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<div id="conspiracy">
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<p>SOMETHING MUST BE DONE!</p>
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<p>By RICHARD M. EBELING</p>
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<p>During hard times there are few phrases as frequently heard
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as, "Something must be done!" And what is usually meant by the
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phrase is that governmental action is needed to cure the
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economic woes of society.</p>
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<p>In other words, government spending should be increased to
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raise the demand for goods and services; interest rates should
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be lowered to stimulate investment activity; protection should
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be given to domestic producers to insulate them from the
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unscrupulous "poaching" of foreign producers; public-works
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projects should be used to guarantee a job at a "living wage"
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to all of those desiring to work.</p>
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<p>We live in an era that has seen the bankruptcy of socialism,
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the failure of the welfare state, the corrupting influences of
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governmental regulatory activity, the irresponsibility of
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government deficit-spending and the unprincipled political
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pandering to every conceivable special-interest group. And yet
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still the cry is heard: "Something must be done!"--by the
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government.</p>
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<p>Fifty-five years ago, the English economist John Maynard
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Keynes published his book The General Theory of Employment,
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Interest and Money. He ended the volume by pointing out to his
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readers, "The ideas of economists and political philosophers,
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both when they are right and when they are wrong, are more
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powerful than is commonly understood. Indeed the world is
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ruled by little else. Practical men, who believe themselves to
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be quite exempt from any intellectual influences, are usually
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the slaves of some defunct economist."</p>
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<p>At the end of the twentieth century, Americans, and indeed
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practically the entire world, are the slaves of defunct
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collectivist economists of half a century ago. Faced with the
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trauma and tribulations of the Great Depression, intellectuals
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of almost every stripe came to the conclusion that individual
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freedom and free markets could not be trusted to either
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deliver the goods or the jobs that seemed to be so desperately
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needed. Their only disagreements were over the form which
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government management should take.</p>
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<p>Marxists looked to Moscow and Stalin's five-year plans. A
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socialist command economy might be harsh and lacking in some
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of the "bourgeois" freedoms, they believed, but at least
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everyone had a job; and planning assured that society's
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resources would not stand idle.</p>
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<p>Fascists looked to Rome and Berlin. Even though Hitler's
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racial policies in the 1930s became an uncomfortable
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embarrassment, fascism, as an economic system, still appealed
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to many. Here, government did not have to nationalize
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industry. It could instead plan the economy in partnership
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with business and labor--setting wages and prices and
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establishing employment and production targets for growth and
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stability.</p>
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<p>Keynes and his "New Economics" seemed to offer a third way.
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Government did not have to nationalize or directly plan an
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economy. By use of government deficit spending and
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manipulation of interest rates through control of the money
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supply, government planners could influence the demand for
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goods and services and the amount of private investment
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activity. By using these policy tools, government could
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indirectly manage an economy for "full employment."</p>
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<p>Over the last fifty years, just about every variation on the
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collectivist economic theme has been tried. And every one has
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turned into disaster.</p>
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<p>Central planning has twisted men's souls and ravaged their
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bodies. Both communist and fascist forms of planning have
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denied human beings their most basic freedoms and produced
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nothing but poverty and terror.</p>
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<p>And while Keynesian economics and neo-mercantilist trade
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policies have appeared less visibly destructive of freedom and
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prosperity, their effects have been no less detrimental.
