Ever since the 2008 financial crisis, the free market has been blamed by the left-wing as being responsible for the downturn, with governments and major central banks supposedly perpetuating capitalism. Even someone like the former president of the European Central Bank, Mario Draghi, has been accused as a capitalist and an alleged neoliberal, all the while he fervently said he would do anything which was required to save the euro."
This of course happened while he was kicking off another indefinite quantitative easing programme, one of the largest public interventions in the European economy in recent history, though admittedly nothing in comparison to what the US Federal Reserve is doing as we speak. Of course, the buck has now been passed to Christine Lagarde, who is now expected to save the euro – but that's a story for another time.
How can a third-party observer see this as a sign of free-market capitalism?
Indeed, if those that see neoliberalism as the perpetrator of any crisis looked closer, they would find that the 2008 financial meltdown has been for the most part a consequence of the Federal Reserve basing its actions on Keynesian economics, and other central banks following suit. Briefly, the main premise of Keynesianism is that the government can efficiently regulate markets by controlling interest rates and money supply in the economy. Starting in 1987 under the leadership of Alan Greenspan, the Fed pursued a policy of cheap credit via low interest rates, invariably leading to a housing boom in the economy.
Ben Bernanke, Greenspan's successor in 2006, attempted to take things a step further but fell short of sustaining the boom due to short-term policies that profited short term bonds over long term bonds. There was also an incentive for short risky credit for businesses and personal consumption which brought the US closer to the economy as it is known it today. Despite attempts to salvage the wavering system through higher interest rates, the housing bubble collapsed and caused global financial and economic collapse everywhere.
This series of events represents one thing: the consequences of government intervention into the economy through central bank activity – which is by definition, an anti-free-market policy. As cracks in the economy surface, these interventionist policies continue to incentivise immediate consumption while punishing savers, consequently changing time preferences of economic agents and disrupting the structure of production by decree, not by merit. How would a monetary system look on the free market?
Two examples are Friedman's sustained rate of credit expansion and Hayek's denationalisation of money. Friedman was the main spearhead of the Monetarist School of Chicago, with his thesis being that monetary policy was the main influencing factor in the business cycle. In his 1963 book, A Monetary History of the United States, he proposed that in order to nullify the effects of monetary policy, the best solution was a continuous and constant yearly credit expansion kept below the real growth rate to prevent inflation, otherwise known as currency debasement.
Friedman wasn't an advocate of monetary shock policies to incentivise short-term growth, which has to be paid with ever-rising debt levels. He believed monetary policy should be oriented towards a long-term growth perspective.
One of the most prominent and outspoken representatives of the Austrian School of Economics, Friedrich Hayek, suggested money should be completely privatised in his 1978 book, The Denationalization of Money. Hayek writes that competing currencies will lead to greater caution in terms of private monetary "policy".
As Nassim Nicholas Taleb would say, this would mean that central banks would finally have skin in the game, and would have to adjust accordingly. The expansions or contractions of the money supply would entirely depend on the issuing institutions, leaving interest rates completely at the mercy of the free market. In addition, Hayek extrapolated that after some time, since money has to be widely accepted as a medium of exchange (in order for it to be useful), the number of currencies circulating in the economy would naturally constrict as the market's monies of choice emerge.
These proposals are what central bankers and monetary specialists should turn to, and it is these proposals opponents of capitalism should argue against rather than wild Che-Guevaran accusations of a system of being neoliberal. While there is no such thing as a free market utopia, the same way there is no such thing as a communist or socialist utopia, it's fair to say that common sense and reason can be applied to both with notably different outcomes. And poor tools ridden with fallacies and inaccuracies as they may be, they have stood the test of time with millennia of thought and research attesting to their usefulness. Needless to say, if socialists understood economics, they wouldn't be socialists.
Today, we're living in extraordinary times where private, government and public money exist at the same time, giving normal people the opportunity to opt out of fiat by exchanging their paper for inflationary hedges like gold, bitcoin and other things that retain their value (or at the very least don't lose 10 per cent per annum).
If anything at all, this pandemic has brought real alternatives to the limelight as central bankers scramble to put another band-aid on the economy as they attempt to kick the can down the road again. However, the underlying reality is that fiat currencies, bitcoin and private cryptocurrencies are in conflict, which is set to be exacerbated as the halving countdown slowly ticks to zero.
At the end of the day, sound money will win out in whichever form it may take. The clock is ticking and the race is on.
Christopher Attard is the founder of www.chrisoncrypto.com