The capitalist system is in trouble, and this is shown in today’s negative numbers. One in ten American homeowners are in foreclosure or delinquent on their payments. Over 530,000 American jobs were lost in the month of November. In the past 15 months the stock market has fallen about 40 percent. Real estate is down almost 20 percent. Over 2,000 banks are in trouble, including large banks.
Before the financial crash began the national debt was around .6 trillion. Now it is over Trillion. As there are 110 million households in America, that signifies 0,000 debt per household. According to a CNNmoney.com report, the “U.S. government is now willing to spend more than trillion to help rescue the economy.” That is over ,000 per American household. It is also over half the gross domestic product of the country. Only about trillion of the trillion has been spent so far, and this is being called “an investment.” Meanwhile, the federal government is expected to have trillion deficit next fiscal year.
Whatever has been done, the economic slowdown continues. General Motors is going out of business unless the government props it up. Car dealerships are failing and imported cars are stacking up, unwanted. In certain states the bottom has fallen out of the hotel business, hospitals are losing money, insurance companies are wobbly, retail stores and restaurants are sputtering. Will the government prop-up these businesses as well?
An economist of the Austrian School, Ludwig von Mises, explained the situation as follows: “the interventionists ascribe to the government the power to correct the operation of the market economy in such a way as to bring about what they call ‘economic stability.’ These interventionists would be right if their antidepression plans were to aim at a radical abandonment of credit expansion policies. However, they reject this idea in advance. What they want is to expand credit more and more and to prevent depressions by the adoption of special ‘contracyclical’ measures.”
People believe that government can stabilize the system. During the recent election campaign, both presidential candidates said as much. Public opinion expects it. But if investments are failing, if money is being wiped out, and if the economy is shrinking – how can the government succeed? The only constructive course for government is to restrict its own expenditures. But the government is rapidly expanding its expenditures. The negative numbers are getting larger as losses mount, and jobs continue to disappear.
The only way the economy can heal is through the market. However painful the healing process, only the market can bring about full recovery. Government cannot do it. Friedrich Hayek offered a remarkable explanation of this in The Fatal Conceit. He wrote: “The creation of wealth is not simply a physical process and cannot be explained by a chain of cause and effect. It is determined not by objective physical facts known to any one mind but by the separate, differing, information of millions, which is precipitated in prices that serve to guide further decisions.” In other words, wealth is created by the market. Hayek further warned: if you do not trust the market, then you no longer believe in freedom or capitalism. In that event you are a socialist on the road to serfdom.
