The Myth that Laissez Faire Is Responsible for Our Present Crisis

Mises Daily: Thursday, October 23, 2008 by George Reisman (http://mises.org/daily/author/143/George-Reisman)

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The news media are in the process of creating a great new

historical myth. This is the myth that our present financial crisis
is the result of economic freedom and laissez-faire capitalism.

The attempt to place the blame on laissez faire is readily

confirmed by a Google search under the terms "crisis + laissez
faire." On the first page of the results that come up, or in the
web entries to which those results refer, statements of the
following kind appear:

"The mortgage crisis is laissez-faire gone wrong."

"Sarkozy [Nicolas Sarkozy, the President of France] said

'laissez-faire' economics, 'self-regulation' and the view that
'the all-powerful market' always knows best are finished."

"'America's laissez-faire ideology, as practiced during the subprime crisis, w as as simplistic as it

was dangerous,' chipped in Peer Steinbrück, the German finance minister."

"Paulson brings laissez-faire approach on financial crisis…."

"It's au revoir to the days of laissez faire."[1]

Recent articles in The New York Times provide further confirmation. Thus, one article declares, "The
United States has a culture that celebrates laissez-faire capitalism as the economic ideal…."[2]
Another article tells us, "For 30 years, the nation's political system has been tilted in fav or of
business deregulation and against new rules."[3] In a third article, a pair of reporters assert, "Since
1997, Mr. Brown [the British Prime Minister] has been a powerful voice behind the Labor Party's
embrace of an American-style economic philosophy that was light on regulation. The laissez-faire
approach encouraged the country's banks to expand internationally and chase returns in areas far
afield of their core mission of attracting deposits."[4] Thus even Great Britain is described as having
a "laissez-faire approach."

The mentality displayed in these statements is so completely and utterly at odds with the actual
meaning of laissez faire that it would be capable of describing the economic policy of the old Sov iet
Union as one of laissez faire in its last decades. By its logic, that is how it would have to describe
the policy of Brezhnev and his successors of allowing workers on collective farms to cultivate plots
of land of up to one acre in size on their own account and sell the produce in farmers' markets in
Sov iet cities. According to the logic of the media, that too would be "laissez faire" — at least
compared to the time of Stalin.

Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright
defiled by such statements as those quoted above. Laissez-faire capitalism is a politico-economic
system based on private ownership of the means of production and in which the powers of the
state are limited to the protection of the individual's rights against the initiation of physical
force. This protection applies to the initiation of physical force by other private individuals, by
foreign governments, and, most importantly, by the individual's own government. This last is
accomplished by such means as a w ritten constitution, a system of division of powers and checks and
balances, an explicit bill of rights, and eternal vigilance on the part of a citizenry w ith the right to
keep and bear arms. Under laissez-faire capitalism, the state consists essentially just of a police
force, law courts, and a national defense establishment, w hich deter and combat those who initiate
the use of physical force. And nothing more.
The utter absurdity of statements claiming that the present political-economic environment of the
United States in some sense represents laissez-faire capitalism becomes as glaringly obv ious as
anything can be when one keeps in mind the extremely limited role of government under laissez-
faire and then considers the following facts about the present-day United States:

1. Gov ernment spending in the United States currently equals more than forty percent of national
income, i.e., the sum of all wages and salaries and profits and interest earned in the country.
This is without counting any of the massive off-budget spending such as that on account of the
gov ernment enterprises Fannie Mae and Freddie Mac. Nor does it count any of the recent
spending on assorted "bailouts." What this means is that substantially more than forty dollars of
every one hundred dollars of output are appropriated by the gov ernment against the will of the
individual citizens who produce that output. The money and the goods involved are turned over
to the government only because the individual citizens wish to stay out of jail. Their freedom to
dispose of their own incomes and output is thus violated on a colossal scale. In contrast, under
laissez-faire capitalism, government spending would be on such a modest scale that a mere
rev enue tariff might be sufficient to support it. The corporate and indiv idual income taxes,
inheritance and capital gains taxes, and social security and Medicare taxes would not exist.

