"The free market is dead"

P.J. O'Rourke has an unusually serious and appropriate column for today's financial crisis.

Adam Smith gets the last laugh

"The free market is dead. It was killed by the Bolshevik Revolution, fascist dirigisme, Keynesianism, the Great Depression, the second world war economic controls, the Labour party victory of 1945, Keynesianism again, the Arab oil embargo, Anthony Giddens’s “third way” and the current financial crisis. The free market has died at least 10 times in the past century. And whenever the market expires people want to know what Adam Smith would say. It is a moment of, 'Hello, God, how’s my atheism going?'...

...The idea that The Wealth of Nations puts forth for creating prosperity is more complex. It involves all the baffling intricacies of human liberty. Smith proposed that everyone be free – free of bondage and of political, economic and regulatory oppression (Smith’s principle of 'self-interest'), free in choice of employment (Smith’s principle of 'division of labour'), and free to own and exchange the products of that labour (Smith’s principle of 'free trade'). 'Little else is requisite to carry a state to the highest degree of opulence,' Smith told a learned society in Edinburgh (with what degree of sarcasm we can imagine), 'but peace, easy taxes and a tolerable administration of justice.'

How then would Adam Smith fix the present mess? Sorry, but it is fixed already. The answer to a decline in the value of speculative assets is to pay less for them. Job done.

We could pump the banks full of our national treasure. But Smith said: 'To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.' [440]

We could send in the experts to manage our bail-out. But Smith said: 'I have never known much good done by those who affect to trade for the public good.' [456]

And we could nationalise our economies. But Smith said: “The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary”. [818] Or chairman of General Motors."

O'Rourke offers some nice perspective that we have seen this all before. For someone going through it the first time, it's a nice reminder that all is well in Bedlam.