An Incomplete Education - 3,684 Things You Should Have Learned but Probably Didn't

AN I N C O M P L E T E

ÉCONOMIES OF SCALE: A t the
Henry Ford. The principle is
duction runs to make a single
In addition, the more you rep
Following this principle, Ame
goods, indeed.

THE PHILLIPS CURVE: H a d ev
England between 1861 and 1
down, unemployment goes up
able guide: If you had too mu
presto!—down went unemploy
put a few people out of work
tool. Then along came stagfla
high inflation, and the Phillips

ADA

The first
son, not
His hist
of the W
competit
ulate the
rived fro
factory, w
omists c

DA

With Malthus (see next page),
omists. Early on, Ricardo mad
have been going to school. He
ucation, naturally, went undet
of Political Economy and Taxati

EDUCATION

heart of manufacturing strategy since the days of
a simple one: With big factories using long pro­
commodity, you can reduce manufacturing costs.
peat the same operation, the cheaper it becomes.
erican factories have turned out some very cheap

erything going for it. Based on data compiled in
1957, this theory held that when inflation goes
p, and vice versa. For politicians, it was an invalu­
uch unemployment, you let inflation go up and—
yment. If inflation was raging out of control, you
and down went inflation. All in all, a handy little
ation, which combined high unemployment with
s curve turned into the Phillips screw.

EcoPeople

M SMITH (1723-1790)

t economist, this Adam Smith was an actual per­
some contemporary telejournalist's pseudonym.

oric book, An Inquiry into the Nature and Causes
Wealth of Nations (1776), propounded the idea that

tion acted as the "invisible hand," serving to reg­
e marketplace. His theories, some of them de­
om observations he made while visiting a pin
would prompt skeptics to ask, "How many econ­
can dance on the head of a pin?"

VID RICARDO (1772-1823)

a leader of the second generation of classical econ­
de a fortune in the stock market when he ought to
next gravitated to economics, where his lack of ed­
tected. In his most famous work, The Principles
ion (1817), he advanced two major theories: the

modestly named Ricardo Effect, which holds tha
intensive production over labor-intensive productio
ative advantage (see "EcoThink," page 130).

THOMAS MALTHUS (1

A clergyman who punctured the utopianism of his
by cheerfully predicting that population growth wo
always exceed food production, leading, inevitably
famine, pestilence, and war. This "natural inequality
the two powers" formed, as he put it, "the great d
culty that to me appears insurmountable in the way
perfectability of society." Malthus' good news: P
odic catastrophes, human perversity, and gen
wretchedness, coupled with the possibility of s
imposed restraint in the sexual arena, would preven
from breeding ourselves into extinction.

JOHN STUART MILL (

A child prodigy, Mill learned Greek when he w
seven, Latin and calculus by twelve; at thirteen he
political economy (what they called economics ba
and Ricardo. For the next twenty years he'd write;
the publication of the Communist Manifesto and a p
596) he published his Principles of Political Econom
tions to Social Philosophy. A couple of critics compl
original—calling it "run-of-the-Mill"—and that M
(he argued for, among other things, trade unions
antithetical to the Spirit of England. Many more, t
ing the distinction between the bind of producti
tion—how, while we can produce wealth only insof
coal doesn't run out, we can distribute it as we lik
king or all toward the almshouse, taxing or hoardi
ing it. Sociopolitical options took a seat next t
absolute—laws, and ethics eclipsed inevitability. M
of saint (and Principles serve as the standard econ
half century.

ECONOMICS

at rising wages favor capital-
on, and the theory of compar­

1766-1834)

day
ould
y, to
y of
iffi­
y to
Peri­
neral
self-
nt us

1806-1873)

was three, mastered Plato at
digested all that there was of
ck then), of Smith, Malthus,
in 1848 (noteworthy also for
passel of revolutions, see page

my, with Some of Their Applica­
lained that the book was un­

Mill's mildly Socialist leanings
s and inheritance taxes) were
though, appreciated his mak­
ion and the flux of distribu­
far as the soil is fertile and the
ke, funneling it all toward the
ing or, for that matter, burn­
to economics' abstract—and
Mill would be revered as a kind
nomics textbook) for another

AN I N C O M P L E T E

JOSEPH SCH

An Austrian who came to Am
work was published a decade l
who argued that government
fact, a monopoly was likely to
that would replace it. This d
tion," is now much brandished
servers, who use it to explain t
business. "Don't think of it as
tionale goes. "Think of it as 'c

JOHN MAYNA

The
time
Lor
Pre-
peti
ist s
be
cam
lish
men
Gen
had
tota
star
was
ods
equ
star
prov
and has been considered offic
himself a Keynesian back in 1
economists set Keynes up in
known in economics circles as

E EDUCATION

HUMPETER (1883-1950)

merica in the early Thirties and whose best-known
later, Schumpeter is remembered today as the man

should not try to break up monopolies, that, in
o call into existence the very forces of competition
dynamic, labeled the "process of creative destruc­
d by more conservative political and economic ob­
to old industries why it's O K for them to go out of
s bankruptcy and massive unemployment," the ra­
creative destruction.' "

ARD KEYNES (1883-1946)

e most influential economic thinker of modern
es, known to his close friends and intimates as
rd Keynes (remember to pronounce that "kanes").
-Keynesian economists believed that a truly com­
itive market would run itself and that, in a capital­
system, conditions such as unemployment would
temporary inconveniences at worst. Then along
me the Great Depression. In 1936 Keynes pub­
hed his major work, The General Theory of Employ­
nt, Interest, and Money (now known simply as The
neral Theory) in which he argued that economics

to deal not only with the marketplace but with
al spending within an economy (macroeconomics
rts here). He argued that government intervention
s necessary to stimulate the economy during peri­

of recession, bringing it into proper, if artificial,
ilibrium (the New Deal and deficit spending both
rt here). Keynes' system, brilliant for its time, has
ved less valuable in dealing with modern inflation,
cially obsolete ever since Richard Nixon declared
1971. Later, however, Ronald Reagan's supply-side

order to knock him down again in an uprising
s "The Keynes Mutiny."