2. There are presently fifteen federal cabinet departments, nine of which exist for the very purpose
of respectively interfering with housing, transportation, healthcare, education, energy, mining,
agriculture, labor, and commerce, and virtually all of which nowadays routinely ride roughshod
over one or more important aspects of the economic freedom of the individual. Under laissez-
faire capitalism, eleven of the fifteen cabinet departments would cease to exist and only the
departments of justice, defense, state, and treasury would remain. W ithin those departments,
moreover, further reductions would be made, such as the abolition of the IRS in the Treasury
Department and the Antitrust Division in the Department of Justice.

3. The economic interference of today's cabinet departments is reinforced and amplified by more
than one hundred federal agencies and commissions, the most well known of which include,
besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC,
FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA. Under laissez-
faire capitalism, all such agencies and commissions w ould be done aw ay with, w ith the exception
of the FBI, w hich would be reduced to the legitimate functions of counterespionage and
combating crimes against person or property that take place across state lines.

4. To complete this catalog of government interference and its trampling of any v estige of laissez
faire, as of the end of 2007, the last full year for which data are available, the Federal Register
contained fully seventy-three thousand pages of detailed government regulations. This is an
increase of more than ten thousand pages since 1978, the v ery years during which our system,
according to one of The New York Times articles quoted above, has been "tilted in favor of
business deregulation and against new rules." Under laissez-faire capitalism, there would be no
Federal Register. The activities of the remaining gov ernment departments and their subdivisions
would be controlled exclusiv ely by duly enacted legislation, not the rule-making of unelected
gov ernment officials.

5. And, of course, to all of this must be added the further massiv e apparatus of laws, departments,
agencies, and regulations at the state and local level. Under laissez-faire capitalism, these too for
the most part would be completely abolished and what remained w ould reflect the same kind of
radical reductions in the size and scope of government activity as those carried out on the
federal level.

What this brief account has shown is that the politico-economic system of the United States today is
so far removed from laissez-faire capitalism that it is closer to the system of a police state. The
ability of the media to ignore all of the massiv e gov ernment interference that exists today and to
characterize our present economic system as one of laissez faire and economic freedom marks it as,
if not profoundly dishonest, then as nothing less than delusional.

Government Intervention Actually Responsible for the Crisis

Beyond all this is the further fact that the actual responsibility for our financial crisis lies precisely
with massive government intervention, above all the interv ention of the Federal Reserve System in
attempting to create capital out of thin air, in the belief that the mere creation of money and its
being made av ailable in the loan market is a substitute for capital created by producing and saving.
This is a policy it has pursued since its founding, but with exceptional vigor since 2001, in its efforts
to overcome the collapse of the stock market bubble w hose creation it had prev iously inspired.

The Federal Reserv e and other portions of the government pursue the policy of money and credit
creation in everything they do that encourages and protects private banks in the attempt to cheat
reality by making it appear that one can keep one's money and lend it out too, both at the same
time. This duplicity occurs when indiv iduals or business firms deposit cash in banks, which they can
continue to use to make purchases and pay bills by means of writing checks rather than using
currency. To the extent that the banks are then enabled and encouraged to lend out the funds that
hav e been deposited in this way (usually by the creation of new and additional checking deposits
rather than the lending of currency), they are engaged in the creation of new and additional money.
The depositors continue to have their money and borrowers now have the bulk of the funds
deposited. In recent years, the Federal Reserve has so encouraged this process, that checking
deposits have been created equal to fifty times the actual cash reserves of the banks, a situation
more than ripe for implosion.

All of this new and additional money entering the loan market is fundamentally fictitious capital, in
that it does not represent new and additional capital goods in the economic system, but rather a
mere transfer of parts of the existing supply of capital goods into different hands, for use in
different, less efficient, and often flagrantly wasteful w ays. The present housing crisis is perhaps the
most glaring example of this in all of history.

Perhaps as much as a trillion-and-a-half dollars or more of new and "Laissez-faire capitalism has a
additional checkbook-money capital was channeled into the housing definite meaning, which is
market as the result of the artificially low interest rates caused by totally ignored,
the presence of an even larger ov erall amount of new and contradicted, and downright
additional money in the loan market. Because of the long-term defiled by such statements…"
nature of its financing, housing is especially susceptible to the
effect of low er interest rates, w hich can serve sharply to reduce monthly mortgage payments and in
this way correspondingly increase the demand for housing and for the mortgage loans needed to
finance it.

