The current, worldwide economic crisis of 2008 and, especially, the terrible situation in the United States are usually being blamed upon the “known” failures of free-market economics or capitalism.  This is, unfortunately, the predominant stereotypical viewpoint that had been regularly offered up by most intellectuals, academicians, various pundits, and others regarding what had happened.  The case-in-point discussed here will be just the USA.   So, what really, actually, occurred?

Various government mandates given to (forced upon) banks regarding the making of mortgage loans to actually unqualified borrowers, supported by always excessive amounts of government-backed money, eventually precipitated the main crisis of massive defaults of mortgages all across the country.  The freemarket economy became terribly warped and distorted for ideological ends.  Liquidity, there was too much of it, in the American financial system is not, as popularly and ignorantly believed, the true problem; stupidity is. 

Those above noted anti-economic mandates, starting most prominently under the Carter Administration and added to more significantly by the Clinton Administration, acted as the known means of necessarily overregulating the banking/mortgage industry’s previous conduct; this covers, unsurprisingly, at least the late 1970s up to and including the present time. 

What can be properly described as an overdose of extra-market liquidity strongly ruined any sense of exact (read: honest) economic calculations and judgments.  Ideological judgments are always extrinsic to the realities of the freemarket economy’s operations.

Cause and effect are deliberately confounded and confused by progressivist/leftist ideologists; it was, in fact, the dis-economic ability of the government to (wrongly) make the money available that had provoked the ability of capitalists to exercise the observed greed, not vice versa; this is the nature and source of the true corruption involved, meaning the many financial and political incentives (instituted actively by the government) to become corrupt and, in effect, to better institutionalize the corrupt activities themselves.

Throwing more and more good money after bad money will not, therefore, ever get to the heart of the problem; it will, over time, greatly exacerbate it by logically provoking other crises, in the near future and later, toward then developing into a terrible economic depression, the opposite of what is supposed to happen.

Thus, what is ever falsely called the failure of capitalism due to the presumed existence of the purported “business cycle” is really, on the contrary, the direct effect of government intervention in the economic system; an interventionist cycle actually exists, not one due to business.   

According to the Austrian School of Economics (ASE), there is no such thing as a business cycle according to what is meant by it, meaning that cyclical market failures are naturally caused by the inherent flaws always existing within the free market itself as an economic mechanism.  Capitalism, defined here as state-interventionist economics, did fail, not freemarket economics, as properly understood and correctly defended by the ASE.

The popular recommendations for handling the government-provoked crisis are, generally, irrationally based upon the ancient, venerable superstition that more of the same poison, meaning overregulation, will cure the inherent disease caused by previous the overregulation. There seems to be, consequently, no real limit to human stupidity.   The politicians in charge ought to have seen the crisis coming long ago because it was, as Austrian-tradition economists knew, definitely predictable and not at all an accidental situation.

Instead of using actual, market-related mechanisms to help with the government-created economic crisis such as not interfering in the market by, for at least two years, suspending all corporate taxation and all capital gains taxes, the government, however, will not simply raise the bridge; it will lower the river of debt by enhanced attempts at manipulating economic conditions that, in fact, had infamously called this unnecessary crisis into existence. 

This will be done by using various kinds of quasi-fascist/socialist interventionist schemes that will, consequently, greatly deform and vilely distort requisite market economics; to sort of use the old but valid proverb, the asserted cure will prove much worse than the purported disease.

The American government will, whether directly or indirectly, portray the situation as having mainly been caused by a cabal of greedy businessmen on Wall Street, which is partly true/partly false; it is true that many politicians, from both major political parties, had facilitated acts of enormous greed by those businessmen and allied bureaucrats (often indistinguishable types) who had, logically and willingly, reciprocated by financially contributing to the political campaigns of their patrons.  

This is surely typical of the true workings of capitalism, moreover, and diametrically opposed to the mechanism known as actual freemarket economics, which abhors such improper interference with the proper workings of the market economy, according to the ASE.

As a sad consequence of the added attempts at corrupting the market economy, by supposedly trying to handle the crisis, it should surprise no one when an economic depression occurs; after all, the Securities and Exchange Commission (SEC) and other such entities were deliberately created due to the last depression of the 1930s, which was called the Great Depression, to, one assumes, necessarily prevent the very kind of crisis that had occurred in 2008.  