JOHN KENNETH GALBR

One of the first (and certainly one of the tallest) N
a liberal twist to the field's dogma. In his The New
braith, a Canadian, argued that the rise of the m
circuited the old laws of the market. In his v
dominated the economy, creating and controlling
responding to it, determining even the processe
their economic clout in their own, rather than so
tional economic thinkers have agreed that Galbrai
an economist.

Th

Even though economies are always in flux, eco
turn on a dime. As a result, it doesn't take lon
hypothesis to stand exposed as just another version
Here, for the record, a few items we've recently fo
the emperor's closet.

THE LAFFER CURVE: A relic of the Reagan years, t
Laffer s much-applauded hypothesis, rumored to h
back of a cocktail napkin, stating that at some point
the incentive to work so discouraging—that raising t
than increase, revenues. The converse of this theor
side or trickle-down economics, maintains that a go
tually gets to collect more money; this version h
creating the largest deficit in American history—be

KONDRATIEFF LONG WAVE CYCLE: Obscure theory
periodically enjoying a certain gloomy vogue. Nik
Soviet Economic Research Center, postulated that
has moved in long waves, or trend cycles, which l
years and consist of two or three decades of prospe
equivalent period of stagnation. Kondratieff descr
cles, and when economists dusted off his graphs an
the 1960s and 1970s, they found his theories to
cording to their predictions, we were all in for a
pocket money. T h e Russians, by the way, weren't t

ECONOMICS B5

RAITH (1908-)

New World economists to give
w Industrial State (1967), G a l -
major corporation had short-
view, such corporations now
g market demand rather than
es of government, while using
ociety's, interests. More tradi­
ith is a better writer than he is

heses

onomic theories aren't built to
ng for even the most hallowed
n of the emperor's new clothes.
ound balled up on the floor of

this was Economist Arthur B .
have been first sketched on the
t tax rates can get so high—and
them further will reduce, rather
ry, popularly known as supply-
overnment, by cutting taxes, ac­
has been widely credited with
fore the current one, of course.

dating from the Twenties and
kolai Kondratieff, head of the
t throughout history capitalism
last for between fifty and sixty
erity followed by a more or less
ribed three such historical cy­
nd brought them up to date in
be depressingly accurate. Ac­
another twenty years with no
thrilled with Kondratieff's hy-

I36 AN I N C O M P L E T E

pothesis, either, since it impli
pending collapse, would forev
Sometime around 1930, Kond
from again.

ECONOMETRICS: Yesterday's hi
ies that created models of the
statistics, and mathematical pr
to a lucrative mini-industry w
hired out to government and
Government, in fact, soon bec
spending millions to equip var
conflicting, forecasts—this, d
tended, throughout the Seven
astrology. Today, econometrics
but they're accepted procedure
anymore.

MONE
that f
tion.
everyt
giving
eign
gover
growt
ernme
inflati
of mo
and p
work
owes
nents,
man,
have f
Thatc
Ronal
owes his own appeal to the f
uncle.

NEO-KEYNESIANISM: Monetaris
mists who are less inclined to

EDUCATION

ed that the capitalist system, far from facing im­
ver keep bouncing back like a bad case of herpes.
dratieff was shipped off to Siberia and never heard

igh-level hustle. Econometrics used to mean stud­
economy based on a combination of observation,
rinciples. In the Sixties, however, the term referred
whose models were formulated by computer and
big business to help them predict future trends.
came the biggest investor in econometrics models,
rious agencies to come up with their own, usually
despite the fact that the resulting predictions
ties, to have about the same record for accuracy as
s models are still expensive and still often wrong,
e and nobody bothers making a fuss about them

ETARISM: One of two warring schools of thought
feed advice to politicians on how to control infla­

Monetarists favor a laissez-faire approach to
thing but the money supply itself; they have mis­
gs about social security, minimum wages, and for­
aid, along with virtually every other form of
rnment intervention. They stress slow and stable
th in the money supply as the best way for a gov­
ent to ensure lasting economic growth without
ion, and they insist that, as long as the amount
oney in circulation is carefully controlled, wages
prices will gradually adjust and everything will
out in the long run (see page 128). Monetarism
much of its appeal to one of its chief propo­
, Nobel Prize-winning economist Milton Fried­
whose theories are generally acknowledged to
formed the backbone of Prime Minister Margaret
her's economic policy in Britain (as well as
ld Reagan's here). Liberal critics say Friedman
fact that he looks like everyone's favorite Jewish

sm's opposite number, a loose grouping of econo­
wait for the long run. T h e neo-Keynesians argue

that there are too many institutional arrangeme
collective-bargaining agreements—for wages and p
They maintain that the best way for a governmen
inflation is by using its spending power to influenc
monetarist/neo-Keynesian debate seems less impo
side has found someone to argue with.

Action Econo

OR, PUTTING YOUR
WHERE THEIR MOUTH

So much for theory. Although no self-respecti
with it entirely, there are areas of economics i
venting—economic gospel takes a backseat to deliv
That is, to keeping things—money, interest an
moving in what's currently being perceived to be th
tributor Karen Pennar explains what some of th
those directions) are. Come to terms with them an
for her tour of the markets, stock and otherwise,
raising adventure.

