The Financial Post is running my piece this morning in its opinion page presenting the Austrian perspective on the financial crisis and criticizing the followers of Milton Friedman who've been supporting, along with left-Keynesians (and Karl Marx!) statist and inflationist policies.



Le Financial Post publie ce matin mon article d'opinion sur la crise financière, qui présente le point de vue autrichien et critique celui des partisans de Milton Friedman qui se rangent, avec la gauche keynésienne (et avec Karl Marx!), du côté des partisans de l'étatisme et de l'inflation.

MM

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Bailout marks Karl Marx's comeback

Martin Masse

Financial Post, September 30, 2008, FP13

In his Communist Manifesto published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes over power, with the aim of centralizing all instruments of production in the hands of the state. Proposal #5 was to bring about the "centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly."

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.

Indeed, analysts at several organisations known to oppose government intervention, and commentators in the Wall Street Journal and in this very page, have made declarations in favour of the massive "injection of liquidities" engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled $700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dotcom bubble in 2001.

"Whatever happened to the modern followers of my free-market opponents?" Marx would likely wonder.

At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.

So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets?

The rationale for intervening always seems to centre on the fear of reliving the Great Depression. If we let too many institutions fail because of insolvency, we are being told, there is a risk of a general collapse of financial markets, with the subsequent drying out of credit and the catastrophic effects this would have on all sectors of production. This opinion, shared by Ben Bernanke, Henry Paulson and most of the right-wing political and financial establishments, is based on Milton Friedman's thesis that the Fed aggravated the Depression by not pumping enough money into the financial system following the market crash of 1929.

It sounds libertarian enough. The misguided policies of the Fed, a government creature, and bad government regulation are held responsible for the crisis. The need to respond to this emergency and keep markets running overrides concerns about taxing and inflating the money supply. This is supposed to contrast with the left-wing Keynesian approach, whose solutions are strangely very similar despite a different view of the causes.