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WHAT EVERY INVESTOR SHOULD KNOW ABOUT AUSTRIAN AND KEYNESIAN ECONOMICS

WHAT EVERY INVESTOR SHOULD KNOW ABOUT AUSTRIAN AND KEYNESIAN ECONOMICS. By Mark Skousen Editor, Forecasts & Strategies www.mskousen.com. Austrian School of Economics.

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WHAT EVERY INVESTOR SHOULD KNOW ABOUT AUSTRIAN AND KEYNESIAN ECONOMICS

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  1. WHAT EVERY INVESTOR SHOULD KNOW ABOUTAUSTRIAN AND KEYNESIAN ECONOMICS By Mark Skousen Editor, Forecasts & Strategies www.mskousen.com

  2. Austrian School of Economics A free-market school founded by Austrian economists in the 19th and 20th Century that emphasizes the theory of subjective value; the dynamics of entrepreneurship, market innovation and creative destruction; the benefits of saving, capital investment, and sound infrastructure; the virtues of limited government (laissez faire) and sound money (the gold standard and free banking); the instability of government interventionism (Austrian theory of the business cycle); and the futility of socialist central planning and controls.

  3. Subjective valueMarginal principle“Theory of the Good” – the structure of productionThe role of time • Professor of Economics, University of Vienna • Principles of Economics (1871) • One of the founders of the Marginalist Revolution in the 1870s • Advanced Adam Smith’s “system of natural liberty” found in The Wealth of Nations (1776) CARL MENGER (1849-1921) Founder of the Austrian school

  4. Austria’s finance minister (3 times) • Professor of economics, University of Vienna • First major critic of Karl Marx and Marxism • Positive Theory of Capital (1889) • Importance of “roundaboutness” and saving EUGEN BOHM-BAWERK (1851-1914)

  5. Professor of Economics, University of Vienna and New York University • Theory of Money and Credit (1911) – Austrian theory of the trade cycle • Socialism (1921) – Socialist calculation debate • Human Action: A Treatise on Economics (1949) Methodological dualism. • Planning for Freedom (1951) – “Middle of the Road Policy Leads to Socialism” LUDWIG VON MISES (1881-1973)

  6. Professor of Economics, London School of Economics, University of Chicago, University of Freiberg • Winner, Nobel Prize in Economics (1974) • Prices and Production (1931) – Austrian theory of the trade cycle • The Road to Serfdom (1944) – “Why the worst get on top” • Constitution of Liberty (1960) FRIEDRICH A. HAYEK (1899-1992)

  7. Professor of Economics, University of Bond, Harvard University • Capitalism, Socialism and Democracy (1943) -- competition, entrepreneurship, “creative destruction” JOSEPH SCHUMPETER (1883-1950)

  8. Professor of Economics, Brooklyn Polytechnic University, UNLV • Man, Economy & State (1962) • America’s Great Depression (1963). Austrian theory of the business cycle, and critique of Keynesian model • What Has Government Done to Our Money? (1963). The importance of the gold standard and sound money. MURRAY N. ROTHBARD (1926-1995)

  9. Where is Austrian economics taught? • George Mason University • Hillsdale College • Grove City College • Foundation for Economic Education (FEE) • Ludwig von Mises Institute

  10. A Vienna Waltz Down Wall StreetAustrian Economics for Investors Principles: • Subjectivist analysis • Marginal pricing • Saving and investing • Methological dualism, creative destruction, entrepreneurship • Austrian theory of the business cycle: natural rate of interest, structure of production, central bank interventionism in money, interest and credit • Sound money (the gold standard and free banking) • Socialist central planning: nationalization vs. privatization

  11. Forecasts & Strategies for 2010: Dangers and Opportunities “We have outlived the short-run and are suffering from the long-run consequences of [Keynesian] policies.” -- Ludwig von Mises

  12. Adam Smith vs. Keynes: Who's Winning?  Classical economics vs. Keynesian economics

  13. Classical economics: 1.  Saving and entrepreneurial capitalism are the key to economic growth 2.  Limited government ("system of natural liberty," or laissez faire) 3.  Balanced budgets 4.  Sound money (gold standard) 5.  Free trade  "Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.“   -- Adam Smith Adam Smith (1723-1790) Scottish Professor of Moral Philosophy Author, “The Wealth of Nations” (1776)

  14. Keynesian revolution:  1.  Pro-consumption and anti-saving, especially during downturn 2.  Big government (the welfare state) as stabilizer 3.  Deficit spending during periods of unemployment 4.  Easy money (abandon gold in favor of paper money and central banking)  5.  Protectionism during downturn "Individualistic capitalism...is not a success, it is not intelligent, it is not beautiful, it is not just, it is not virtuous--and it doesn't deliver the goods." -- John Maynard Keynes John Maynard Keynes (1881-1946) Professor of economics at Cambridge University and financial wizard Author, “The General Theory” (1936)

  15. Economic Freedom Index:  Countries with More Economic Freedom Have Higher Standards of Living Source: Fraser Institute and Heritage Foundation/Wall Street Journal

  16. Federal Employment, 2002-2010

  17. Out-of-Control Deficit Spending

  18. Change You Can't Believe

  19. Short-Term Interest Rates: The Price of Money

  20. Money Supply Growth (M2) 

  21. Tale of Two Dollars: Fiat Dollar vs. Silver Dollar, 1960-2010 "A Tale of Two Dollars," by Mark Skousen. Available from Investment Rarities, 1-800-328-1860, or free with a subscription/renewal to Forecasts & Strategies, 1-800-211-7661. 

  22. Economic Consequences ofMr. Keynes: • Bigger government/chronic deficits • More dependence on government for welfare and employment • More regulation of business • Growing threat of inflation and taxes:  the twin relics of Keynesianism • Economic stagflation and stalled bull market on Wall Street

  23. “Little else is required to carry a state to the highest degree of opulence but peace, easy taxes, and a tolerable administration of justice.” • “The uniform, constant, and uninterrupted effort of every man to better his condition. . . is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.” -- Adam Smith, “The Wealth of Nations” (1776)

  24. Who said this? "I am pro-growth. I am a fierce advocate of a thriving, dynamic free market."  • Milton Friedman • Ronald Reagan • Glenn Beck

  25. Answer: “I am pro-growth. I am a fierce advocate of a thriving, dynamic free market."  -- President Barack Obama February 22, 2010 cover Business Week "You would be hard-pressed to identify a piece of legislation that we have proposed out there that, net, is not good for business."

  26. Contact information Mark Skousen, Editor Forecasts & Strategies/Trading Services www.MarkSkousen.com 1-800-211-7661 Books: www.mskousen.com Annual conference FreedomFest, July 14-16, 2011 Las Vegas www.FreedomFest.com

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