THE FEDERAL RESERV

Known in financial circles as the Fed (and not to
this government body, our central bank, wields en
tion's purse strings. In fact, it's said that the Fed's
powerful man in Washington. H e and his six co
Federal Reserve Board, direct the country's mone
can alter the amount of money (see "Money Supply
"Interest Rates"), and thereby make or break the ec
ens, interest rates rise and the economy slows down
est rates fall and the economy picks up. Or so it us
so difficult, and the Fed so mistrusted, that its acti
fect. So much for simplicity.

Many swear that the Fed is the root of all eco
work, A Monetary History of the United States, 1867
J. Schwartz), Milton Friedman placed blame for th
on the Fed (for tightening too much). H e hasn't sto

ECONOMICS

ents—things like unions and
prices to adjust automatically.
t to promote growth without
ce demand. Who wins in the
ortant than the fact that each

omics

MONEY
HS ARE

ing economist ever dispenses
in which interpreting—or in­
vering on economic promises.
nd exchange rates, deficits—
he right direction. Here, con­
hose promises (and some of
nd you'll be ready to queue up
where action turns into hair-

VE BOARD

o be confused with the feds),
normous control over the na­

chairman is the second most
olleagues, or governors of the
etary policy. Simply put, they
y") and the cost of money (see
conomy. When the Fed tight­
n. When the Fed eases, inter­
sed to be. The balancing act is
ions often have a perverse ef­

onomic evil. In his landmark
7-1960 (coauthored by Anna
he Great Depression squarely
opped berating it since, and he

AN I N C O M P L E T E
has plenty of company. Beating
but understandable. A little his
gress, grew steadily in strength
evolved into an independent fo
ident. Checks and balances for

This explains why many pre
Fed, praising it when interest
Members of Congress, similarl
and periodically threaten to lim

But the Fed tends to be bliss
their own lofty economic obje
the president for mismanaging

MO

This is what the Fed is supp
decades, the Fed, and the peo

E EDUCATION
g up on the Fed is a popular sport—unfair, perhaps,
story: The Fed, created in 1913 by an act of Con­

during the Depression years. By the 1950s, it had
orce, free of the pressures of Congress and the pres­
r the economy, you might say.

esidents have had a love-hate relationship with the
rates are falling, then cursing it when they climb.
ly, are often frustrated by the Fed's independence,
mit its autonomy.
sfully immune to criticism. Board members pursue
ectives and routinely cast blame on Congress and
g the economy.

ONEY SUPPLY

posed to control but has a hard time doing. For
ople who make a living analyzing what money is

doing, monitored the money supply because of the e
the national economy. The Fed measures the mone
ing three different levels of liquidity—or spendab
different types of money have. By the Fed's definiti
narrowest measure, M l , is restricted to the most
kind of money—the money you've actually got i
wallet (including traveler's checks) and your check
count. M 2 includes M l plus savings accounts, tim
posits of under $100,000, and balances in retail
market mutual funds. M 3 includes M 2 plus
denomination ($100,000 or more) time deposits, b
in institutional money funds, repurchase liabilitie
Eurodollars held by U.S. residents at foreign branc
U.S. banks, plus all banks in the United Kingdo
Canada. Last time we looked, the M l was around
lion; and the M 3 , $8.8 trillion. The Fed, by daily
numbers. If the Fed releases less money into the ec
porate America borrows and produces less, worke
spending is cut back. When the Fed pumps more
reverse happens. And if it moves too far in one dir
create a depression (the result of too much tighteni
sult of too much easing).

In theory. The problem is that in practice, the Fe
economy than it was twenty years ago. There ar
around outside the banking system (some of which
places like Russia and Argentina). What's more, t
ing money that used to be counted as checking o
funds. Oh yes, and let's not forget booming cre
money supply of its own.

INTEREST RAT

Money, like everything else in the economy, has
1970s and lasting right through the 1980s, that pric
carried double-digit rates, and borrowing on a cr
19 percent. The Vietnam War, wage and price co
quadrupling of oil prices, a flabby Fed, and a ball
done their part to push prices up—including the p

Eventually, though, a tougher Fed and a sluggis
flation, which allowed interest rates to fall. By 19

ECONOMICS

effect it was believed to have on
y supply in three ways, reflect­
bility—
ion, the
t liquid
in your
king ac­
me de­
money

large-
balances
es, and
ches of
om and

$1.2 trillion; the M 2 , $6 tril­
y manipulation, can alter these
conomy, interest rates rise, cor­
ers are laid off, and everyone's

money into the economy, the
ection or another, the Fed can
ing) or hyperinflation (the re­

ed is far less able to control the
re billions of dollars sloshing
h have even found their way to
today a lot of people are hold­
or savings deposits in mutual
edit, which in effect creates a

TES

a price. Beginning in the late
ce was high. Home mortgages
edit card routinely cost about
ontrols in the early 1970s, the
looning budget deficit had all
price of money.
sh economy brought down in­
993, some rates were at their

lowest levels in thirty years. An
years later. This is at least part
central banks and investors no
their interest rates tend to be e
them in exchange for record a
back to the United States, in e
our interest rates.

nd to everyone's surprise, they were even lower ten
tly because of the huge U . S . trade deficit. Foreign
ow hold much of the United States' debt. Because
even lower than ours, they take the dollars we send
amounts of imported goods and send the dollars
ffect recycling them, in order to take advantage of

DISINFLATIO

It's an awkward word, for sure. Simply put, disinfl
but at a slower rate than they did before. So wha
First off, it was a big and welcome change from the
rising prices (and wages that didn't keep pace) ero
faced sticker shock every time they went shopping
low rates of inflation—say 2 percent to 3 percent
tainty and stability and allow economic activity t
(Though folks who expect to earn 10 percent on the
necessarily happier.)

