"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." ~ H.L. Mencken
The Free Market Never Happened
Column by Cristian Gherasim.
Note: Cristian Gherasim plagiarized this column from here.
The argument goes like this:
Until now we've lived in a world of laissez-faire capitalism, with government and policy intellectuals convinced that the market should rule no matter what. Recent events, however, have underscored the limitations of this dog-eat-dog system, and reveal that simplistic ideology is no match for a complex world. Therefore, government, responding to public demand that something be done, has cautiously decided to rein in greed, force us all to grow up, and see the need for a mixed economy.
This claim is wrong. We live in the 100th year of a heavily regulated economy; and even 50 years before that, the government was strongly involved in regulating trade.
The planning apparatus established for World War I set wages and prices, monopolized monetary policy in the Federal Reserve, presumed first ownership over all earnings through the income tax, presumed to know how vertically and horizontally integrated businesses ought to be, and prohibited the creation of intergenerational dynasties through the death tax.
That planning apparatus did not disappear but lay dormant temporarily, awaiting FDR, who turned that machinery to all-around planning during the 1930s, the upshot of which was to delay recovery from the 1929 crash until after the war.
Just how draconian the intervention is ebbs and flows from decade to decade, but the reality of the long-term trend is undeniable: more taxes, more regulation, more bureaucracies, more regimentation, more public ownership, and ever less autonomy for private decision-making. The federal budget is nearly three times what it was in Reagan's second term. Obama’s time in office until now has meant federal intervention in every area of our lives has exploded, from the nationalization of airline security to the heavy regulation of the medical sector to the centralized control of education.
So, the assumption that we live in a free-market world is simply not true. In fact, it is sheer fantasy. How is it that people can continually get away with asserting that the fantasy is true? How can informed writers continue to fob off on us the idea that we live in a laissez-faire world that can only be improved by just a bit of public tinkering? The reason is that most of our daily experience in life is not with the Department of Labor or Interior or Education or Justice. It is with Home Depot, McDonald's, Kroger, and Pizza Hut. Our lives are spent dealing with the commercial sector mostly, because it is visible and accessible, whereas the depredations of the state are mostly abstract, and its destructive effects mostly unseen. We don't see the inventions left on the shelf, the products not imported due to quotas, the people not working because of minimum wage laws, etc.
Because of this, we are tempted to believe the unbelievable, namely that government serves the function only of a night watchman. And only by believing in such a fantasy can we possibly believe the second assumption, which is that the problems of our society are due the to the market economy, not to the government that has intervened in the market economy.
Consider the housing crisis. The money machine called the Federal Reserve cranks out the credit as a subsidy to the banking business, the bond dealers, and the big-spending politicians who would prefer to borrow than tax. It is this alchemic temple that distorts the reality that credit must be rationed in a way that accords with economic reality.
The Federal Reserve embarked on a wild credit ride in the late 1990s that has dumped some trillions in new money via the credit markets, making expansion of the loan sector both inevitable and unsustainable. At the same time, the federal bureaus that manage and guarantee the bulk of mortgages have ballooned beyond belief. The popularity of subprime mortgages are the tip of a massive but buried debt mountain — all in the name of achieving the "American dream" of home ownership through massive government intervention.
Say what you want to about this system, but it is not the free market at work. Indeed, the very existence of central banking is contrary to the capitalist ideal, in which money would be no different from any other good: produced and supplied by the market in accord with the moral law against theft and fraud. For the government to authorize a counterfeiter-in-chief is a direct attack on the sound money system of a market economy.
The major contribution of F.A. Hayek to social theory is to point out that the social order — which extends to the whole of the world — is far too complicated to be managed by bureaus, but rather depends on the decentralized knowledge and decisions of billions of market actors. In other words, he gave new credibility to the insight of the classical liberals that the social order is self-managing and can only be distorted by attempts to centrally plan. Planning, ironically, leads to social chaos.
You don't have to be a social scientist to understand this. Anyone who has experience with public-sector bureaucracies knows that they cannot do anything as well as markets, and however imperfect free markets are, they are vastly more efficient and humane than the public sector in the long run. That is because free markets trust the idea of freedom generally, whereas other systems imagine that the men in charge are as omniscient as gods.
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succinct, irrefutable, delicious.
G'day Cristian Gherasim,
Very good article.
You wrote: "The money machine called the Federal Reserve cranks out the credit as a subsidy to...the big-spending politicians who would prefer to borrow than tax".
The political advantage of borrowing rather than taxing, of course, is so that the members (citizens/subjects) don't get too clear of a picture of just how much their "big-spending politicians" are actually spending. By diversification the taxman[1] does a pretty darn good job obfuscating their spending habits, too, I'd have to say.
State and Local Government Taxation
Income
Sales
Property
Federal Taxation
Income tax
Social Security tax
Medicare tax
Corporate income tax
Transfer taxes
Excise taxes
Federal Unemployment Tax
Federal & State Common Taxes
Income Taxes
7 Category of Taxes
1. Income Taxes
2. Property Taxes
3. Consumption Taxes
4. General Corporation Taxes
5. Payroll Taxes
6. Capital Gains Taxes
7. Inheritance Taxes
Never ending list of taxes in the United States
Sales and use tax
Toll
Cigarette and tobacco tax
Alcoholic beverage tax
Retail Beer, Wine and Liquor License Taxes
Tariffs
Environment Affecting Tax
Poll tax
Retirement tax
Real Property Transfer Tax
Wealth (net worth) tax
Commercial Motor Vehicle Tax
Commercial Rent Tax
Horse Race Admissions Tax
Hotel Room Occupancy Tax
Utility tax
Insurance taxes
Lawful gambling tax
Fur clothing tax
Deed tax
Contamination tax
Mineral taxes
Petroleum taxes
Sports bookmaking tax
Wind energy production tax
Social security and Medicare taxes
Federal unemployment tax
Environmental taxes
Communications and air transportation taxes
Fuel taxes
Gift taxes
Death tax
Luxury taxes
__________________________________________
[1] "Taxman" was written as a protest by George Harrison at the taxes that he had to pay. Because the Beatles were earning a substantial amount of money they were super-taxed and 96% of what they earned went straight to the taxman.
Oooops! Forgot about theWidows' tax You're gonna love this one!
This argument, while plausible (and I believe it) sounds embarrassingly like the argument that "communism has never been tried". I keep coming back to the notion that the only way we are going to get people on board with letting us try some actual free markets, is to let them experiment (if they want) with controlled or state-run markets. We don't need to convert everyone to "laissez-faire", we just need to convince them to leave us alone, in return for us leaving them alone.