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Moreover, in the name of "full employment" and "economic
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stabilization," the economic power of governments in the
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Western world has become immense. Governments in America and
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western Europe now absorb anywhere from twenty-five to
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seventy-five percent of all of the wealth produced by the
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people in these nations. Governmental regulations intrude into
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every corner of economic life. Government determines who can
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work and under what conditions, how products may be produced
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and in what manner they may be marketed, what kind of profits
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may be earned, and what level of wages must be paid.</p>
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<p>Nor have Keynesian "demand management" policies brought
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economic stability. The post-World War II period has seen
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nothing but unending cycles of booms and busts, inflations and
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recessions. And with every enlargement in the size of
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government has come an increased number of groups in the
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society dependent upon the continuation of governmental
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spending and protection. The corruption of our legislative
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processes is merely one aspect of the political consequences
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of Keynesian economics put into practice.</p>
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<p>During the first half of this century, many economists and
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political philosophers were drunk with the idea of power. They
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suffered from what the Austrian economist Friedrich A. Hayek
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has called "the pretense of knowledge." They were convinced
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that they had the wisdom and ability to plan, guide and direct
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the lives of millions. Their minds had given them the insight
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and knowledge to know how to "set things right."</p>
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<p>Market demand was too low? They knew just the right amount of
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government spending to rectify the problem. Wealth was
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unfairly distributed? They knew just the right amount of
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taxation and redistribution of wealth to assure "economic
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justice." Industry and jobs were not where they should be in
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the economy? They knew just where industry should be located
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and where jobs should be created.</p>
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<p>Through the public educational process and other forms of
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government propaganda, Americans were brainwashed into
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believing them. And even though every economic intervention
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has failed and continues to fail, Americans still believe
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them. Why? Because they have been conditioned to believe our
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government masters and brainwashers when they tell us that
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next time "they will get it right," that they have learned
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from their mistakes, and that Americans should just continue
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to trust them.</p>
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<p>But they are not to be trusted. Not only because power
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corrupts, but also because they can never know how to do all
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of the things they promise to do. No mind or group of minds
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can ever have the ability or capacity to master all of the
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knowledge and information that is required to plan, direct or
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guide an economy.</p>
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<p>The value of a market economy is that it leaves each
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individual free to plan his own affairs and to use his own
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knowledge as he sees fit. But if he is to benefit personally
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from that knowledge, he knows that he must use it in a way
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that serves the ends of society. He can earn a living only by
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using his knowledge to fulfill the wants and desires of others
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in the peaceful social order of voluntary exchange.</p>
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<p>Competitively established market prices, both for resources
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and commodities, transmit across the entire economy
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information about the ever-changing supply-and-demand
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conditions to which each member of the society must adjust if
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he is to go about his business of earning a living. The market
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incorporates and encapsulates more knowledge and information
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than any economic planner or interventionist can ever hope to
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know or master.</p>
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<p>But if the market is to fulfill its informational tasks, it is
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vital that we return to first principles. By protecting and
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respecting individual life and property, government can help
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to secure the conditions for prosperity; but government cannot
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create that prosperity. Prosperity comes only from men
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applying their minds and the means available to them for
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various desired ends. Prosperity, therefore, can only come
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from freedom, because only when men are free do they have the
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interest and the incentive to set their minds to work.</p>
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<p>What does this mean in terms of economic policy? The exact
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opposite of what the economic planners and social engineers
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desire. Government's role in society must be reduced to the
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much ridiculed "night-watchman state." And government
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expenditures must be lowered to only those needed to protect
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individual liberty and private-property rights.</p>
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<p>This means: no governmental subsidies; no governmental
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protectionist privileges; no governmentally sponsored
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monopolies or cartels; no governmental licensing of
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occupations or professions; no governmental regulation of
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industry or the workplace; no governmental setting or
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influencing of wages or prices; no public-works projects; no
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governmental "demand management" policies; no governmental
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control of money.</p>
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<p>As we approach the end of the twentieth century, we are at a
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dead end with collectivist and interventionist economic
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policy. Something must be done! But not by the government! The
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place to start is to recognize that we are the intellectual
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victims of defunct economists and political philosophers of a
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bygone era and, more important, to recognize that governmental
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policies are the cause, not the cure, of our economic
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problems.</p>
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<p>Professor Ebeling is the Ludwig von Mises Professor of
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Economics at Hillsdale College, Hillsdale, Michigan, and also
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serves as vice-president of academic affairs at The Future of
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Freedom Foundation.
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------------------------------------------------------------
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From the May 1991 issue of FREEDOM DAILY,
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Copyright (c) 1991, The Future of Freedom Foundation,
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PO Box 9752, Denver, Colorado 80209, 303-777-3588.
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Permission granted to reprint; please give appropriate credit
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and send one copy of reprinted material to the Foundation.
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</p>
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