The Evergreen Portfolio: Timeless Strategies to Survive and Prosper from Investing Pros

Chapter 3. Know the Signs of the Times

Mark Skousen

"There is much ruin in a nation."

—Adam Smith

"We have outlived the short-run and are suffering from the long-run consequences of [Keynesian] policies."

—Ludwig von Mises

"There are disturbing trends: huge imbalances, disequilibria, risks—call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. The United States is skating on increasingly thin ice."

—Paul Volcker, former Fed chairman, 2005

As a free-market financial economist, my investment approach is largely influenced by government policies, both good and bad.

If we lived in a society with sound money, low taxes, free trade, balanced budgets, limited government, the rule of law, and peace abroad, we would witness a never-ending higher standard of living, and investors could pursue a buy-and-hold strategy without fear of losing their hard-earned savings. Gold and silver would be low and stable. The dollar would be strong.

Adam Smith's Ideal Model

Adam Smith called this laissez-faire model a "system of natural liberty." By adopting this policy, a country could achieve economic nirvana. 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."

Unfortunately, we have moved gradually away from Adam Smith's system of natural liberty. Today, we face an activist government ...