Over a period of years, the result was a huge increase in the production and purchase of new
homes, rapidly rising home prices, and a further spiraling increase in the production and purchase of
new homes in the expectation of a continuing rise in their prices.

To gauge the scale of its responsibility, in the period of time just since 2001, the Federal Reserve
caused an increase in the supply of checkbook-money capital of more than 70 percent of the
cumulative total amount it had created in the whole of the prev ious 88 years of its existence — that
is, almost 2 trillion dollars.[5] This was the increase in the amount by which the checking deposits of
the banks exceeded the banks' reserves of actual money, that is, the money they hav e available to
pay depositors who want cash. The Federal Reserv e caused this increase in illusory capital by means
of creating w hatev er new and additional bank reserves were necessary to achiev e a federal funds
interest rate — that is, the rate of interest paid by banks on the lending and borrowing of reserv es —
that was far below the rate of interest dictated by the market. For the three years 2001–2004, the
Federal Reserve drove the federal funds rate below 2 percent and, from July of 2003 to June of
2004, drove it even further down to approximately 1 percent.

The Federal Reserv e also made it possible for banks to operate with a far lower percentage of
reserves than ever before. W hereas in a free market, banks would hold gold reserves equal to their
checking deposits — or at the very least to a substantial proportion of their checking deposits[6] —
the Federal Reserv e in recent years contriv ed to make it possible for them to operate with
irredeemable fiat-money reserves of less than 2 percent.

The Federal Reserv e drove down the federal funds rate and brought about the vast increase in the
supply of illusory capital for the purpose of driving down all market interest rates. The additional
illusory capital could find borrowers only at lower interest rates. The Federal Reserve's goal was to
bring about interest rates so low that they could not compensate even for the rise in prices. It
deliberately sought to achieve a negative real rate of interest on capital, that is, a rate below the
rate at which prices rise. This means that a lender, after receiving the interest due him for a year,
has less purchasing pow er than he had the year before, when he had only his principal.

In doing this, the Federal Reserv e's ultimate purpose was to stimulate both investment and consumer
spending. It wanted the cost of obtaining capital to be minimal so that it would be invested on the
greatest possible scale and for people to regard the holding of money as a losing proposition, which
would stimulate them to spend it faster. More spending, ev er more spending was its concern, in the
belief that that is what is required to avoid large-scale unemployment.

As matters have turned out, the Federal Reserve got its wish for a negative real rate of interest, but
to an extent far beyond what it w ished. It wished for a negativ e real rate of return of perhaps 1 to
2 percent. What it achieved in the housing market was a negativ e real rate of return measured by
the loss of a major portion of the capital invested. In the words of The New York Times, "In the
year since the crisis began, the world's financial institutions have written down around $500 billion
worth of mortgage-backed securities. Unless something is done to stem the rapid decline of housing
values, these institutions are likely to write down an additional $1 trillion to $1.5 trillion."[7]

This vast loss of capital in the housing debacle is w hat is responsible for the inability of banks to
make loans to many businesses to which they normally could and would lend. The reason they cannot
now do so is that the funds and the real wealth that have been lost no longer exist and thus cannot
be lent to anyone. The Federal Reserve's policy of credit expansion based on the creation of new
and additional checkbook money has thus served to giv e capital to unworthy borrowers who never
should have had it in the first place and to deprive other, far more credit worthy borrowers of the
capital they need to stay in businesses. Its policy has been one of redistribution and destruction.

The capital it has caused to be malinv ested and lost in housing is capital that is now unavailable for
such firms as Wickes Furniture, Linens 'N Things, Lev itz Furniture, Mervyns, and innumerable others,
who have had to go bankrupt because they could not obtain the loans they needed to stay in
business. And, of course, among the foremost victims have been major banks themselv es. The losses
they hav e suffered have wiped out their capital and put them out of business. And the list of
casualties will certainly grow.

