Even before Ben Bernanke and Ted Geithner were born, the great libertarian economist Ludwig von Mises explained the causes of the boom-bust trade cycle and how to avoid economic crisis. See, for instance, Mises’ “Monetary Stabilization and Cyclical Policy,” 1928 (translated in “On the Manipulation of Money and Credit,” 1978). But Bernanke and Geithner are like plumbers who, called on to stop the bathroom sink from overflowing, pay little or no attention to the fact that the water is flowing briskly. Instead of turning the faucet off, they turn it on still further to make the water run faster and harder. It is as if they wanted the water outside the sink to come up to the level of the water in the sink. Their bailout schemes and stimulus packages will inevitably result not only in fantastic increases in the number of dollars (inflation) but will distort prices and make it impossible for market participants to calculate an enterprise’s potential income and outgo with any degree of certainty.
The economy, we must remember, is not a consolidated “thing,” a single entity that can be pushed, pulled, prodded, and controlled. Instead, it is the outcome of countless actions and interactions of individuals buying, selling, speculating, saving, consuming, and investing, each in accordance with what he considers his own best interest, under the circumstances. And the economy is always in flux; all economic conditions and all aspects of the economy are always changing. The mechanics of our banking system have changed, but the principles remain the same.
