Contra Peter Hume, what I believe in is a full participatory democracy whose constituents are motivated by ethical and civic principles, rather than by competitive self-interest. Our present representative democracy is a sham, a system of buck-passing wherein responsibility ultimately devolves to an anonymous and irresponsible mass. The affairs of government should rank as highly in importance to each one of us as should our own conduct. But we live in a system where "responsibility", private and public, for the choices we make, is not considered. Everything we do--no matter how harmful we may know it to be, as it ramifies in the world, or to ourselves, or however it offends against reason, or against that inner-voice that still troubles some of us in our excess--every indulgence is absolved by the market. Thus we will buy the house of a neighbour for half the value of her mortgage should she default. This is no occasion for sentiment, but an opportunity to gloat at the bargain. And our government conducts its affairs just as ruthlessly in the world on our behalf; indeed it must, as must we privately, according to the vicious global reality we've created and the dictates of the economic fundamentalism PH puts his Mephistophelian stamp on.
To do what, I wonder? Will it all settle down into the kind of harmony Adam Smith dreamed of? As an Enlightenment philosopher, Smith would be the first to condemn the mature monster he galvanised. Left to Ph and his maniacal petty deity, the miser Mises, humanity would remain in a state of primodial viciousness, an economic survival of the fittest. The free market would indeed resolve every issue in the end, including the problem of a profligate and unsustainable human race.
But I don't think it will come to that. People are already waking up and realising we have to take responsibility for our actions, personally, locally and globally, no matter what the degree of fiscal separation.
We have to take back our right of conscience and hold the government accountable as our representation in the world.

Peter,

Given that you argued cogently the case for the theory, I wonder if you can equally make the case for 'liberatrianism' as part of the 'big state' in actuality. Especially so since the 'big state' as you define it will NOT disappear in your lifetime.

What has the austrian school got to say about the correct economic policies in a 'big' state suffering from both State and Free market excesses.

In particular, given the fact of the 'big' state, I would be interested to hear how the "free market" was not working as advertised, when the unsupervised derivatives market led to the US banks getting 700 billion dollars in handouts? Contrast this with the experience of Australia's big banks during the GFC.

Squeers
I agree about the dissatisfactory state of government as is.

“The market” merely means consensual exchanges. It doesn’t absolve you from unreasonable, anti-social or unconscionable behaviour, and even if it did, how is substituting majoritarian monopoly legalized force or fraud – the only difference that democratic government can contribute - going to be any improvement on the original problem?

You deride theory you obviously haven’t read and don’t understand, on the basis of ideas from Keynesian and Marxian theory that you also haven’t read and cannot defend.

PaulL
I’m not making a case for libertarianism as part of the big state.

What the Austrian school has to say about correct economic policies, is that government’s economic interventions necessarily produce results that are worse from the standpoint of their own advocates.

You don’t identify what free market excesses you are referring to, but people often blame markets for problems originating in interventionism. For example the market didn’t give the banks a $700 billion handout with money taken unfairly from everyone else – the government did! Bailouts, stimulus packages, ‘too big to fail’ doctrines, illegalizing competition, privatizing profits and socializing losses, corporate welfare, and the cycle of boom and bust itself – these are the works of government, not the unhampered market, that’s the whole point.

The state claims the knowledge, capacity and disinterestedness to manage the economy by manipulating the money supply for the common good. The Austrians deny it can, and say these policies create a net total loss, not a net total gain for society; all they do is a mere taking from the majority of property-owners and giving to a minority of political favourites by inflation which causes the whole cycle of boom and bust with all its injustice and destruction. Then when the claims of the statists prove wrong, do they accept responsibility? No, they blame the free market which their entire function is to override and derange. Either way their theory is disproved.

By definition, a *derivative* is the wrong place to look for the *origin* of something. The function of derivative contracts is to hedge risk in the underlying contracts. The greater the risk in the underlying bubble, the greater will be the bubble in derivatives.