Any discussion of the housing debacle would be incomplete if it did not include mention of the
systematic consumption of home equity encouraged for several years by the media and an ignorant
economics profession. Consistent with the teachings of Keynesianism that consumer spending is the
foundation of prosperity, they regarded the rise in home prices as a powerful means for stimulating
such spending. In increasing homeowners' equity, they held, it enabled homeowners to borrow
money to finance additional consumption and thus keep the economy operating at a high level. As
matters have turned out, such consumption has served to saddle many homeowners with mortgages
that are now greater than the value of their homes, w hich would not have been the case had those
mortgages not been enlarged to finance additional consumption. This consumption is the cause of a
further loss of capital over and above the capital lost in malinvestment.

A discussion of the housing debacle would also not be complete if it did not mention the role of
gov ernment guarantees of many mortgage loans. If the government guarantees the principal and
interest on a loan, there is no reason why a lender should care about the qualifications of a
borrower. He will not lose by making the loan, however bad it may turn out to be.

A substantial number of mortgage loans carried such guarantees. For example, a New York Times
article describes the Department of Housing and Urban Development as "an agency that greased the
mortgage wheel for first-time buyers by insuring billions of dollars in loans." The article describes
how HUD progressiv ely reduced its lending standards: "families no longer had to prove they had fiv e
years of stable income; three years sufficed… lenders were allowed to hire their ow n appraisers
rather than rely on a government-selected panel … lenders no longer had to interview most
gov ernment-insured borrowers face to face or maintain physical branch offices," because the
gov ernment's approval for granting mortgage insurance had become automatic.
The Times' article goes on to describe how "Lenders," such as Countrywide Financial, which was
among the largest and most prominent, "sprang up to serve those whose poor credit history made
them ineligible for low er-interest 'prime' loans." It notes the fact that "Countryw ide signed a
gov ernment pledge to use 'proactive creativ e efforts' to extend homeownership to minorities and
low -income Americans."[8] "Proactive creative efforts" is a good description of what lenders did in
offering such bizarre types of mortgages as those requiring the payment of "interest only," and then
allowing the avoidance even of the payment of interest by adding it to the amount of outstanding
principal. (Such mortgages suited the needs of homebuyers whose reason for buying w as to be able
to sell as soon as home prices rose sufficiently further.)

Just as vast numbers of houses were purchased based on an unfounded belief in an endless rise in
their prices, so too vast numbers of complex financial derivatives w ere sold based on an unfounded
belief that the Federal Reserve System actually had the power it claimed to have of making
depressions impossible — a power which the media and most of the economics profession repeatedly
affirmed.

Derivatives have receiv ed such a bad press that it is necessary to point out that the insurance policy
on a home is a derivative. And many of the deriv atives that were sold and which are now creating
problems of insolv ency and bankruptcy, namely, "credit default swaps (CDSs)," were insurance
policies in one form or another. Their flaw was that unlike ordinary homeowners' insurance, they did
not have a sufficient list of exclusions.

Homeowners' policies make exclusions for such things as damage caused by war and, in many cases,
depending on the special risks of the local area, earthquakes and hurricanes. In the same way, the
more complex deriv atives should have made an exclusion for losses resulting from financial collapse
brought on by Federal Reserv e–sponsored massive credit expansion. (If it is impossible actually to
write such an exclusion, because many of the losses may occur before the nature of the cause
becomes evident, then such derivatives should not be written and the market will no longer write
them because of the unacceptable risks they entail.) But decades of brainwashing by the
gov ernment, the media, and the educational system had conv inced almost ev eryone that such
collapse was no longer possible.

Belief in the impossibility of depressions played the same role in the creation and sale of
"collateralized debt obligations (CDOs)." Here disparate home mortgages w ere bundled together and
securities were issued against them. In many cases, large buyers bundled together collections of such
securities and issued further securities against those securities. As more and more homeowners hav e
defaulted on their loans, the result has been that no one is able directly to judge the value of these
securities. To do so, it will be necessary to disentangle them down to the lev el of the underlying
individual mortgages. Such tangles of securities could nev er have been sold in a market not
overwhelmed by the propaganda that depressions are impossible under the government's
management of the financial system.

