“From classic sci-fi works to complex studies on artificial intelligence, Musk credits books with helping him achieve his success. In fact, when asked how he learned to build rockets, he famously replied, ‘I read books.’” — Blinkist magazine
I’ve been a big fan of Elon Musk and made a lot of money in his Tesla stock over the years. I had the chance to ask him a question at the latest Baron Investment Conference in New York City, which has gone viral. You can watch it here on Youtube.
His answer is quite remarkable.
Musk is a regular book reader. He recently made a list of books he’s reading, including works by Walter Isaacson, Peter Thiel and Sam Harris.
Interestingly, he also recommended a classic work in political economy: Adam Smith’s Wealth of Nations, published the same year as America declared its independence from Britain (1776). It was a declaration of economic independence.
As Blinkist magazine noted, “The Wealth of Nations is a profoundly influential work in the study of economics and examines precisely how nations become wealthy. Adam Smith advocates that by allowing individuals to freely pursue their self-interest in a free market, without government regulation, nations will prosper.”
Prof. Jerry Muller of Catholic University states, “The Wealth of Nations… is the most important book ever written about capitalism and its moral ramifications… it was intended to make men better, not just better off.”
Adam Smith and the International Banking Crisis of 1772
Economists say, “It’s all in Adam Smith.” Indeed, he even wrote about a banking crisis that is relevant to today.
In 1769, a new bank was created in Scotland, known ironically as the “Ayr” (Air) Bank, that gave credit too “generously” to “support the spirited undertakings” of venture capitalists. It invested in long-term bonds backed by illiquid land holdings, a fatal mistake.
Like banks today, the bank executives engaged in fractional reserve banking, which is inherently unstable. Smith concluded that they were “imprudent” and ignorant of the principles of banking.
Three years later, the Ayr Bank collapsed when investors tried to withdraw their funds. It quickly turned into an international crisis. London, Amsterdam, Stockholm, St. Petersburg and even the American colonies were affected.
The Ayr Bank is all too reminiscent of the Silicon Valley Bank. Apparently only one member of the SVB board had any experience in banking. The rest were chosen according to diversity, inclusion and equity (DIE) criteria. SVB touted that its board included “1 black,” “1 LGBTQ+” and “2 veterans.” It also noted that its board is 45 percent women. All were donors to Nancy Pelosi, Hillary Clinton, Joe Biden, Chuck Schumer and other high-profile Democrats.
More importantly, it made “imprudent” decisions, investing in high-risk, small tech start-ups while keeping most of its assets in long-term government securities. That was a recipe for disaster when the Fed aggressively raised rates in 2022. Government bonds fell 30%.
When wealthy customers such as Peter Thiel started withdrawing funds, the SVB officials were forced to sell their Treasury securities, causing a liquidity crisis. Finally, the FDIC was forced to take over the bank.
The banking crisis quickly spread to other banks. A study indicates that over 200 U.S. banks are facing similar problems. To stay afloat, they have been forced to borrow heavily from the Fed’s Discount Window — as the chart below shows, emergency borrowing quickly exceeded the financial crisis of 2008.
Once again, the Federal government has “solved” the crisis by injecting liquidity and guaranteeing all deposits, even those with accounts exceeding $250,000.
That can only mean more inflation down the road. Not surprisingly, gold, silver and bitcoin have risen in response.
‘The Fed Disaster Plan’
In the January issue of my newsletter, Forecasts & Strategies, I called it “The Fed Disaster Plan.” In that issue, I wrote, “Now we are facing another alarming trend, what I call ‘The Fed Disaster Plan,’ raising interest rates in a fast and furious fashion, causing a potential recession, a prolonged bear market on Wall Street and perhaps even a monetary crisis in 2023.”
The Fed’s decision yesterday to continue raising interest rates was made to suggest “all is well” and there’s nothing to worry about. Yet, as they say on Wall Street, “There’s always more than one cockroach.” Expect more trouble ahead.
