Center for Liberal Strategies

Wednesday September 22nd, 2010

A common theme between Hayek and Ferguson

Filed under: Uncategorized — Gogi @ 11:13 AM

This will be in English because both sources I refer to are in English.

Sometimes, while one is obtaining inflowing information from various sources, especially originating from various moments in time, interesting parallels emerge. It happened to me last week.

I was (re)reading Hayeks “The Fatal Conceit”, and this time my attention was particularly alerted by the following two paragraphs (they are on pages 103-104 of the 1988 U of Chicago Press edition, the italics are Hayek’s):

“…Like morality, law, language, and biological organisms, monetary institutions result from spontaneous order - and are similarly susceptible to variation and selection. Yet monetary institutions turn out to be the least satisfactorily developed of all spontaneously grown formations… Indeed, humankind’s experiences with money have given good reason for distrusting it, but not for the reasons commonly supposed. Rather, the selective processes are itrefered with here more than anywhere else: selection by evolution is prevented by government monopolies that make competitive experimentation impossible.

Under government patronage the monetary system has grown to great complexity, but so little private experimentation and selection among alternative means has ever been permitted that we still do not quite know what good money would be - or how good it could be. Nor is such interference and monopoly a recent creation: it occurred almost as soon as coinage was adopted as generally accepted means of exchange. Though an indispensable requirement for the funcitoning of the extensive order of cooperation of free people, money has almost from its first appearance been so shamelessly abused by government that it hs become the prime source of disturbance of all self-ordering processes in the extended order of human cooperation. The history of government management of money has, except for a few short happy periods, been one of incessant fraud and deception. In this respect governments have proved far more immoral than any private agency supplying distinct kinds of money in competition possibly could have been.”

The relevance of this to the present events in the world economy is self-evident. But the general idea of the importance of evolution in the economy and evolution being stifled by government in the area of money linked directly to another, more contemporary, financial thinker: Niall Ferguson. Thanks to Joro Angelov’s post for alerting me to this excellent lecture (the whole of it can be found here), given only several months ago. The parts of the lecture I am concerned with are chapters 13, 14, and 15:

Ferguson at Gresham

There Niall Ferguson simply says that the financial system suffers from “a clear case of arrested evolution”, with the government being the one making the arrest.

This adds a whole new twist to the still active dispute on who was responsible for the crisis - bad government policies or greedy fraudulent bankers and rampant unregulated markets. If the evolution of the financial system has been arrested by governments for centuries if not millenia, relative to other areas of the extended order of human cooperation, then all bankers, their motivations, actions and decisions are dominantly a function of the government, and regardless of small movements towards more or less government interference in this system the very existence of heavy regulations and especially of a government monopoly on money means that markets are effectively prohibited from correcting the system.

So, if these two remarkable thinkers are on to something, then the blame for this, and for most other economic crises in history, is squarely on the shoulder of government.

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