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Source link: http://archive.mises.org/9623/supporters-of-capitalism-are-crazy-says-harvard/

Supporters of Capitalism are Crazy, Says Harvard

March 17, 2009 by

Last weekend, Harvard University sponsored a conference called (I am not making this up) “The Free Market Mindset: History, Psychology, and Consequences.” Its purpose was to try to figure out why, since everyone knows the current crisis amounts to a failure of the market economy, the stupid rubes continue to believe in it. The promotional literature for the conference opened with a quotation from the oracle Alan Greenspan.

Well, that does it, then! If our Soviet commissar in charge of money and interest rates says the free market doesn’t work, who are you to disagree? FULL ARTICLE

{ 111 comments }

Frank V. March 19, 2009 at 7:43 pm

All of you…wrong again! Low interest rates do not cause speculation. Speculation results because private commercial banks decide to loan to projectors, imprudent risk takers, and prodigals, or, in Keynes’s terms, speculators and rentiers.The private commercial banks are the ones making the loans.Smith correcty pointed out that bubbles are impossible to inflate unless private commerciial banks loan the speculators the money,which will then end up being wasted and destroyed.You appear to believe that it is the FRS that makes the loans.You don’t know what you are talking about.
I thnk that everyone who follows Mises.orgare an apologist for the powerful private banking industry and view speculation as enterprise.I go with Smith and Keynes.You go with Rand,Rothbard,von Mises, and Hazlett.

Frank V. March 19, 2009 at 7:47 pm

p.s. There are so many errors in Woods’ books that, in general, they are not worth reading . In general, they are also not worth reviewing. Let me know where Woods discusses the following facts- that the FRS is subject to no audit and is subject to no budget constraint . Both are necessary conditions that have to be satisfied in order for government to have real power.

Tom Woods March 19, 2009 at 8:33 pm

Franky babe, you’re not listening. Where would the Fed be without the government-granted monopoly privilege of creating money out of thin air? You’re actually going to pretend this is a “private” system? And I’m the one with all the “errors”?

Since you ignored my comment, I’ll repeat it:

See, Frank, there’s the problem. A “private banking system”? You mean the one we have, with its government-guaranteed deposits, with reserves pumped into it by a government-created central bank with government-granted monopoly privileges? That one?

You think banks just might keep higher capital reserves if they didn’t have their comfortable cartel arrangement with the Fed? If the “too big to fail” doctrine didn’t exist? If the government didn’t artificially prop them up, and give the public false assurances of their soundness?

You think the decline in creditworthiness standards might have something to do with all the money the Fed poured into the system, especially since standards of creditworthiness have consistently been thrown out the window during national bank-created artificial booms since at least the 1830s?

Just wondering.

Frank V. March 19, 2009 at 10:00 pm

Woods, It’s the same situation today as occurred in August, 1927. Mellon and Strong wanted to help promote the twin bubbles that were generating tremendous profits for the private banking industry. Hoover went to President Coolidge and asked him to overturn the speculative policies of the FRS. Coolidge told Hoover that there was nothing he could do because the FRS operated independently of the executive,legislative,and judicial branches of government. The current bailout of AIG,Citi bank and Bank of America demonstrate the tremendous power that the private commercial banking industry has in the FRS.

Tom Woods March 20, 2009 at 12:09 am

Frank, it’s one thing to disagree, but this is just spooky. WHERE DID THE FED GET ITS MONOPOLY POWERS — WITHOUT WHICH IT WOULD BE NOTHING — FROM? The free market? It has the monopoly power to create legal-tender money out of thin air. HOW IS THAT THE FAULT OF THE FREE MARKET? MAYBE IF I TYPE IN ALL CAPS, I CAN GET AN ANSWER TO THIS QUESTION.

Inquisitor March 20, 2009 at 12:11 am

IOW, the corruption of the political machinery is somehow also a failure of the market, as opposed to, the government. I think it’s pretty evident you’re a troll at this juncture.

Evan March 20, 2009 at 12:23 am

Frank, I think you are defining “private ownership” in a way that most mises.org readers would not. The Federal Reserve System is private only in the most convoluted legal sense. It has a GOVERNMENT GRANTED MONOPOLY on printing all the money it wants. When an entity is granted a government monopoly, subsidy, tax-break, or license of any kind. It becomes more socialized and less of a private entity.

