Crisis of government, not capitalism

But eventually it turns out that the increase in prices was not caused by an increase in real demand based on real wealth at all. It was just a bubble, caused by an increase in the money supply.

As a result, projects turn out to be unprofitable and unsustainable. Businesses go broke. They lay off staff. Unemployment rises. The economy goes into recession. A bust follows the boom.

Everyone decries the bust, but the damage is done during the boom. The bust is the process by which the market washes out the mal-investments, liquidates capital, and releases it for productive uses in accordance with people’s real demand and time preference.

The failure of central planning - again

When will we as a society learn that governments cannot make real wealth out of thin air simply by passing laws?

What we are witnessing in the global financial crisis is the fall-out of government attempts to make real wealth: housing - cheaper as if by magic, by inflating the currency. Given that original prime cause, no amount of regulation can contain the economic chaos it unleashes.

The moral and intellectual bankruptcy of governments’ economic management should be obvious. Instead of achieving their purpose of protecting the little guy from being exploited by the big banks and stabilising the economy, these interventions achieve the opposite.

They prey on the poorest and most financially unsophisticated. They doubly and triply entrench disadvantage. They confound the simplest ways of making wealth: working and saving. They privilege big corporations in feeding from the public trough. They allow government to collude with big banks and big business in milking the ordinary people to protect their privileges. They give government a share of the loot obtained by colluding with the banks to permit anti-competitive practices and unstable financial practices which in a competitive market would be selected out by bankruptcy.

They provide the cover for thousands of governmental interventions which restrict the little guy and choke small businesses to death. By destroying his livelihood, they make the little guy dependent on big business and big government. They encourage the entire society to try to get something for nothing through government taking it from someone else.

They politically reward vested interests, unproductive privilege, and political favourites. They promote unsustainable debt, economic disorder, and pure waste. They erode the values required for the production of all the wealth that is re-distributed, and have nothing to put in their place. Keynes’ policies of stimulation are self-defeating. They only worsen the problem they are supposed to fix.

But public discussion, lacking sound economic theory, falls back on the traditional, outworn, and meaningless name-calling and slogans of “left” and “right”, as if both sides of politics were not equally complicit in bailing out billionaires and encouraging the general plunder.

The underlying moral failure is not greed itself, it is intellectual sloppiness in clinging to theories that have been disproved in theory and practice, preferring slogans and bitterness to reason and understanding, while failing to take the initiative either to accept or refute sound economic theory with real explaining power.

When will we learn? Social co-operation can either be based on the public, or the private ownership of the means of production. There is no third way. The retreat into Keynesianism is as futile as a retreat into Marxism. The current crisis shows the inevitable result of government’s attempts at “economic management”. Each intervention inevitably fails, and becomes the pretext for still further governmental intervention, which in turn fails.

Interventionism - the current orthodoxy - is merely socialism by instalments - increasing government control and increasing chaos all the way.

There is no sound reason for governmental control of the money supply and it should be abolished. This would make for a better, fairer and freer society, and a more stable economy too.