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To let my readers know just how large the windmills are that I am tilting at, these come from a student paper on the role of government in the financial sector throughout history:

Laissez-faire is the basis for many economy philosophies

I’d like to see the MANY that are based on laissez-faire. Any takers?

This is because in theory free-markets are believed to be efficient

Economics is not religion – those who oppose the evidence and record of economic history are practicing religion. The first fundamental theorem of welfare economics is a mathematical proof that people left to their own devices produce outcomes that are efficient from the standpoint of society as a whole … AND the best a central planner (government) can do is to match it – it can do no better. And beyond this mathematical proof, the entire checkered history of government intervention into economic affairs provides just a wee bit of empirical evidence for this “theory”.

Therefore, it is no surprise that when asked about governments’ intentions with regard to the control of money, most economists would be pessimistic and quick to come back with evidence to support their views.

I’d argue that a majority of economists would take a favorable view of intervention. But think about the last phrase … when asked about what I think, I have the audacity to provide evidence! Evidence! What else ought I present? It seems my moral views are not persuasive enoug. It seems my theoretical cases are not persuasive enough. And now actual evidence is not persuasive enough. Schumpeter had a great quote years ago about liberalism having no chance because it comes to court with a death sentence already imposed … it is just the charge that keeps changing every time the jury realizes the last charge could not stick.

All of this evidence against the normal claims in support of governments makes it easy for one to question the real intentions of governments seeking control of money …

This is in response to what I showed in class that throughout history while governments claim to intervene in the financial sector in the name of the public interest, it virtually always turns out to be the case that the intervention was done to fill the public purse. We can see this through early monopolization of mints, the establishment of central banks, the chartering of banks, the institution of bank reserve requirements, the movement to fiat legal tender monopoly currency, the restrictions on bank interest payments, and so forth.  We have shown in class that the economic case for a money monopoly does not simply stand up to scrutiny, and the record of government intervention nonetheless makes the case even stronger against it. But the point is not that the governments were ill intentioned (although some clearly were) but rather that the incentive structure facing them and the knowledge problem facing them prohibits them from even having the ability to intervene usefully in financial markets. But most of the arguments from statists tend to fall back on the idea of intent rather than something else. But having good intentions does not excuse what sometimes are evil results. Ever.

Yet despite all of this, I am not one to jump on the bandwagon so quickly. While I see the evidence in support of laissez-faire economics … I don’t believe that government’s intentions are as evil as most economists would depict.

See my comment above.

And like a man willing to forsake evidence for his faith in religion, I am all too willing to turn my back on the economic community for my faith in my government … I would like to believe it is necessary to have faith in our government for a fiat money system to work

Very large windmills indeed. By the way, a colleague loaned me the first season of the Wire. I am now beginning to understand why. If you have not seen it, I encourage you to check it out.

One Response to “From the Mouth of Babes”

  1. Harry says:

    Thanks for the insight from Schumpeter, a metaphor that one can chew on.

    I know that Wintercow dislikes tangential asides, but I wonder whether he, or anyone else, has read Warren’s “Prices” ? He may not have been in the same league with Schumpeter and Bastiat: He was a professor of agricultural economics, and wrote Prices in 1933. He later argued for a commodity-based dollar, and I’ve always wanted to take Wayne Angell to lunch to talk about it.

    In any event, Warren didn’t like fiat currencies, and probably would have settled for a gold standard if that was the only choice, over paper. He could hardly have contemplated color copiers, and the other devices Kim Jong Il uses to pay for his Napoleon brandy.

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