In the 1970s, galloping inflation was our bigge
were obsessed with the budget and trade deficits.
decade of disinflation and price increases have be
First, both the Fed and the financial markets will w
higher if prices start rising. That, in turn, will imm
its and lower the inflation threat. Second, the U .
harder for manufacturers to raise prices, and the sl
creases tame. But the stiffest curb on inflation com
trade. Read on.

GLOBAL COMPET

The bulk of economic theory, and our understandi
work, is based on the assumption that most natio
self-sufficient in the production of most goods and
the margin. In the real world, however, trade across
centuries. And in recent decades, with the growing
communications, and transport, it's become easier a
more places to make and ship goods and provide
trade, in real or after-inflation terms, has grown 6.5
every $100 billion more in goods that are traded
pushed about $10—20 billion higher than it otherwi

Free trade, or relatively free trade, unencumbere
responsible for this heady growth. That sounds po
whole, it is. New workers and consumers join the g
creases—witness the way millions of Chinese have
adoption of decidedly uncommunist economic pol
alized nations like the United States can obtain goo
made at home, and that should improve living stan
uppermost in the minds of workers in the United

ECONOMICS 141

ON

lation occurs when prices rise,
at was so significant about it?
e 1970s and early 1980s, when
oded incomes, and consumers
. Disinflation, and continuous
t a year1—provide greater cer­
to proceed at a steadier pace.
eir certificates of deposit aren't

est problem. In the 1980s, we
. The 1990s shaped up as the
een very moderate ever since.
work hard to push interest rates
mediately dampen animal spir­
. S . recession of 2001 made it
low recovery has kept price in­
mes from the growth in world

TITION

ing of how economies actually
ons are largely closed—that is,

services, open to trade only at
s borders has been going on for
g sophistication of technology,
and cheaper for more people in
e services. The value of world
5 percent a year since 1950. For

around the world, growth is
ise would be, economists say.
ed by stiff tariffs or quotas, is
ositive and, for the world as a
global community as trade in­
gotten rich, thanks to China's
licies. Consumers in industri­
ods that are cheaper than those
ndards. But that benefit is not
States, say, who lost their jobs

AN I N C O M P L E T E

because U.S. manufacturers dec
duce the same goods more che

Today Americans are more
economic relationships, from A
(see "Dead-Letter Department
web of relationships on which
confederations of nations. Are
they also guarantee that econom
tinues to grow, wages and pri
downward pressure. And that
threat low.

FLOATING
THE G

All that trade is being financed
and a whole lot of other curr
vis-à-vis each other shifts—or
foreign-exchange markets, and
swings as economic policies ch

Businessmen and tourists c
floating rates, but there's little
(and for almost a century befor
only occasionally repegged—an
in terms of gold. (By this stan
could be turned in for gold.) T
trading system and ensured t
But currency and investment f
late 1960s and early 1970s tha
New Hampshire town where it
In 1971, Nixon took the Unite

Today there are still people
ment goes, has intrinsic value, w
the gold standard are like octog
forgetting about gas lamps and
gold standard is what forced us
to occur continually and with
even comprehensible, but it loo

EDUCATION

cided to set up shop in Taiwan or Mexico and pro­
eaply there.

and more aware of an alphabet soup of trade and
A P E C and A S E A N to N A F T A and the W T O
t," page 407). All these groups spin an elaborate
h future growth will be based, often within loose
e these relationships progrowth? Definitely. But
mies are anything but closed. So long as trade con­
ices in relatively wealthy countries will be under
means that global competition keeps the inflation

G CURRENCIES AND
GOLD STANDARD

d with U.S. dollars, Japanese yen, the E.U.'s euro,
rencies. Every day the value of those currencies
r "floats"—according to supply and demand on
d in recent years there've been some mighty big
hange and speculators and investors make big bets.
omplain about the uncertainty that accompanies
alternative. Once upon a time, back in the 1960s
e), foreign-exchange rates were rigidly fixed—and
nd major currencies such as the dollar were valued
ndard, gold was worth $35 an ounce, and dollars
This setup supposedly lent stability to the world
that currencies possessed real, not inflated, value.
flows across borders became so enormous in the
at the system (known as Bretton Woods, after the
t was devised following World War II) unraveled.
d States off the gold standard.
who hanker for a gold standard. Gold, the argu­
while paper does not. But advocates of a return to
genarians who reminisce about the good old days,
d outhouses. The mechanistic inflexibility of the
s to go off it. Floating rates allow these corrections
relative calm. The system may not be perfect, or
oks as though it's here to stay.

Adventure Eco

OR, PUTTING YOUR
WHERE YOUR MOUT

Because so many people share in the national past
ket (which means, of course, the stock market,
the granddaddy of them all, the New York Stock Ex
markets that are linked electronically), it's worth you
The way to do that is to follow the stock tables and re
And if you're really ambitious, you can learn about a
like the bond and futures markets—and think of you

THE STOCK MA

A stock represents a share, or fractional ownership,
tional one indeed. Large companies have tens of m
Companies sell stocks (the first time they do it's cal
need other people's money. With a strong base o
pool of ownership is known, a company can buy ma
ecutives handsomely (and its workers not so ha
money.

Stock comes in two forms—common and preferr
in dividend policy (see below) but is also importan
Then the preferred shareholder is, as the designatio
than the common shareholder.

