“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."
Murrary Rothbard

The author’s article rests on two fallacies:
1. because resources are finite, *therefore* we are at or near the natural limits to economic growth.
2. because there is a current economic crisis, *therefore* it’s caused by economic theories that failed to take into account the finite nature of resources and the limits to economic growth.

For starters, the problem isn’t that resources are finite, it’s that they’re scarce – can’t be used to simultaneously satisfy all the different human wants that they could. The amount of hydrogen, say, in the universe is “finite”, but its finiteness doesn’t impose limits on our use of it: its scarcity does.

Even if the finiteness of resources imposes limits to economic growth, that doesn’t mean we are at or near those limits now, and the author offers no proof of this assertion, he just assumes it. In doing so, he ignores the possibility that the economic crisis is caused by something else.

The current economic crisis is caused by constant increases in the supply of money and money substitutes. This causes a host of negative consequences. The main one is to draw scarce resources from where they would be used most profitably, into loss-making uses, while unjustly enriching the inflaters. It distorts the entire structure of production into what is more wasteful and less sustainable.

These problems are not in the nature of “our financial system”. They are in the nature of government raising revenue by printing money instead of by taxes or debt. It would be simple to fix the problem: abolish government control of the supply of money and credit which is always inflationary, because government gets a cut of any increase.

“You cannot however buy insurance to protect against the failure of the financial system.”

Yes you can. Buy gold.

Poirot
A derivative is, by definition, the wrong place to look for the origin of something.

The function of a derivative is to hedge risk in the underlying contract. The greater the risk or bubble in the underlying contract, or market, the greater the risk or bubble in the derivative contract or market.

The problem with blaming the lack of regulation in the derivative market is it takes no account of the regulation of the underlying market. If your assumption were true, that regulation solves the problem of risk, then the underlying problems, against which derivatives were bought as insurance, would never have existed in the first place, would they?

You cannot justify more regulation until you justify the last lot. Good luck with that.

Blaming not enough regulation only shows basic economic ignorance. Let's suppose the problem was not enough regulation. Okay. How is government going to know how to equilibrate supply and demand?

Excuse me, Mr Leckie, if I find your article underwhelming in the extreme. Karl Mark plotted the inevitable course of capitalism a century and a half ago, lurching from crisis to crisis, unto collapse, and he's been born out by events. But of course no one will believe it until an "economist" comes out and observes the dismal truth--in other words we're still addicted to witchdoctors and pseudo-science, those who couldn't even foresee the GFC!
So thanks for the heads-up, but I've been going on about little else for the last year or two--and I'm not even an economist!

"... and I'm not even an economist."

You can say that again. As usual, your method proceeds by the simple error of calling government control of the means of production "capitalism". Government control of the price of money and credit is not capitalism, by definition - Marx's definition!

If the price of coffee, or beef, were controlled by a Federal Coffee Reserve, or a Federal Beef Reserve, with government functionaries trying to figure out how to equilibrate supply and demand without relying on the market price, by cartelising the biggest coffee and beef companies, and then licensing special deals in which they get zillions in handouts paid for by ripping off the population, we'd be seeing just as much chaos and corruption in the market for coffee or beef, as we see now in the market for money under the current system of money socialism

Poirot

I don't disagree with what the Governor of the Bank of England has to say, so I don't know why you refernced it. The Eurozone debt issue is quite a problem, but a part of that is the shift towards a single currency for Europe. However, Leckie is hoping that its a problem that will overthrow the whole system as we know it.. it won't, but there may be some turmoil. The other posters have shot down Leckie's arguments with more accuracy that myself..

Curmudgeon,

Fair enough...I thought you were making light of the scenario, but apparently not.

Whatever happens to the capitalist model in the near future, I think we can expect a shift in political power as China and India emerge into their own.

Regarding the eurozone, it's not just a matter of a single currency. Monetary union is only part of it - at least it should have been recognised as that. The scattered and varied interests and the independence of member countries verses the need for the eurozone to be more integrated is the challenge at hand. Success or failure depends on the recognition that a union is a union, and it can't be achieved by half measures - at least in this economic instance, it doesn't appear so.
The European Central Bank assumed control over monetary policy for original member countries, yet those countries are still able to autonomously tax, spend and borrow at will. With no controlling political authority presiding over the whole, parts will stray in different economic directions.

I suppose we'll just have to wait and see how it all pans out.