Finally, a discussion of the housing debacle would not be complete if it did not include mention of
forms of virtual extortion that served to encourage loans to unworthy borrowers. Thus, the online
encyclopedia Wikipedia writes,

The Community Reinvestment Act [CRA] … is a United States federal law designed to
encourage commercial banks and savings associations to meet the needs of borrowers in all
segments of their communities, including low- and moderate-income neighborhoods … CRA
regulations give community groups the right to comment or protest about banks' non-
compliance with CRA. Such comments could help or hinder banks' planned expansions.

The meaning of these words is that the Community Reinvestment Act gives the power to "community
groups," to determine in an important respect the financial success or failure of a bank. Only if they
are satisfied that the bank is making sufficient loans to borrowers to whom it would otherwise
choose not to lend, will it be permitted to succeed. The most prominent such community group is
ACORN.
Part and parcel of the environment that has made an act such as the CRA possible, is threats of
slander against banks for being "racist" if they choose not to make loans to people who are poor
credit risks and also happen to belong to this or that minority group. The threats of slander go hand
in glove with intimidation from v arious gov ernment agencies that exercise discretionary power over
the banks and are in a position to harm them if they do not comply w ith the agencies' wishes. The
same points apply to mortgage lenders other than banks.

What this extensiv e analysis of the actual causes of our financial crisis has shown is that it is
gov ernment intervention, not a free market or laissez-faire capitalism, that is responsible in every
essential respect.

The Laissez-Faire Myth and the Marxism of the Media

The myth that laissez faire exists in the present-day United States and is responsible for our current
economic crisis is promulgated by people who know practically nothing whatever of sound, rational
economic theory or the actual nature of laissez-faire capitalism. They espouse it despite, or rather
because of, their education at the leading colleges and universities of the country. When it comes to
matters of economics, their education has steeped them entirely in the thoroughly w rong and
pernicious doctrines of Marx and Keynes. In claiming to see the existence of laissez faire in the midst
of such massive government interference as to constitute the very opposite of laissez faire, they are
attempting to rewrite reality in order to make it conform with their Marxist preconceptions and
view of the w orld.

They absorb the doctrines of Marx more in history, philosophy, "Decades of brainwashing by
sociology, and literature classes than in economics classes. The the government, the media,
economics classes, while usually not Marxist themselv es, offer only and the educational system
highly insufficient rebuttal of the Marxist doctrines and devote … convinced almost everyone
almost all of their time to espousing Keynesianism and other, less- that such collapse was no
well-known anticapitalistic doctrines, such as the doctrine of pure longer possible."
and perfect competition.

Very few of the professors and their students have read so much as a single page of the writings of
Ludwig v on Mises (http://mis es.or g/sto re/Search.aspx?m=13) , who is the preeminent theorist of capitalism and
knowledge of whose writings is essential to its understanding. Almost all of them are thus essentially
ignorant of sound economics.

When I refer to the educational system and the media as Marxist, I do not intend to imply that its
members favor any kind of forcible overthrow of the United States government or are necessarily
even adv ocates of socialism. What I mean is that they are Marxists insofar as they accept Marx's
views concerning the nature and operation of laissez-faire capitalism.

They accept the Marxian doctrine that in the absence of government interv ention, the self-interest,
the profit motive — the "unbridled greed" — of businessmen and capitalists would serve to drive
wage rates to minimum subsistence while it extended the hours of work to the maximum humanly
endurable, imposed horrifying working conditions, and drov e small children to work in factories and
mines. They point to the miserably low standard of living and terrible conditions of wage earners in
the early years of capitalism, especially in Great Britain, and believe that that proves their case.
They go on to argue that only gov ernment intervention in the form of pro-union and minimum-wage
legislation, maximum-hours laws, the legal prohibition of child labor, and gov ernment mandates
concerning working conditions, served to improve the wage earner's lot. They believ e that repeal of
this legislation w ould bring about a return to the miserable economic conditions of the early 19th
century.

