FORUM: by Hal G.P. Colebatch and John BallantyneNews Weekly
Free markets and libertarianism
, February 7, 2009
Western Australian author and political commentator Dr Hal G.P. Colebatch and News Weekly editor John Ballantyne discuss the merits of different schools of free market economics.
There have been many voices proclaiming, some not without glee and schadenfreude
, that the present economic problems are the fault of deregulation and the market economy.
To cross a pons asinorum
first, NO serious market economist — not Adam Smith, Alfred Marshall, von Mises, von Hayek, Milton Friedman, Murray Rothbard or any of their schools or followers, to name some of the more widely known — has suggested that NO regulation is necessary.
The present problems, however, are not caused by the absence of regulation but by the presence of the wrong sort of regulation. They are not a refutation of market-capitalism and classical economic theory but a proof and vindication of them, and also of the unrepealable nature of the laws of supply and demand.
The greatest single cause of the present problems is that US lending institutions were forced by regulation and political pressure to lend mortgage money to people who were unlikely to be able to repay it. Moral Hazard was ignored.This was largely initiated by the actions of anti-free market community groups associated with the Democrat Party. I understand the Republicans tried to stop this but were blocked by the Senate. It is to be hoped that the whole history of the matter will be thoroughly aired, and those really responsible dealt with.
However, to suggest this disproves market capitalism and the work of generations of economists makes no more sense than suggesting the crash of a space-shuttle disproves Copernicus or Gallileo.Hal G.P. Colebatch,
;News Weekly replies:
Even if one were to accept Hal Colebatch's controversial view that government-mandated sub-prime loans were the "greatest single cause" of the world's present financial problems, it is simply not true that none of the free-market economists he names ever suggested that no regulation of the economy was necessary.
He lists a number of free-market economists whose careers cover a span of more than two centuries, and who were by no means in complete agreement on the role of government in the economy. Adam Smith and Alfred Marshall were in favour of judicious but limited regulation. The other economists Colebatch names were, by contrast, radical libertarians, and, contrary to Colebatch's belief, they were pretty much opposed to any government regulation at all.
Murray Rothbard, in particular, was a self-styled anarcho-capitalist. In his 1970 book, Power and Market
, he equated every sort of government measure with "violent aggression". He demanded that government relinquish control of law courts, police and armed forces and let them be run by private firms. He also called for the repeal of all restrictions on child labour, including laws "requiring 'working papers' and all sorts of red tape before a youngster can be hired" (pp.41-42).
As Rothbard was adamantly against antitrust laws and preferred private coinage to government/ central bank issue of money, he would have condemned any sort of regulation of the financial sector.
In his younger days, Austrian-born economist F.A. Hayek favoured at least some limited government regulation of the economy. His popular 1944 work, The Road to Serfdom
, while it extolled the superiority of free enterprise over centralised government planning, was still politically moderate enough to win some grudging respect, both from his adversary, Cambridge economist J.M. Keynes, and from George Orwell, then still very much a socialist.
However, from 1960 onwards, Hayek, under the influence of American libertarians, adopted increasingly bizarre economic positions. Two 1976 monographs of his, Choice in Currency
and Denationalisation of Money
, called for the issuing and control of currencies to be privatised. Even such a warm advocate of free markets as former Secretary to the federal Treasury, John Stone, has condemned Hayek's scheme.
Hayek did not help his reputation — he was the 1974 winner of the Nobel Prize for Economics — when he and Murray Rothbard warmly endorsed Walter Block's foolish libertarian polemic, Defending the Undefendable
(1976), in which Block defended the slanderer and libeller, the person who yells "Fire!" in a crowded theatre, the drug-pusher, the employer of child labour, the blackmailer, the dishonest cop and many others.
These are just some of the reasons News Weekly
readers are a little cool towards radical libertarianism, regarding it as being antithetical to traditional Christian values — values which Dr Colebatch, to his great credit, has championed in his many writings.
In contrast to Rothbard and his ilk, Adam Smith, the father of modern political economy, was much closer in spirit to News Weekly
. In his seminal 1776 work The Wealth of Nations
he warned not only against excessive government taxation and regulation ("There is no art of which one government sooner learns of another than that of draining money from the pockets of the people"), but also denounced "the mean rapacity, the monopolising spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind".John Ballantyne.