of the Market'?
by Thomas E. Woods, Jr.
by Thomas E. Woods, Jr.: The
Cult of Reagan, and Other Neocon Follies
released yesterday by the Pontifical Council for Justice and Peace
calling for a world economic authority and condemning the "idolatry
of the market" could have been written by any number of secular
think-tanks in the United States.
It is also
deeply confused. On the one hand, it speaks of excessive money growth
as a problem that can lead to "speculative bubbles" whose
bursting can do significant damage to economies around the world.
On the other, it calls for a world economic authority that will…what?
Be exempt from the errors and hubris of government officials and
national central banks?
We were assured
that the best and the brightest were running the Fed. These were
people who told us the rise in housing prices was attributable to
strong fundamentals. There was no housing bubble. Alan Greenspan
told people to take out adjustable-rate mortgages. Ben Bernanke
said in 2006 that lending standards were sound. And so on.
interest rates might have discouraged crazed speculation in real
estate, the Fed kept the mania going by maintaining low rates. When
the market was trying to send us red lights, in other words, the
Fed was turning them all green.
Had we really
been engaged in "idolatry of the market," as the Vatican
document suggests, we might have listened to the market. Instead,
the central authorities drowned out what the market was trying to
It’s been idolatry
not of the market but of central banks, institutionalized sources
of moral hazard and financial instability around the world, that
has yielded us the boom-bust cycle. (The aura of infallibility and
the cult of personality surrounding Fed chairmen make the language
of idolatry more than mere poetic license.)
misdiagnosis of the crisis now engulfing us has led to the frequent
claim that lax regulation, or deregulation, must have caused it,
and that better supervision of the system can prevent future crises.
This is a delusion, albeit a common one.
In the United
States we have 115 agencies that regulate the financial sector,
and the Securities and Exchange Commission never had a bigger budget
or staff than under George W. Bush. There has been a threefold (inflation-adjusted)
increase in funding for financial regulation since 1980. For reasons
I’ve explained in my 2011 book Rollback,
the repeal in 1999 of one provision of Glass-Steagall had zero to
do with the financial crisis. Europe has never operated under Glass-Steagall-style
restrictions and is none the worse for it. There is no repealed
regulation that would have prevented the crisis consuming the world
industry is by far the least laissez-faire sector of the U.S. economy;
it is a cartel arrangement overseen by the Federal Reserve and shot
through with monopoly privilege, bailout protection, and moral hazard.
malaise, therefore, does not call for another layer of supervision,
as the Pontifical Council appears to think. It calls for a serious
moral and economic reevaluation of institutions, among them central
banking and fiat money, that we have long taken for granted, and
in support of which all manner of historical and theoretical fallacies
have taken widespread root.
The last thing
we need is a larger, more centralized version of what we have now.
Our problem isn’t greedy people or bad personnel. Every society
and every period of world history have had those. The problem is
the system itself.
moral case can be made for a genuinely free economy, one not subject
to the cronyism and manipulation at the heart of the present system.
The chief obstacle in the way of such an outcome is the central
bank, the anomalous central planning agency at the heart of a free
economy. We’ve been assured that the central bank has found a shortcut
to prosperity by managing the economy with its highly touted macro
tools and by second-guessing the interest rates to which the free
interactions of individuals give rise. The result has been bubble
after bubble and – contrary to popular belief – far more banking
and currency crises and overall instability than was ever seen in
the oft-misunderstood era that preceded the age of central banking.
document reflects a vague sense of what is wrong, but any solution
that involves reposing our confidence in still another layer of
time-serving drones supervising a largely unchanged system is no
real solution at all.
a more detailed reply to a very similar document, see my article
and Charity," and for a more general defense of the market,
see my book The
Church and the Market: A Catholic Defense of the Free Economy.
E. Woods, Jr. [send him
his website], a senior fellow of the Ludwig von Mises
Institute, is the author of eleven books, most recently Rollback:
Repealing Big Government Before the Coming Fiscal Collapse and
How to Resist Federal Tyranny in the 21st Century, as well
as the New York Times bestsellers Meltdown:
A Free-Market Look at Why the Stock Market Collapsed, the Economy
Tanked, and Government Bailouts Will Make Things Worse and
Politically Incorrect Guide to American History. He is
also the editor of five other books, including the just-released
on the Road to Serfdom.
© 2011 by LewRockwell.com. Permission to reprint in whole or in
part is gladly granted, provided full credit is given.
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