A Crisis of Capitalism?

The Market Economy Under Siege

Βυ  Pater Tenebrarum

Ever since the 2008 financial crisis we have frequently remarked in these pages how ludicrous the assertions are – which keep being repeated ad nauseam in the mainstream media – that the financial and economic crisis was a result of 'laissez faire' allegedly gone too far. Not a week has passed since then without someone coming out and blaming the non-existent free market for the calamity.

First of all, it should be perfectly clear that the Western regulatory democracies do not represent free unhampered market economies. They have a socialistic, centrally planned monetary system and free enterprise and production are restricted by a mountain of licensing laws and administrative legislation that is unsurpassed in the history
of mankind. At the center of the financial crisis we  found in fact  one of the most regulated sectors of the economy.

There is no free banking -  the banking system is a cartel at the center of which there is a central economic planning agency no different in principle from the former Soviet GOSPLAN agency.

Consider in this context the recent refusal of Blackstone chief Stephen Schwartzman to hand over details of his personal finances to the Federal Reserve. Apparently the regulations state that anyone who owns more than a 10% stake in a bank must give the Fed all his personal financial information. In this case, Blackstone along with a few other investors rescued a bank that was about to go belly-up, Bank United. Rather then hand over this information to the Fed, Schwartzman decided to lower his firm's stake in the bank to below 10%. However, for the purpose of this post we only want you to consider a brief snippet from the WSJ article reporting on the situation:

“The matter of Mr. Schwarzman's personal financial information is tied to BankUnited's plans to convert from a savings-and-loan institution to a national bank. The bank proposed the switch last year when it agreed to buy Herald National Bank, a two-branch bank in New York, for roughly $70 million.

As part of the conversion, the Fed requires detailed financial information from "principals" of entities that own more than 10% of the bank's stock. The Fed first requested the information in the fall, according to the people familiar with the situation.

The request stretches to the upper ranks of those firms, according to people familiar with the process. That means top executives of those firms are required to provide comprehensive details about private real-estate holdings, investments and anything else that contributes to their net worth.

"The Fed has always been very careful about who they let into the banking tent," says Harold Reichawald, co-chair of the banking practice at law firm Manatt, Phelps & Phillips, LLP in Los Angeles.”

The are careful who they 'let into the banking tent'? Well, they have to be careful, since banks are a privileged business that is exempted from the traditional legal principles governing property rights. They can expand credit and money from thin air, ultimately the functional equivalent of a mafia boss printing counterfeit bank notes in his cellar, only in their case it's perfectly legal.

However, what this example once again shows us is how little the current financial system has to do with a free market. Whatever it is, it is about as far removed from 'laissez-faire' as one can possibly get short of instituting full-blown socialism.

Recently we received several e-mails from the Financial Times regarding a new series of articles. The paper is well known for its etatiste editorial slant. Its chief writer on economics, Martin Wolf, continually makes the case for more money printing (he does so verbatim, so at least he's not hiding his hoary inflationist theories behind euphemisms) and more deficit spending to rescue the economy from crisis.

The above mentioned series of articles that is currently being published by the paper comes under the heading 'Capitalism in Crisis'. Now, if they had entitled it 'Crony Capitalism in Crisis', or 'State Capitalism in Crisis', then we could perhaps say that the topic is likely to hit the mark. Alas, it is only capitalism as such that is deemed to be in crisis – a term formerly synonymous with the free market economy, but perhaps this is no longer true.

There can be no doubt that the encroachment of statism on the economy has produced a crisis – if one imagines the hampered market economy as a car, then it is a car that has three of its wheels spinning in the air, not getting any traction. The wheels are certainly turning, but to no effect.

Looking at the articles in the FT, we were pleasantly surprised to find a handful that seemed to actually come out in defense of free market principles – ironically one of them was written by Bill Clinton, who argued that 'charity needs capitalism to solve the world's problems'. However, the vast majority seemed far more concerned with 'monitoring' and 'controlling' capitalism, condemning 'consumerism' and so forth. The 'high point' is probably represented by Jeffrey Sachs' article entitled 'Self-interest puts capitalism under threat'. That sounds a bit like the arguments put forward by the methodological collectivists of the Prussian Historicist school in the early 20th century. What shall we do about this 'dangerous self interest'?

There is no 'solution' short of outlawing it.