What set in motion the explosive technological advance of the last 250 years was the world of ideas. Great thinkers began to understand the internal logic of the market economy and its potential for liberating mankind from poverty, dependency, and despotic rule.
The standard interpretation of the Panic of 1837 and subsequent recession blamed state bank monetary inflation abetted by President Jackson's removal of the federal deposits from the Bank of the United States.
Using changes in the margin regulation as a stick to beat the stock bubble does not work, fails to solve the underlying problem, and further injures investors by restricting their choices. What Fed Chairman Greenspan didn't know is something that the young Greenspan and his mentor Ludwig von Mises did: that monetary freedom is the way to end market bubbles once and for all.
The prolonged Japanese economic slump is not due to price deflation but is the product of aggressive fiscal and monetary policies aimed at arresting the general fall in prices of goods and services. Contrary to the popular view, as a rule, price deflation is always good news for the economy. Thus, when prices are falling in response to the expansion of real wealth, this means that people's living standards are rising.
With Greenspan’s widely reported "rate cuts" this fall, most people would probably be surprised to find out that the federal funds rate is not set by Greenspan. It would also probably surprise these same people to learn that only weeks after short-term rates hit rock bottom, longer-term rates rose steadily.
Far from an example of a market failure, Enron's saga shows that firms that invest too much in politics can easily become complacent in the face of changing market conditions. In economics, this is called government failure, and we can blame the growing requirement for firms to divert resources to grease palms in Washington as a necessary business investment for its occurrence.
Steve Forbes, the wealthy publisher-presidential hopeful, can be an eloquent defender of free enterprise. But there's another side, too, which was revealed in a recent group discussion on economics that took place on Fox News Channel. Forbes's comments revealed a complete lack of understanding of the basics of a free economy.
Economies do not subside because demand wanes--we could all use a shiny new car, or a beautiful new house pretty much any time. However, in a world where means, unlike wants, are not infinite, we have to be able to offer something in exchange. We do that by first profitably producing things other people require, at a price they are willing to pay, not by stamping our feet and making demands like a petulant 5-year-old.
Making the boom continue at home and abroad has been the prime focus of U.S. monetary policy for quite some time. But among the unintended consequences emerge the broadly based lowering of perceived risk levels in the financial markets and a global spread of careless investment activities.
One day in 1953, an employee of the United States Bureau of Engraving and Printing with a distinguished ten-year employment record and a wife and two young sons, decided to become a thief. And working at the Bureau for the government showed him how he could do it.