A dividend is the reward, or payoff, a company

ECONOMICS M3

onomics

MONEY
TH IS

time known as playing the mar­
and used to refer specifically to
xchange, but now includes nine
ur while to know the rudiments.
ead the daily market summaries.
a few other types of markets—
urself as a financial polyglot.

RKET

in a company, and a very frac­
millions of shares outstanding.
lled going public) because they
of stockholders' equity, as the
achinery, fill orders, pay its ex­
ndsomely), and even borrow

red. T h e difference lies chiefly
nt when a company liquidates.
on implies, in a better position

y gives the stockholder for in-

144 AN I N C O M P L E T E

vesting in it. It's actually a piece
all the profits are distributed
back into the company's opera
ets). But something has to be g
pen, so dividends of anywhere
handed over quarterly. The co
may decide to toss a few more
in poor financial shape, may al
cut a dividend. The company,
ferred stockholders before it p
gets their dividends axed first i

A capital gain is the profit y
pany, provided the company h
price has risen: You hit big in t

A loss is a loss. Today—or th
T h e stock market is where wi
like a party, other times like a w
because the real market makers
money managers, all known as
and he tends to get swept up
create. The cardinal rule of any
high, but if everyone did that s
any person who buys low, there's
there's someone willing to buy
person selling low is trying to c
it's time to bail out. And a bu
prices will go still higher, and h
T h e herd instinct accounts f
people are always looking over
More often than not, for no g
must be wrong. Institutional
worst way, so you see how a he
institutions invest in many nam
line with each other during big
herd, from a change in tax legis
also behave in ways that have
market began in August 1982.
as it did when the market cras
rect, as it was throughout the 1
If you watch stocks on a d
the story of how the market is
The Dow Jones Industrial Aver

E EDUCATION

e of the profits, but don't imagine for a minute that
proportionally. No way: Profits must be plowed
ations (and, some might say, into executives' pock­
given to the investor who helped make things hap­
e from a few cents to a few dollars per share are
ompany sets the dividend rate, and every so often
coins the shareholders' way. But a company, if it is
lso suspend paying dividends on common stock or
however, must distribute dividends in full to pre­
pays common stockholders, so it is the latter who
in a pinch.
you make on the sale of your ownership in a com­
has done well, its stock is in demand, and its stock
the market.
he day you bought stock—was not your day.
inners and losers get together. Sometimes it seems
wake. Big winners and losers determine the mood,
s are pension funds, banks, corporations, and other
s institutional investors. The little guy is just that,
in or under the tidal waves institutional investors
y market, the stock market included, is buy low, sell
successfully, there'd be no markets to speak of. For
s somebody selling low, and for anyone selling high,
high. Why? Because of expectations and greed. A
cut his losses and figures the worst is yet to come, so
yer shelling out big bucks is convinced that stock
he wants to cash in, even if belatedly.
for the tidal waves and derives from the fact that
r their shoulder to see what the next guy is doing.
ood reason, they figure he must be right and they
investors can suffer this market paranoia in the
erd can form and really trample the market. Since
mes, stock prices across the board tend to move in
g market swings. All sorts of things can affect the
slation to a political assassination. But the herd can
e no obvious explanation, as it did when the bull
And it can turn tail and run in the other direction,
shed in October 1987. It can also be spot-on cor­
1990s.
daily or even weekly basis, the numbers will tell
behaving.
rage (DJIA), or simply "the Dow," the most widely

used measure of market activity. It's an index of the
amount of money) which trade on the New York
where the largest companies are listed. Dow Jones p
nal and Barrons and provides financial information.

NASDAQ stands for National Association of S
Quotations system. The NASDAQ^stock market
most technologically advanced market, listing every
established companies such as Apple Computer. Tr
NYSE's.

AMEX stands for the American Stock Exchan
volume.

Some other averages are far more comprehensive
the Standard &, Poor's 500, which tracks large st
which tracks small ones.

Then, too, remember that the stock market is
There's the options market, where people buy an
sell stocks, believe it or not. This way, for less m
actually buy stocks outright, people can play the
ing a stock, they can win big or lose big on its mo
market can be (if that's possible) even more of a
stock market.

Also dicey for some, though useful for others, is
ket was originally devised to help out farmers and m
products. Contracts for future delivery (within a few
lies, and assorted other items could be bought a
against anticipated rising costs or falling revenues. B
in recent years with the inclusion of a host of new
change to stock indexes) and scores of new players
in the futures market takes actual delivery on a c
component of the market is in financial futures—T
because fluctuating interest rates are still anothe
hedge against and speculators bet against.

Once the staidest of them all, the bond market is n
servative investors think it is. Used to be, a compan
rowing costs for ten or twenty years would borro
issuing bonds. The U.S. Treasury did the same, as
thousands of municipalities. The investor would b
amount of interest each year from the issuer, and ge
bond matured. Bonds were boring because usually, n
steady because interest rates were generally steady. I
higher, the resale price of the bond, or its price on t
down a notch. No big deal.

ECONOMICS ~*45

price of 30 stocks (but a huge
k Stock Exchange, or N Y S E ,
publishes the Wall Street Jour­
.
ecurities Dealers' Automated
t is now the fastest-growing,
ything from hot new issues to
ading volume is second to the

ge, a distant third in trading

e. Among those widely cited:
tocks, and the Russell 2000,

sn't the only market around.
nd sell the rights to buy and
money than it would take to

market. Without ever own­
vement. Playing the options
a crapshoot than playing the

thefutures market. T h i s mar­
manufacturers who used farm
w months) of grains, pork bel­
and sold, providing a hedge
But the market has burgeoned
w contracts (from foreign ex­
s. Today hardly anyone active
contract. The fastest-growing
Treasury bills and the like—
er cost businessmen want to

not the safe haven many con­
ny that wanted to fix its bor­
ow money from investors by
s did the individual states and
buy the bond, receive a fixed
et back his principal when the
nothing changed. Prices were
f interest rates moved slightly
the secondary market, moved

146 AN I N C O M P L E T E

That's all changed. L o w infl
taking to the bond market sinc
only get paid the value of the d
bond market anything but stai
twenty years from now? A sh
ing—producing big losses for
year) bonds. So this nightmari
over each other to secure mere

So much for the markets. I
warned: The old adage that yo
lose still holds true. In fact, it's
bets to the old hands. After all

Or do they?