They view the profits and interest of businessmen and capitalists as unearned, undeserved gains,
wrung from wage earners — the alleged true producers — by the equivalent of physical force, and
hence regard the w age earners as being in the position of virtual slaves ("wage slaves") and the
capitalist "exploiters" as being in the position of v irtual slave ow ners. Closely connected w ith this,
they regard taxing the businessmen and capitalists and using the proceeds for the benefit of wage
earners, in such forms as social security, socialized medicine, public education, and public housing,
as a policy that serves merely to return to the wage earners some portion of the loot allegedly
stolen from them in the process of "exploitation."
In full agreement with Marx and his doctrine that under laissez-faire capitalism the capitalists
expropriate all of the wage earner's production above what is necessary for minimum subsistence,
they assume that the government's intervention harms no one but the immoral businessmen and
capitalists, never the wage earners. Thus not only the taxes to pay for social programs but also the
higher w ages imposed by pro-union and minimum-wage legislation are assumed simply to come out of
profits, with no negative effect whatever on wage earners, such as unemployment. Likewise for the
effect of gov ernment-imposed shorter hours, improved working conditions, and the abolition of
child labor: the resulting higher costs are assumed simply to come out of the capitalists' "surplus
value," never out of the standard of living of w age earners themselv es.

This is the mindset of the w hole of the left and in particular of the members of the educational
system and media. It is a view of the profit motive and the pursuit of material self-interest as
inherently lethal if not forcibly countered and rigidly controlled by gov ernment intervention. As
stated, it is a view that sees the role of businessmen and capitalists as comparable to that of slave
owners, despite the fact that businessmen and capitalists do not and cannot employ guns, whips, or
chains to find and keep their workers but only the offer of better w ages and conditions than those
workers can find elsewhere.

Not surprisingly, the educational system and media share the view of Marx that laissez-faire
capitalism is an "anarchy of production," in which the businessmen and capitalists run about like
chickens without heads. In their view, rationality, order, and planning emanate from the
gov ernment, not from the participants in the market.

As I say, this, and more like it, is the intellectual framework of the great majority of today's
professors and of several generations of their predecessors. It is equally the intellectual framew ork
of their students, who have dutifully absorbed their misguided teachings and some of whom hav e
gone on to become the reporters and editors of such publications as The New York Times, The
Washington Post, Newsweek, Time, and the ov erwhelming majority of all other newspapers and
new s magazines. It is the intellectual framework of their students w ho are now the commentators
and editors of practically all of the major television networks, such as CBS, NBC, ABC, and CNN.[9]
And it is this intellectual framework within which the media now attempts to understand and report
on our financial crisis.

In their view , laissez-faire capitalism and economic freedom are a formula for injustice and chaos,
while government is the voice and agent of justice and rationality in economic affairs. So firmly do
they hold this belief, that when they see w hat they think is ev idence of large-scale injustice and
chaos in the economic system, such as has existed in the present financial crisis, they automatically
presume that it is the result of the pursuit of self-interest and the economic freedom that makes
that pursuit possible. Given this fundamental attitude, the principle that guides contemporary
journalists so-called is that their job is to find the businessmen and capitalists who are responsible
for the evil and the government officials w ho set them free to commit it, and, finally, to identify
and support the policies of government intervention and control that will allegedly eliminate the evil
and prev ent its recurrence in the future.

Their fear and hatred of economic freedom and laissez-faire capitalism, and their need to be able to
denounce it as the cause of all economic ev il, is so great that they pretend to themselv es and to
their audiences that it exists in today's w orld, in w hich it clearly does not exist even remotely. By
making the claim that laissez faire exists and is what is responsible for the problem, they are able to
turn the full force of their hatred for actual economic freedom and laissez-faire capitalism against
each and every sliver of economic freedom that somehow manages to exist and which they decide
to target. That sliver, they project, is part and parcel of the starvation of the w orkers in the
inhuman exploitation of labor that, in their ignorance, they take for granted is imposed by capitalists
under laissez faire. Their brainw ashed audience — as much the product of the contemporary
educational system as they themselves — then quickly follows suit and obliges their efforts to arouse
hatred.

The result is summed up in w ords such as these, which appeared in one of the same New York Times
articles I quoted earlier:
 "We now have a collective anger, disgust, over our whole financial system and it's obvious
we're going to get a regulatory backlash…" [with] a spillover effect to other industries
because voters hav e the perception that "big companies are animals and they need to be
put in their cages."[10]

In this way the enemies of capitalism and economic freedom are able to proceed in their campaign
of economic destruction and devastation. They use the accusation of "laissez faire" as a kind of
ratchet for increasing the government's pow er. For example, in the early 1930s they accused
President Hoover of following a policy of laissez faire, even as he intervened in the economic
system to prevent the fall in wage rates that was essential to stop a reduced demand for labor from
resulting in mass unemployment. On the basis of the mass unemployment that then resulted from
Hoover's intervention, which they succeeded in portraying as "laissez faire," they deceived the
country into supporting the further massive interventions of the New Deal.

