Herbert, Ludvig, Murray, Friedrich and Vince

In a quick diversion from my task of preparing a business plan to rescue Oxfordshire's distressed home-owners and businesses from the worst effects of the state-created credit crunch I noticed the other day, in a rare foray into blogging himself, a Lib Dem Federal Policy Committee member, Geoffrey Payne, has been reading Vince Cable's new book about the credit crisis, The Storm. Geoffrey is one of those Lib Dems with a visceral hatred of anything "economically liberal", which he will always equate to something akin to "what Maggie and Ronnie did".  He notes that Vince quotes Herbert Spencer, saying that it shows how little Vince thinks about "extreme libertarians":

I have read the book and would heartedly recommend it. I agree with most of it. Because it is short there are obvious gaps - the chapter on Malthus is rather short and inconclusive which is a shame as I for one think it ought to be the most important part.

However there is no doubt what he thinks about extreme Libertarians;

"(quote from Herbert Spencer) 'The ultimate result of shielding man from the efects of his folly is to people the world with fools' . This approach was influencial in the years of the Great Crash, and it helped inform the advice given to president Hoover by his treasury secretary, Andrew Mellon: to do nothing. '[Panic] will purge the rottenness out of the system ... People will work harder and live a more moral life ... enterprising people will pick up the wrecks from less competent people.' Since Hoover and Mellon emerged as the fools who precipitated the Great Depression, their abstemiousness become seriously unfashionable", page 46, The Storm. [From Left Liberal: Vince Cable lays into Libertarians]

Now, I don't suppose for one minute that Geoffrey has bothered to read the Spencer essay from which this quote comes. I hope Vince has. For in "State-tamperings with money and banks" which can be found in Vol 3 of his "Essays: Scientific, Political and Speculative" available on the web courtesy of the Online Library of Liberty Spencer produces a fantastic critique of state controlled money systems and how they will inevitably exacerbate bubbles and crashes.

Allowing for the slightly convoluted Victorian English prose style, it is a fabulous analysis of why, as Hayek concluded a hundred and tenwty years later, or as both Mises and Rothbard have concluded in their ciriticism of the Federal Reserve system, the state is incompetent in the running of currency.

What the government is doing by quantitative easing is abolishing the rule of law and its part in enforcing contracts. What they are saying by creating additional money into the system is that you no longer need to pay all the debts on contracts you have issued, because here's some extra money-tokens to cover them. And that if banks were allowed to run under free banking these crises would never been as deep or as pervasive as they are through manipulation of the currency by the state and the banking system by regulation.

It is a brilliant exposition of the origins and effects of what we know of as "moral hazard". And that the effects of us being shielded from that moral hazard by state offered, ultimately worthless, guarantees, is to populate the banking system with the sort of fools we have witnessed, from Fred the Shred to Adam Applegarth.

I encourage you to read Spencer's essay (it runs to about 23 pages of one and a half lines width print on A4). If we are to avoid this sort of crisis again, we need to learn from the likes of him, and Hayek, and Mises and Rothbard, about how these crises come about through the state currency system. I am very proud that English liberals understood this a hundred and fifty years ago, and equally ashamed that politicians ever since have believed themselves immune to these facts of economic life.