E EDUCATION

lation has brought low interest rates and big profit-
ce the early 1990s. But bond market investors, who
dollars they lend, aren't trusting, and that makes the
id. W h o knows where interest rates will be ten or
harp upturn in rates would send prices plummet­
r investors holding long-term (twenty- to thirty-
ish guessing game has buyers and sellers tripping
e fractions of a percentage point in interest.
If you feel like dipping your big toe in, be fore­
ou should never invest more than you can afford to
s truer than ever. Leave the fancy stuff and the big
l, they know more than you.

Economics Punch

OR, PUTTING YOUR
WHERE YOUR MOUT

In the past, all the good jokes were about doctors
now that economists control the politicians and
doctors and lawyers, it's they who've become the b
themselves are far too long to recount here. Which
tent with the punch lines:

Joke 1: "Do you have any idea how many econom
a pound of brains?"

Joke 2: "Who do you think was responsible for
first place?"

Joke 3: "The economist says, 'First, assume the e
Joke 4: "The good news is that the bus just went
bad news is that there were three empty seats on it

ECONOMICS Ml

Lines

MOUTH
TH IS

s, lawyers, and politicians, but
d make more money than the
butt. As it happens, the jokes
h means you'll have to be con­

mists you have to kill just to get

creating all this chaos in the

existence of a can opener.' "
over the edge of the cliff. T h e
t."





FOUR
Contents

B Remedial Watchingfor Chucky Fans 150
• For Extra Credit: The Thirteen Next-Biggest-Dea

You—or Steven Spielberg—Were Born 175
• French, Likewise Hollywoodese, for the Movie-G

Careers in filmmaking: Worth the busfare to H

al Movies They Made Before
Goer 182

Hollywood?

AN I N C O M P L E T E

Remed
for C

It's one thing when they try
your passport in their faces
quite another when they hit you
allure as you are—or aren't. Bi
Citizen Kane} This'll help.

THE BIR

(Am

Director

D . W. (for David Wark) Griff
Newcomers to Griffith (and, o
long Chapter 3, right after "T
Public") may, however, apprec
Edison. Like him, Griffith w
wanted to solve the problem,
Dickens. Like him, Griffith wa
torian. A reactionary in terms
American rural and domestic
when it came to "art," he never

EDUCATION

dial Watching
Chucky Fans

to get you on opera: You really can simply wave
and announce that that isn't what we do here. It's
u with movies, which are as American in spirit and
irth of a Nation got you down? Or Potemkiri? Or

RTH OF A NATION

merican, 1915)

fith. The original and still, to some, the greatest.
obviously, to film history, in which he is always a
The Movies Are Born" and "The Movies Find a
ciate a couple of touchstones. The first: Thomas
was a practical genius, a boy-scientist type who
not promulgate the theory. The second: Charles
as sentimental, melodramatic, and hopelessly Vic­
s of his subject matter (big moments in history,

life, moral-religious allegories) and a philistine
rtheless single-handedly propelled movies out of

the realm of stage-bound theatricality and into t
realized, a full decade before anybody else even go
the possibilities of the new medium, and contrib
niques: the cross-cut (in which we watch a little of
other, then back to the first, etc., in a way that
and the close-up (in which we get to feel we kno
different from, the characters up there on the scre
tolerance (1916, an interweaving of stories of cruel
tions, from Babylonian times to Griffith's own) a
by contrast, dote on Broken Blossoms (1919). Iro
long, with industry honchos first stripping him
forcing him to edit the botched efforts of other
even to take his phone calls. H e died, forgotten, o
hotel room.

Story

Nation—in the form of two families, the abolitioni
and the plantationist Camerons of North Carolina
ences, great friends—is torn apart by Civil War.
worse: Negroes are uppity; Flora Cameron (Mae
ter—jumps off a cliff to avoid being raped by Gus
and it takes the Ku Klux Klan, led by Ben Cameron
who, by the way, is in love with Elsie Stoneman
right. Stay put for the climax: cross-cuts between tw
one of Elsie, whom a mulatto with a heavy black-
"queen" of an all-black empire, the other of the e
Stoneman thrown in for good measure, from a cab
and carpetbaggers.

What All the Fuss Was About at the Tim

Nobody had ever seen anything remotely like this:
with a coherent plot, persuasive performances,
movement, brimming over with emotion and wha
had been budgeted at an unheard of $100,000 and
a head to see. Without warning, movies emerged fr
spectability. The era of the feature film was born a
blockbuster, in which huge sums of money are i
huger returns at the box office. Needless to say, no
thought much of the movie's bathetic story, simple
ten title cards (e.g., "Bitter memories will not allow

