What should the role of government be in a free market economy?
As we live through a truly historic period of time it is useful to reflect on the necessary requirements for a robust capitalist economy. The series of boom/bust cycles created by the Federal Reserve has been getting larger and more extreme with each repetition of the cycle. The last two busts of the dot-com and housing bubbles have been particularly dramatic. In each case, the malinvestments from the previous cycle are not allowed to be purged from the market, thus preventing the economy from having the solid foundation necessary for a real lasting period of prosperity. Instead the government steps in with fiscal stimulus and the Federal Reserve steps in with monetary stimulus. This rewards the politically connected and powerful at the expense of the rest of us. This is not free market capitalism.
It is doomed to end badly and when it does we need to be prepared to thrust ourselves into the intellectual debate about how to best structure a society and its economy.
So what is a free market economy? Simply put it is one where people voluntarily exchange goods and services without government coercion.
The government currently ties a noose around the neck of the free market in a multitude of ways. It has rules and regulations, favors to special interest groups, currency debasement by inflating the money supply, creation of unsustainable booms and their inevitable busts by manipulating interest rates below their natural rates and so on. All these things disrupt the free market. We have been prosperous because the bounty of capitalism has been able to overcome these shackles. When the next shoe drops and the current system ends we must understand that it was all these things that led to its demise.
All is not doom and gloom however. We need not live through a period as severe as the Great Depression or as persistent as Japan’s current 20 year plus doldrums known as the “Lost Generation.” To enjoy prosperity and a rising standard of living we simply need to remove all the obstacles that our government has put in the way of the free market.
There is no way we can make good on all the debt obligations this country has. They will be defaulted on or paid for with newly created money, thereby debasing and eventually destroying the currency. Politics being what it is, and with the banking crisis of 2008 as a guide it is likely to be resolved by a destruction of the dollar.
When this happens it is crucial to remove the causes of the problem. With a sound commodity backed currency and a hands-off government we can thrive again. Free market capitalism will take care of the rest. Sure losses will be taken and those who took unwise risks will be hurt. Many may be ruined financially, but their bankrupt companies will reopen under new management. The capital goods and factories will be sold to new owners better able to understand market risks.
Congressman Ron Paul, the true champion of limited government, understands these ideas more than any other politician. In his own words:
"In a free society, government is restrained – and therefore political power is less important. I believe the proper role for government in America is to provide national defense, a court system for civil disputes, a criminal justice system for acts of force and fraud, and little else."
“I respect the Constitution not because of a nostalgic attachment to an anachronistic document, but because the Founders knew the danger in allowing government to overstep its legitimate functions.”
“A free society can only work when its members agree that there are certain things left to the discretion of individuals — no matter what a temporary majority might think. In practice this means the government must respect private property and the rule of law, or what is also called free-market capitalism.”
Everything the government does should be for the purpose of protecting individual liberty and freedom. The current nanny state mentality of being coddled from cradle to grave will end. When it does free market capitalism is our path back to prosperity. We need to get the government out of the way and allow human ingenuity to work its magic.