Adam Smith Growth Model: How to Avoid Another Banking Crisis
What would Adam Smith say about today’s banking crisis? The Wealth of Nations is a 900-page tome that is heavy reading, even for professional economists.
Let me simplify it for you. The Adam Smith growth model consists of five essential policies:
- Free trade
- Limited government
- Balanced budgets
- Sound money
- Rule of law
As Adam Smith wrote, “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.”
Sound money requires prudent rules in commercial banking. Smith warned of the dangers of fractional reserve banking, and favored penalized savers from withdrawing deposits immediately.
Adam Smith Made Easy
For those reasons, I made Adam Smith and his “system of natural liberty” the hero of my book, “The Making of Modern Economics,” which is now in its fourth edition and published by Routledge. Every economist is judged by whether they sought to improve upon the House that Adam Smith Built (French laissez-faire, Austrian, Chicago and Supply-Side schools) or wanted to tear it down and build their own new model (Marxists, Keynesians, socialists). I have chapters on each school of thought.
Surprise, surprise! It turned out that my publication date for the first edition of “The Making of Modern Economics” was March 9, 2001 — the same publication date as The Wealth of Nations (March 9, 1776). An inspired coincidence!
John Mackey, former CEO of Whole Foods Markets, says, “Skousen’s book is fun to read on every page. I have read it three times. I love this book and have recommended it to dozens of my friends.”
And Richard Rahn states, “Mark Skousen has produced the single best book on virtually all of those who have had a significant impact in economics. It’s a delight to read cover to cover.”
To find out what’s in each chapter, go here.
Routledge and Amazon charge over $50 for my book, “The Making of Modern Economics.” But I offer a major discount — only $35 — at my website, www.skousenbooks.com. I autograph each copy and will mail it for no additional charge if mailed inside the United States.
Celebrating Adam Smith’s 300th Birthday at FreedomFest
I’ll be doing a special session on “Adam Smith Turns 300: How Much of His Hand is Still Visible?”
Global Financial Summit Addresses the New Monetary Crisis
We have a great lineup of experts who will help you navigate the latest monetary crisis, including Jeremy Siegel, Burt Malkiel, Louis Navellier, Alexander Green, Addison Wiggins, Steve Forbes, George Gilder, Steve Moore, Art Laffer, John Fund and David Bahnsen. Plus, our own editors Jim Woods, Roger Michalski, Bryan Perry and Paul Dykewicz will also be there.
We urge you to join us at the Global Financial Summit at FreedomFest, July 12-15, in Memphis.
Special Discount Ends on March 31!
We’re expecting over 2,000 attendees at our big show this July. Our early bird discount ends in a couple of weeks. We’ve arranged another $50 off the early-bird rate for my subscribers. Use code EAGLE50 and register at www.freedomfest.com, or call Hayley at 1-855-850-3733, ext 201.
You Blew It!
USA Declines Again in Economic Freedom Index
The Economic Freedom Index confirms the Adam Smith model of prosperity. The freer a country, the most prosperous are its peoples (see the chart below.)
The Heritage Foundation has released its latest Economic Freedom Index.
Unfortunately, freedom is losing. The worldwide index just hit its lowest score in over 20 years to 59.3, largely due to out-of-control government deficit spending.
The United States is also losing ground, dropping from an index of 80 in 2008 to 70.6 today, just barely in the “Mostly Free” category. America was #5 in 2008, and #25 today. The culprit?
We’re moving further and further away from the Adam Smith model. The United States is suffering from excessive government spending and regulation.
At the top of the list in the Free category are only four countries: Singapore, Switzerland, Ireland and Taiwan. There were eight last year.
Hong Kong used to be #1 for years, but now it’s part of repressed China, #154.
The bottom three are: Venezuela, Cuba and North Korea.
Latin America is especially discouraging: Even Brazil, Bolovia and Ecuador are now “unfree” according to the Heritage Foundation. Venezuela and Cuba are “repressed.”
Good investing, AEIOU,
Mark Skousen