FILM

that of the cinematic. He also
ot around to thinking about it,
buted its two most basic tech­
f one scene, then a little of an­
suggests simultaneous action)
ow, and are maybe not so very
een). Birth of a Nation and In­
lty from four different civiliza­
are the "core" Griffith; cultists,
onical note: Griffith lived too
of his creative freedom, then
directors, and finally refusing
of alcoholism, in a Hollywood

ist Stonemans of Pennsylvania
a, who are, despite their differ­
. Reconstruction proves even
Marsh)—a.k.a. the Little Sis­
s, an emancipated house slave,
n—a.k.a. the Little Colonel—
n (Lillian Gish), to set things
wo simultaneous Klan rescues,
-supremacy rap wants to make
entire Cameron family, with a
bin being besieged by Negroes

me

a three-and-a-half-hour epic,
chase scenes, lots of camera
t appeared to be ideas; plus, it
d cost an equally unheard of $2
rom the penny arcades into re­
and with it the pattern for the
invested in the hopes of even
ot all the East Coast reviewers
e-minded thesis, and overwrit­
w the poor bruised heart of the

AN I N C O M P L E T E

South to forget"). And the ra
riots in New York, Boston, an
Addams and the president of H
the brouhaha did, though, was
colonel, to counterattack, first
opinion proof positive that he
anybody who'd managed to
medium could be; and (3) fue
N o t that Birth needed a shot i
Wilson said, "It is like writing

What All the Fuss Is Ab

Some people are still stuck on
fith as fashioner of the "gramm
technical devices to his discov
than its physical setup, determ
Then there was his overall suc
an ensemble as well as to unde
his particular success with tho
(idealized femininity, purity, fr
also a valid historical documen
years later, still in reaction to
Birth (ditto Intolerance) has mo
of their wristwatches.

THE CABINE
(G

Director

Robert Wiene, but don't give
got the job only because Fritz
Spiders. Instead, be mindful of
who'd happened to witness a se
trian named Carl Mayer, who'
trists during World War I; the
Hermann Warm, who used ex

EDUCATION

acism riled black and liberal viewers. There were
nd Chicago; city fathers demanded cuts; and Jane
Harvard, among others, wrote chiding letters. All
s (1) incite Griffith, himself the son of a Kentucky

with pamphlets and then with Intolerance—in his
e, at least, was free from prejudice; (2) suggest to
keep his cool just how inflammatory this new
el the movie's publicity and box-office operations.
in the arm; it was an immediate hit. As President

history with lightning."

bout Today

the racism, but most of us have moved on to Grif­
mar and rhetoric" of film, from his stockpiling of
very that the emotional content of a scene, rather
mined where to place the camera and when to cut.
ccess with actors—how he got them to function as
eract (well, for the times it was underacting)—and
ose contrasting types of womanhood, Lillian Gish
railty) and M a e Marsh (the girl next door). Birth is
nt, not of Civil War days, but of the country fifty
that war. None of which makes for easy viewing:
ost modern audiences checking the minute hands

ET OF DR. CALIGARI
German, 1919)

him another thought: He was a one-shot and he
z L a n g was tied up making something called The

the screenwriters, a Czech named Hans Janowitz,
ex murder in Hamburg's Reeperbahn, and an Aus­
'd been examined once too often by army psychia­
e set designers, a four-man contingent headed by
xpressionist principles and techniques to create the

movie's warped, angular look, going so far as to pai
eerie lights and shadows; and even the producer,
the whole crazy package and hoped the public wo

Story

Check out the frame-tale setup: Patient in ment
horrifying story of weird, heavily bespectacled carn
Krauss), who controls lurching somnambulist, Ce
him to commit series of murders. His story told,
to office of mental hospital's benign director, who,
puts on pair of horn-rimmed spectacles and . . .

What All the Fuss Was About at the Tim

German intellectuals liked the sick settings, the w
been translated into visual terms; French intellectu
coined the term caligarisme, which they used to
stract, like a "painting in motion," rather than real
in natural settings—a useful enough idea in a po
almost everyone as sinister and unworkable. This

int in, rather than throw, those
Erich Pommer, who financed
uld bite.

tal hospital tells elaborate and
nival-circuit hypnotist (Werner
esare (Conrad Veidt), inducing
patient freaks out and is taken
, in the course of examination,

me

way a madman's fantasy life had
uals went one step further and
describe cinema that was ab­
istic narrative of natural events
ostwar world that was striking
sort of distortion was not un-

Î54 AN I N C O M P L E T E

known in the theater, of course
era was eschewing reality, appa
of things, the very purpose it ha
tellectuals going and setting a
would not seriously influence t

What All the Fuss Is Ab

For horror-movie aficionados,
mental illness (persecution, hal
ties generated by the tale-withi
Caligari purveys the kind of we
jump on friends who are still ga
there's the movie's inherent ap
classics of the cinema, this is
than camera movement and dy
nally, it's a traditional favorite
theorist Siegfried Kracauer, for
monsters and tyrants" that wou

NANOOK
(Am

Dir

Robe
Jacqu
essen
lived
(Nan
tosse
and
The
filmm
what
and
he helped smuggle out of Fra
among directors.

EDUCATION

e. The amazing thing was that now a movie cam-
arently no longer interested in recording the "look"
ad been devised for. But apart from getting the in-
a certain standard for future "art" films, Caligari
the course of movies.

bout Today

, this is the granddaddy, happily fleshed out with
llucination, breakdown) and the chilling ambigui-
n-a-tale format. More than mere horror, however,
eirdness that fuels cultism: Hères a way to get the
aga over Kafka or, what's worse, Twin Peaks. Then
ppeal for painters and set designers: Unlike other
one in which stagecraft and painted flats, rather
ynamic editing, do the job—and get the credit. Fi-
of sociologists and portent readers: German film
r instance, sees in it the beginnings of a "cortège of
uld eventually culminate in Hitler.

