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From: trc@houti.UUCP
Newsgroups: net.politics
Subject: The crash and the free market
Message-ID: <292@houti.UUCP>
Date: Thu, 2-Jun-83 11:04:16 EDT
Article-I.D.: houti.292
Posted: Thu Jun  2 11:04:16 1983
Date-Received: Wed, 8-Jun-83 01:41:31 EDT
Lines: 47


In response to Tim Sevener's note on the Great Depression and the free
	market:

Tim claims that the 1929 depression was due to failure of the free market.

In 1913, the Federal Reserve was established, to control banks.  It determined
how much credit would be made available.  It followed a cheap money policy,
keeping interest rates unnaturally low, and encouraging speculative investment.
This led to over-extension by banks, eventually resulting in many bank
failures.  People began to panic, and sell their stocks - at first, to secure
their gains, then to break even, and finally, to cut their losses.  There was
just too little real value in too many stocks.

With such an awful result of government intervention, one might think that
the lesson would be learned.  Instead, the crash was blamed on capitalism.
Normally, once the economic adjustment of the crash was over, the economy
would have started a reasonable recovery.  However, the government stepped
in with a series of Acts, including abandonment of the gold standard.
These steps, illustrating the ability and willingness of the government to
arbitrarily manipulate the economy, resulted in a totally uncertain business
environment.  This prolonged the depression by reducing re-investment of
capital, and paved the way for the vast expansion of federal power to its
present level.

A free market remains free even in the presence of a monopoly, so long
as that monopoly remains in effect without use of force.  So long as
new competitors can attempt to enter the market and better the monopoly's
prices in REAL competition (not the "hold the big guy back so the little
guy has a chance" version), the monopoly would have to maintain prices at
a reasonable level. Otherwise, it would often be embroiled in price wars,
which would keep the prices about the same, averaged over time, but at a
higher cost to them.  THIS is the "natural play of .... forces" in a free
market.  Only when physical force, or the threat of force is able to be
applied, as in government backed monopolies, do the evils ascribed to monopoly
become possible.

It is true that unscrupulous businessmen in a nation with a representative
government can buy influence with legislators.  But if those legislators had
no power over the economy, no privileges or favors to grant, there would be
no point in trying to bribe them.  While a complete change-over to a republic
would be the best step, a constitutional amendment forbiding any government
intervention in the economy, and establishing a gold standard might be
sufficient.

	Tom Craver
	houti!trc