Surely, this happens to many different degrees, but in no way can the FRS be called a “private” institution, because of its government granted monopoly. If it actually tried to do something which Washington did not like, congress could (and would) easily revoke its monopoly or replace all its board members. The reason politicians say that this cannot be done is only because the FRS does what they (congress) want while at the same time being a convenient scapegoat (“We cant do anything! Its private!”).

I would agree with you that the private banks profited greatly from the FRS, because if not for the FRS, where would they get the money to leverage 40-to-1? And I would say that fractional reserve banking is largely to blame as well, but that is another case of government granted license for a bank to do something which a private party cannot, thus it did not arise from the free market. FDIC insurance is another instance of government interference to hide the instability of fractional reserve banking.

As for a zero-interest-rate not causing speculation, you beg the question by stating that it will not cause speculation if it is not lent to speculators. The reason that people say ZIR will cause speculation is that we talk about it functioning in a market similar to the current one. Also, the Austrians might argue that any borrower of money is in a sense speculating. The only reason somebody would borrow money is if they thought that whatever project the money would fund could turn a profit (monetary or psychic) which they could enjoy (speculation). If business people did not speculate, they would not create new businesses, and thus would have no need of borrowed funds.

Pat March 20, 2009 at 8:18 am

I guess Frank has never heard of the Basel or the Federal Reserve Act of 1913. Furthermore, he fails to realize that while banks were given a little more power to act on their own to some extent, they still had to answer to the Fed (e.g.: capital requirement).

The Gramm-Leach-Billey Act(http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act), not that I could defend the system since I happen to be against it, did not remove all restrictions on the banks (e.g.: they couldn’t own non-financial companies). While it is true that the Fed supposedly act as an independent entity from the government, it still has to answer to the government and it has been established by an act of Congress.

P.S.: I fail to see how the Mises Institute is supposed to be an apologist for Wall Street when they happen to be in favor of a bailout and the Feds given that the Mises Institute opposed to these two. Unless I have been dreaming.

Frank V. March 20, 2009 at 8:31 am

All of you continue to ignore, or are attempting to cover up the fact that the only time such amendments were introduced and passed by Congress were in the mid 1930′s when it was clear to the general public that the large private banks actually had effective control of the system.The large commercial banks were gradually able to reassert effective control with the appointment of Martin as chairman of the Fed .Martin easily repulsed the attempts of Wright Patman in the late 1950′s-early 1960′s to subject the Fed to an audit and a budget. All other government agencies are subject to an audit and a budget-except the FRS. It is, effectively, a privately run system dominated by the largest commercial banks. Again,it is the banks themselves that choose whom to lend to .They have chosen to lend constantly to speculators.This is the root of the problem.

Tom Woods March 20, 2009 at 9:43 am

Frank, why won’t you answer my simple question? And why do you think we would deny that the system as exists at present artificially benefits the banks, especially large ones? No one here would deny that, so why do you keep emphasizing the obvious as if it wins the argument for you?

The fact that private actors benefit from an arrangement, however, does not prove or even imply that that arrangement is the spontaneous result of the free market. That’s your blind spot here.

So I’ll repeat my question: Frank, it’s one thing to disagree, but this is just spooky. WHERE DID THE FED GET ITS MONOPOLY POWERS — WITHOUT WHICH IT WOULD BE NOTHING — FROM? The free market? It has the monopoly power to create legal-tender money out of thin air. HOW IS THAT THE FAULT OF THE FREE MARKET? MAYBE IF I TYPE IN ALL CAPS, I CAN GET AN ANSWER TO THIS QUESTION.

THE FED WOULD BE NOTHING WITHOUT ITS MONOPOLY POWER TO CREATE LEGAL-TENDER MONEY OUT OF THIN AIR, and the “private” banking system would be radically different and operate under radically different incentives, all of which would solve the problems you’ve identified.

newson March 20, 2009 at 10:08 am

frank v. is wrong: emh’s flaws and logical inconsistencies are dealt with even in undergraduate finance degrees. they also are well known in the industry.

bubbles created by loose monetary policy can endure long enough to enable operators to make an awful lot of money before the models break down calamitously. the incentive is to devise and sell product, and let somebody else fix up the systemic collapse.

also, derivatives only flourish with volatility. their growth was assured after the gold link was severed by nixon, ushering in a new era of unprecedented volatility in all financials.

a strange sort of private corporation indeed, the fed, that disburses all its net profits to treasury.

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