Reflecting on the demise of Lehman Brothers and on Bank of America’s purchase of Merrill Lynch, I revisited an article by recent US presidential candidate Ron Paul, posted on mises.org:
Capitalism should not be condemned, since we haven’t had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It’s not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!
It’s hard to agree with Paul on the requirement for a gold or other commodity-based currency: another great believer in freedom, Friedman, dismisses the idea convincingly in Capitalism and Freedom, before asking:
If we can achieve our objectives neither by relying on the working of a fully automatic gold standard, nor by giving wide discretion to independent authorities, how else can we establish a monetary system free from irresponsible governmental tinkering, a system which will provide the necessary monetary framework for a free enterprise economy yet be incapable of being used as a source of power to threaten economic and political freedom?
We need some fine minds on this problem, minds that can find a sound alternative to the present system that will enable the restoration of competitive, free market capitalism and the prospect of avoiding boom and bust.
I see the European Commission is pressing ahead with legislation to “beef up” bank supervision: let’s hope they get it right.