How Many Economists Does It Take To Enlighten Screw-ups?<?xml:namespace prefix = o />
By Lisa Richards
November 3, 2009
“If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”
Milton Friedman
For unknown reasons the federal government is under the impression Wall Street CEO’s are better at managing the United States Treasury than trained economists. America has over two centuries of proof that bankers and legislators cannot be trusted with the people’s money, yet, despite forewarnings from the age of Adam Smith to Milton Friedman, the federal government cannot seem to stop helping itself to the Treasury. America has gained and lost many times, learning repeated lessons, only to commit monetary stupidity all over again. In truth it is useless to wonder why Washington continues creating and wreaking economic havoc when it is obvious that human nature shows us those with power will continue doing harm as long as mankind exists. It is for this reason exactly that economics was invented, is practiced, and taught: lack of common sense, too often, has been in charge of money.
Responsible people understand the freedom capitalism creates is a great responsibility. No irresponsible person or bank can be entrusted with vast sums of money otherwise capital becomes a reckless object that harms the economy. Milton Friedman stated in Capitalism And Freedom: “So long as effective freedom of exchange is maintained, the central feature of the market organization of economic activity… protects sellers, buyers, employers, and the financial system, while sustaining “The existence of a free market…” and protecting all from “threats” of those in power who would seek to “eliminate” the free market. It is an unfortunate occurrence when the free market becomes a pawn in the hands of the Treasury. Excessive borrowing and lending occurs and disaster ensues as seen on Wall Street.
Adam Smith told us in The Wealth Of Nations “Money… [is] the great wheel of circulation, the great instrument of commerce…of trade…and a very valuable part of the capital…” but it is not the actual “…revenue…” of the nation as a whole, employees, employers, buyers, sellers, all contribute to the economic growth that must not be tampered with or society pays the high price of losing economic freedom. Capitalism, Milton Friedman believed, is economic freedom that can be lost when banks abuse power, as they so often have, which is why Smith said there should be certain restrictions placed on banks in order to secure monetary freedom lasts. Both men believed restraints must be placed on government, the freedom capital affords people cannot be taken from them or panic ensues. Crisis have occurred century after century because lack of government discipline occurs in banking institutions, while the limitations for control are placed upon the people.
The 1913 installation of the Federal Reserve, Friedman noted, caused the Great Depression, not the 1929 crash. The Reserve placed so many restrictions upon the people, yet the Reserve went hog-wild over printing money it could not afford. The crash, Friedman said, would have ironed itself out had the Reserve and the government not stuck its nose in and created chaos that destroyed the economy while FDR instituted his New Deal, which was nothing more than a raw deal.
Throughout the 1800’s America witnessed reckless banking that created panic and depressions. Over printing of paper money is an historical misbehavior of American government. The gold standard did not prevent crisis, but it was able to regulate power in the hands of the wrong people. That is not to say monetary abuses never occurred, but the economy and financial system, prior to the Federal Reserve, as a whole, was capable of fixing itself. The creation of the Federal Reserve created a system of abuse and regulatory failure. Now we have a government that continues overspending and excessive borrowing on money it does not have.
Today, November 3, 2009, America’s national debt is sat at $12 trillion. It is not the fault of people or wealth. Some ignorant assume we Americans have too much money. Without enormous sums of money in the hands of the people, charity cannot, and will not, happen. Those anti-wealth/anti-capitalist fools will love debt and failure. They can wallow in their gloriously wonderful poverty which they feel is better than being prosperous.
Monetary failure is caused by excessive reserve spending. Adam Smith told us such actions were the origin of sudden, rapid lending increases that explode an economy. Smith did not criticize lending; banks are in the business of “advancing money,” he did however articulate banks require sufficient credit in order for the borrower to repay initial investments. Milton Friedman agreed, explaining that every dollar deposited in banks must be backed by larger sums or public desperation occurs as assets dwindle. Smith explained that borrowers needed to earn far more than interest expanded on loans in order to refund banks. But what if the government itself does the borrowing and lending and the people are expected to repay dire government actions? Friedman viewed such exploits as a form of collective distribution banks use to arrange personal investments and the government exercises as a means to achieve distribution of income and the destruction of the free market economy.
Adam Smith criticized excessive lending, it places everyone under restrictions, impairing the nation that can no longer “…employ to maintain…productive hands…maintained by revenue…” Milton Friedman said “The viscous cycle [of lending], if allowed to proceed [too far], grows on itself as…banks…force down…the prices on securities, render[ing] banks insolvent…” to the point the economy crashes. These statements are so simple, yet widely ignored by those entrusted with the nation’s capital.
A free market does not mean money is free to take from the people and distribute it among governments for bailing out bad banking, stupid car companies run by greedy socialist unions, or distribute it to the poor, who should be encouraged to work and earn their own money for economic freedom. Money belongs to those who earn it, and it is the choice of the earner to do as he or she please with the money.
It is the limiting of government in our monetary affairs that is essential to economic freedom. The free market cannot exist unless power is limited to government and granted to the people. People should be free to spend their money, make mistakes with it, learn by their errors, and not have government restrict freedom because government assumes it knows best how to spend and distribute the people’s money.
Lisa Richards Copyright © November 3, 2003 All Rights Reserved