K OF THE NORTH
merican, 1922)

rector

ert J . Flaherty. Boy with a camera (and a Jean-
ues Rousseau streak), intent on revealing the
nce and the quality of life as it was then being
d in such exotic outposts as the frozen Arctic
nook), the South Seas (Moana), the barren, storm-
ed islands off Ireland's west coast (Men of Aran),
the bayous o f Louisiana (The Louisiana Story).
first—and most legendary—of the documentary
makers, he sidestepped studios and story lines for
t he could observe out there on his own. Intense
gentle; paragon of integrity; like Renoir (whom
ance and into America during the war), a "poet"

Story

Eskimo family—stalwart Nanook, jolly wife, Nyl
fant in pouch of Nyla's sealskin parka—survives e
best it can on the shores of Hudson Bay. Very co
And crawling with seals. Sequences to note: Fami
one, like circus midgets from a tiny car; Nanook,
phonograph and tries to eat phonograph record; N
alone at edge, spearing fish; Nanook builds igloo,
pected) blocks of compacted snow. But we bet yo
install a chunk of frozen river as a window.

What All the Fuss Was About at the Ti

Unpredictably, a big commercial as well as critica
the picture opened in New York in the middle o
record, but beyond that, viewers couldn't get over
only to travel to a distant clime, but to look into so
Plus, everybody wanted to know how Flaherty had
in subzero temperatures—a thousand miles from
graphic supply store, oral surgeon, whatever—and
not only to trust him, but to take direction (a ma
so much that they charged Flaherty with misu
Nanook himself: the bright eyes, the continual s
Within a matter of months, Eskimo pies were bein
lantic, and words like "igloo," "kayak," and "anorak
thropologists, were popping up in grade-school c
store windows. Too bad Nanook couldn't have ba
of starvation, out there on the ice, shortly after the

What All the Fuss Is About Today

Three things. First, the documentary tradition, o
the father; how it was discovered that dramatic con
depiction of fact, how documentary is both more
than the fiction film. Second, Flaherty as count
great director who, unlike Griffith and Stroheim,
unlike Sternberg, didn't collaborate with it; but
places where he couldn't be reached by phone. T
umph of structure, editing, and sympathy, even if
to wear skins and furs that were more Eskimoish
picked out for themselves.

FILM

la, two small children, plus in­
elements and sculpts nature as
old, the shores of Hudson Bay.
ily emerges from kayak, one by
at trading post, goes wild over
Nanook, on big ice floe, stands
from (just as you'd always sus­
ou didn't know he was going to

ime

al hit. O f course, it helped that
of one of the hottest Junes on
r the way they were invited not
omebody else's mind and heart.
d done it, had lived for months
the nearest restaurant, photo­
d had gotten all these Eskimos
tter that bothered some critics
sing "facts"). Then there was
mile, the weather-beaten face.
ng sold on both sides of the At­
k," formerly known only to an­
civics tests and sporting-goods
sked in his new fame: He died
e film was released.

of which Flaherty is held to be
ntent could be derived from the
e "real" and more "respectable"
terpoint to Hollywood, as the
wasn't crushed by it; and who,
who simply abandoned it for
Third, the final product, a tri­
he did force all those Eskimos
than anything they'd ever have

AN I N C O M P L E T E

THE LAST
Director

F. W. (Friedrich Wilhelm) Mu
Age, which was conceived in
heady days of the Weimar Rep
result either of Hitler's crackd
them all up, or both. A pupil o
Murnau jettisoned the expres
serving up bratwurst-and-boi
based on Bram Stoker's Dracul
Bremen settings.) Hollywood
about a young wife threatened
collaborated with Flaherty on
Tabu (1931). Only forty-three
miere, thereby affording film
nipped in the bud.

Story

Dignified old man (Emil Jann
epauletted uniform that is part
find that new, young doorman
has been demoted to washroo
More humiliation follows, esp
like grand duke, is now treated
has him inheriting fortune of r
in hotel dining room.

What All the Fuss Was

Hailed by American critics as
popular success. Jannings' perf
sides, the world on screen loo
probably subversive—artist's n
and Hollywood felt it more de
denly, the movie camera was a
through the lobby of the hotel
shakiness of a hangover, track
from its fixed tripod (though n
come flexible and aggressive,
serve—an actor.

E EDUCATION

LAUGH ( G e r m a n , 1924)

urnau. Most revered director of Germany's Golden
the rubble of World War I, thrived through the

public, and withered away in the early Thirties, the
down on creative types or of Hollywood's buying
of Max Reinhardt, the Austrian theater impresario,
ssionism and eerieness of Caligari days and began
iled-potatoes realism. (Even his 1922 Nosferatu,
la, used everyday, business-as-usual, port-city-of-

got its hands on Murnau, too: H e made Sunrise,
by her unbalanced husband, for Fox in 1927, then
n a quasi-documentary South Seas drama called
e, he died in a car crash a week before Tabus pre­
historians a favorite example of directorial careers

ings) at top-drawer hotel is exalted by braided and
t and parcel of job. One morning arrives at work to
n is hailing cabs, lugging suitcases, etc., and that he
om attendant and must wear simple white smock.
pecially at home, where old man, formerly treated
d like dirt. Not to worry: Tacked-on happy ending
rich American hotel guest and dining sumptuously

About at the Time

"the best film in the world," Laugh was also a big
formance, if broad, was a great crowd-pleaser; be­
oked real again, instead of like some crazy—and
nightmare. But the biggest impact was technical,
eeply than that from any other foreign film: Sud­
actually moving, up and down, forward and back,
and out onto the street—even in simulation of the
king and tilting and swinging and twirling. Freed
not yet provided with cranes and dollies), it had be­

had become—as the film historians like to ob­