, he boldly declared, "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, the socialist command economy can function and even thrive." Not surprisingly, the word "thrive" was dropped from the next edition. In my reading of his textbooks, I found that Samuelson failed repeatedly to antici pate the major economic problems and is sues of the future: he failed to foresee the inflationary recessions of the 1970s, the banking crisis of the 1980s, and the collapse of socialist central planning in the 1990s. In addition, he has been an unwavering apol ogist for the Welfare State, the Federal Reserve and the current Social Security system, a grossly expensive and inefficient way to finance old-age retirement.

Sins of Omission One of the great tragedies of Samuelson's textbook is his failure to include adequate references to the free-market schools of economics. In his Family Tree of Econom ics, no mention is made of the Chicago school of Friedman, Stigler, Knight, or Simons until 1985. In earlier editions, Sam uelson discusses the Quantity Theory of Money but omits any references to Irving Fisher, the father of the Quantity Theory, or to Milton Friedman. One of his first citations of Friedman is a misquote ("We are all Keynesians now"). The Austrian school of Mises, Hayek, and Rothbard is never mentioned at all in the Family Tree of Economics. Schumpeter, his own teacher at Harvard, is given only a cursory reference. Samuelson devotes one paragraph to the postwar German economic recovery. He says virtually nothing about the Japanese economic miracle, or the incredible growth of Hong Kong, Singapore, Korea, and Tai wan (the four tigers). No mention is made of the Chile Model, which more and more Latin American nations are emulating.

669 There's no discussion of the exciting new worldwide trend of privatization (or Chile's successful privatization of its Social Secu rity system). Meanwhile, Samuelson has always devoted numerous pages to the failed socialist economics of the Soviet Union and China. I could go on and on, but you get the point. The economics profession desperately needs a new textbook in economics, but not one that simply imitates and emulates Samuelson. Desperately Seeking a New Textbook Slowly but surely, free market econo mists are making headway in the textbook field. College textbooks with a free-market bent have been written by Gwartney and Stroup, Dolan and Lindsey, and Roger Leroy Miller, among others. Unfortunately, they all sufferfrom unsound macro sections. For example, these authors don't believe in aggregate supply and demand (AS-AD), but they are forced to include them. Paul Heyne's Economic Way ofThinking (Macmillan, 1994) omits AS-AD diagrams in its 7th edition, but it is considered primarily a micro text.

In short, there is no real sensible college textbook on the market today offering a sound theory of macroeconomics. I am attempting to fill this gap with my forthcom ing textbook, Economic Logic. This is a revolutionary new approach to teaching economics, integrating the concepts of busi ness, finance, and economics in both micro and macro. So far I've written six chapters, and hope to finish the first draft this year. Several major publishers are interested, but they need evidence that other professors will adopt it. I will send a copy of the manu script to any college professor who would be willing to make comments to improve the contents. Send your inquiry to me at P.O. Box 2488, Winter Park, Florida 32790. D 1. For a critique of Samuelson's infamous "paradox of thrift," see my work, The Structure of Production (New York University Press, 1990), pp. 244-59, and Economics on Trial (Irwin, 1991), pp. 47-62. Also, James C. W. Ahiakpor, "A Paradox of Thrift or Keynes's Misrepresentation of Saving in the Classical Theory of Growth?", Southern Economic Jour nal, July, 1995.

Many Americans are tired of magazines that champion foreign governments sworn to bury America - while smearing those who support us. Sick of writers who think one human's right to "choose" outweighs another's right to live. And fed up with the editors who think those living off the govern ment deserve a higher standard of living than those who support it. If you want a magazine that reflects your attitudes while it respects your intelligence, you need The New American. Call 24 hours, 7 days a week 1-800-727 -TRUE I 0 1 year (26 issues): $39 - Save400/0* 0 PaymentEnclosed 0 BillMe I I 0 2 years (52 issues): $68 - Save480/0* Hawaii & Canada, add $9 per year I Foreign, add $27 per year •Airmail rates on request I 0 3 years (78 issues): $89 - Save 540/0* *offthe $2.50 cover price I I N Send to: II ~e I The New American II Address P.O. Box 8040 : City/State/Zip Appleton,WI 54913 : I~ O~ I I Credit Card # Expires 0 MasterCard I I /./ 0 Discover ~ I Authorized Card Signature 0 AmericanExpress ~ •L _ BOOKS Free to Try Introduction by Hans F. Sennholz The Foundation for Economic Education, Inc.