Today, they continue to play the same game. Always it is laissez

faire that they denounce, and whose alleged failures they claim
need to be ov ercome with yet more government regulations and
controls. Today, the massive interventions not only of the New
Deal, but also of the Fair Deal, the New Frontier, the Great
Society, and of all the administrations since, have been added to
the very major interventions that existed even in the 1920s and to
which Hoover very substantially added. And yet w e still allegedly
hav e laissez faire. It seems that so long as anyone manages to
mov e or even breathe without being under the control of the
gov ernment, laissez faire allegedly continues to exist, which serves
to make necessary yet still more government controls.
(http://mises.o rg/st ore/C apita lism-
The logical stopping point of this process is that one day everyone P188.aspx)

will end up being shackled to a w all, or at the very least being "Th e enemies of capitalism and
compelled to do something comparable to liv ing in a zip code that econom ic freedom … use the accu sation
of 'lai ssez faire' as a kin d of ratch et for
matches his social security number. Then the gov ernment will increasing the government's power."
know who everyone is, w here he is, and that he can do nothing
whatever without its approval and permission. And then the world will be safe from anyone
attempting to do anything that benefits him and thereby allegedly harms others. At that point, the
world will enjoy all the prosperity that comes from total paralysis.

George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics

(ht tp:// www.c apita lism.net/C apita lism/ CAPITALISM _Internet.pdf)
. (ht tp:// www.c apita lism.net/C apita lism/ CAPITALISM _Internet.pdf) (A
PDF replica of the complete book can be dow nloaded to the reader's hard drive simply by clicking
on the book’s title, immediately preceding, and then saving the file when it appears on the screen.)
He is Pepperdine University Professor Emeritus of Economics. His web site is w ww.capitalism.net
(ht tp:// www.c apita lism.net/)
. His blog is at ww w.georgereisman.com/blog/ (htt p://www.georger eisma n.com/blog /) .
Comment on the Mises blog (http:/ /blog .mises.org /archives/ 00882 9.asp) .
Copyright © 2008 by George Reisman. All rights reserv ed.

Notes

[1] See http://www .volunteertv.com/international/headlines/29762874.html

(ht tp:// www.v olunt eertv .com/ inter natio nal/headlines/2 97628 74.ht ml)
.
[2] Stev e Lohr, "Interv ention Is Bold, but Has a Basis in History," October 14, 2008, p. A14.
[3] Jackie Calmes, "Both Sides of the Aisle See More Regulation," October 14, 2008, p. A15.
[4] Landon Thomas Jr. and Julia W erdigier, "Britain Takes a Different Route to Rescue Its Banks,"
October 9, 2007, p. B7.
[5] I arrive at these figures by calculating total checking deposits in January of 2001 and in August
of 2008 as the sum of those contained in M1, the "sweep" accounts compiled by the Federal
Reserve Bank of St. Louis, and money market mutual fund deposits, both retail and institutional.
From these respective totals I subtract total bank reserves as of the same dates. I then subtract
the result for 2001 from that for 2008 and divide the difference by the sum calculated for 2001.
[6] If the creation of checkbook money in excess of currency holdings is in fact an attempt at
cheating, as I described it earlier, then it follows that a free market w ould actually require a 100
percent reserve.
[7] Joe Nocera, "Shouldn't W e Rescue Housing?" October 18, 2008, p. B1.
[8] David Streitfeld and Gretchen Morgenson, "The Reckoning, Building Flawed American Dreams,"
October 19, 2008, p. A26.
[9] For a comprehensive refutation of all aspects of this intellectual framework, see George
Reisman, Capitalism: A Treatise on Economics (ht tp:// mises .org/ store/Capitalis m-P18 8.aspx) (Ottawa, Illinois:
Jameson Books, 1996), chapters 11, 14, and passim.
[10] Jackie Calmes, loc. cit.