The well noted and widely perceived failure of the SEC and other regulatory agencies is now, however, said to call forth the (illogical) further need for strengthening and enhancing yet more regulation, which seems the very definition of gross asininity. 

Instead of freeing the market to allow it to naturally correct the grave mistakes made by anti-economic government activities, the politicians will claim, ironically, that they really need to add further and further degrees of regulation to correct the situation, which will, in fact, make matters much worse.  Any effort to deal with effects and not causes will decisively ignore, both substantively and substantially, the true economic reality involved and, instead, fatally misdirect attention toward erroneous elements of the alleged problem that (supposedly) requires a solution. 

As is well known to the ASE, overregulation merely adds to the fundamental anti-economic error of seeking to incorrectly regulate what ought to always remain the free activities of the market economy to adjust to the various and variable changes of supply and demand; this is properly done, therefore, by intelligently allowing for the freedom of economic actors to act in appropriate terms of the various demands, realities, opportunities, constraints, and informational conditions of the market, not the government’s ideological/political preferences. 

In line with the thinking of the ASE, furthermore, this profoundly means that all such necessarily corrupt forms, degrees, types, etc. of statist interventionism must be logically and rationally eliminated — why? – so that capitalism can then be rightly replaced by actual freemarket economics.  The latter stresses entrepreneurship, competition, risk, innovation, and invention, contrary to capitalism. And, this will be the best way to resolve all of the main issues, related directly and indirectly, to this important economic crisis and will, thus, easily help to actually prevent a depression. 

Will this truly sound economic advice be followed?   Of course not.  People usually prefer to believe in superstition, meaning, in this case, statism, when they lose faith in the truth, in the workings of freemarket economics.  Wall Street, of course, represents the epitome of capitalism, so it is not surprising that the government desires to help the capitalists with the bailout bill, which seeks, as usual, to rape the taxpayers for the benefit of better worshipping capitalist greed; the conditions that created the situation will be made worse.

In case some explanation of the particular point of view examined in this article may need some extrapolation, it can be easily noted that the Austrian School of Economics can be generally traced back to the 1871 publication of Carl Menger’s Principles of Economics (Grundsätze der Volkswirtschaftslehre). Two of Menger's students, Eugen von Böhm-Bawerk and Freidrich von Wieser, well added to his work and by making notable contributions of their own.  Especially important is Böhm-Bawerk's analysis of capital and interest. 

From the 1920s to 1940s, Ludwig von Mises and Friedrich A. von Hayek stayed within the Austrian tradition concerning such matters, e.g., as the impossibility of economic calculation under socialism.

Austrian analysis had been increasingly neglected by the mainstream economics profession during the 1950s and 1960s.  However, the awarding of the Nobel Prize in economics to Hayek in 1974, added to the spread of Mises's ideas by his students and followers, led to a rather dramatic revival of the Austrian school.  Thus, it stands forever in direct opposition to all the other traditions of economic analysis by adamantly opposing any kinds of anti-economic, interventionist manipulations within any freemarket system whatsoever.

A short introductory reading list might include: Richard M. Ebeling, ed., Austrian Economics: A Reader (Hillsdale, MI: Hillsdale College Press, 1991); Bettina Bien Greaves, ed., Austrian Economics: An Anthology (Irvington-on-Hudson, NY: Foundation for Economic Education, 1996); Peter J. Boettke, ed., The Elgar Companion to Austrian Economics (Brookfield VT: Edward Elgar, 1994); Richard M. Ebeling, ed., Austrian Economics: Perspectives on the Past and Prospects for the Future (Hillsdale, MI: Hillsdale College Press, 1991);  Israel M. Kirzner, ed., Classics in Austrian Economics: A Sampling in the History of a Tradition, 3 vols. (London: William Pickering, 1994); and Stephen C. Littlechild, ed., Austrian Economics, 3 vols. (Brookfield, VT; Edward Elgar, 1990).

One can, also, consult such interesting pro-freemarket websites as:  http://mises.org and LewRockwell.com and, of course, by reading the writing of such current expositors as Llewellyn H. Rockwell, Jr.

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