The *underlying* bubble is caused by increasing the supply of money and credit, which are controlled by monetary policy, in other words by government. This is because the recipients of the newly printed money (the unfair beneficiaries of monetary policy) are able to bid up prices in the receiving sector (e.g. housing). This attracts capital away from productive employments, to speculations based on rising prices. Since only paper money has been increased, not real capital, there is not enough real capital to complete all projects started. Eventually the boom must collapse. The bust washes out - liquidates - the systemic malinvestments caused by governments clever little trick of playing Santa Claus by inflating the money supply. The economic, social and moral havoc wreaked on society as a whole is devastating and for what benefit? Politicians get to extend their terms for a few years, and their pet favourites get their snout in the trough at everyone else’s expense.

The market price of anything tends to clear the market, i.e. to equilibrate supply and demand *at that price*. When the market price is forced to some other level than it would be on an unhampered market, we get surpluses and shortages in all the wrong places, of which the derivates bubble – and indeed the GFC – are classic examples. The *derivatives* bubble doesn’t just arise spontaneously out of unregulated markets. It is caused by manipulation of the money supply.

In a free market situation, what would happen is:
- price in any transaction determined by agreement of parties, not by decree
- fraud is illegal – no other regulation needed
- competition in supplying money – no government monopoly, no fiat currency
- no privatizing of profits and socializing of losses
- people free to choose what money they prefer; most probably based in precious metals

- freedom to deposit on terms of 100% backing in money, or on any other fraction (e.g. 95%, 70%, etc.)
- so the risk-averse could deposit their savings with 100% backing, no risk and no interest
- others could deposit, to be lent out for investment, at a higher or lower fraction of money backing in reserve as they choose, according to risk/return ratio
- regulation of fractional reserve is by profit and loss; not by commisariat robbing one group and favouring another
- banks that keep too low a reserve go broke if there’s a run on the bank. Since their depositors undertook the risk, for the prospect of higher returns, there would be no justifications for bailouts, unlike now where, being exposed to FRB involuntarily by government, they scream for government to protect them from loss, thus spreading moral hazard throughout the entire financial sector
- no-one could force anyone else to accept fractional reserve banking, as the government now does to the whole population.
- no great derivatives bubbles because no great underlying bubbles
- instead of vast amounts of capital being perpetually wasted in the roller-coaster cycle of boom and bust, capital would gradually accumulate at a compounding rate
- investment would be attracted into productive activity based on satisfying the public’s wants as judged by the public, not into politically-driven inflation-drawn bubbles.
- therefore productivity and living standards would gradually rise at a compounding rate
- money now spent on the arts of war would be spent on the arts of peace
- prices would show a gradual fall – your money would be worth more all the time, not less as it is now
- work, savings, enterprise, prudence would be rewarded
- unlike the compulsory fiat money and compulsory fractional reserve regime, which rewards speculation, debt, instant grat, parasitism, and jiggery-pokery.

Governmental “economic management” and control of the money supply are based on statist fairy tales, are unjust and destructive, and should be abolished.

PH:
<“The market” merely means consensual exchanges. It doesn’t absolve you from unreasonable, anti-social or unconscionable behaviour, and even if it did, how is substituting majoritarian monopoly legalized force or fraud – the only difference that democratic government can contribute - going to be any improvement on the original problem?

You deride theory you obviously haven’t read and don’t understand, on the basis of ideas from Keynesian and Marxian theory that you also haven’t read and cannot defend.>

Peter Hume,
Like nearly everyone, including you, I've mostly read "of" these theories and theorists, though I've gone rather deeply into Marx, and others you don't mention.
Despite their voluminousness (economists generally), their innovative thinking is modest and not that difficult to grasp, and only a pedant would dote on their every word (where are the female economists I wonder, btw?). Certainly I'm confident I'm better read and have a superior (more balanced) grasp than you do. But let's not compare penises.
<“The market” merely means consensual exchanges>
I would like to accuse you of naivety, but you are certainly not callow!
The market, as I suggested is, in your scheme of things the ultimate arbiter and overrules the whole spectrum of ethics, reducing it in fact to so much irrationality. Otherwise how is it that we exploit child labour, or import diminishing stands of Indonesian Mahogany, crudely wrought into furniture? Examples are too numerous to mention!
Exchanges are hardly consensual when the exploited party has no choice. Of course, those who sell their labour, their bodies, resources, culture, or whatever it is they have to sell, are always free to starve in the streets!
Sadly, I don't have the time to match your verbiage.