Geoff Davies
"Underlying everything you say is still the presumption that unfettered markets are self-regulating and produce optimum results."

No it's not. I don't make that presumption. I agree with you about neo-liberal aka neoclassical theory. But that does not dispose of the arguments in favour of free markets, nor justify the conclusion that government intervention is warranted.

All that is necessary is to show that governments cannot produce better results. Beside that, their interventions produce worse results, which is what both theory and evidence repeatedly confirm. There is no presumption of extra competence for governments to draw on.

By the way, I notice you do not provide any evidence of unfettered markets, and let's be frank, that's because there are none in evidence. In particular, by lowering interest rates, governments control the quintessential steering mechanism of financial markets - the price mechanism. The effects then flow from the financial markets, to the capital markets, to the structure of production. It is erroneous to blame the unintended negative consequences on ‘unfettered markets’. The cause is government interventions increasing the supply of money and money substitutes.

As to self-regulation, capitalism is not just a system of profit, it is a system of profit *and loss* and that acts as a negative feedback mechanism – no need to assume equilibrium, perfect knowledge, optimal results, or any of that crapola. By contrast, government has every incentive to inflate, and none to desist from inflating.

(examinator:
Derivative contracts are derivates *of* the underlying contracts and are to hedge against risk in them. Thus the greater the risk in the underlying bubble, the greater will be the derivatives bubble. It is mistaken to speak of the derivatives markets as being 'near' free markets, as if they are divorced from the underlying inflated supply of money, and the inflated risks therein.)

(Grim: Mises said the *terminology* of left and right is meaningless, and he’s right. I’m not using it.

(But the *facts* of social co-operation can either be based on consent, or on coercion, however called. There is no third way. The idea that government can

fix the problem by fiddling with subsidiary details, while still having the original power to inflate the currency that is causing the entire problem, is confused and mistaken.

(I have googled and wikipedia’d ‘lombard’. Struck out. Any link?

(Those theories that I have seen that say banks created the bubble of money substitutes not because, but despite government policies, all have in common that, like Steve Keen, they assume as a background fact the entire apparatus of government instruments to promote inflation. They do not question that assumption or background, but only confine themselves to suggesting a remedy based on more governmental fiddling with entirely subsidiary phenomena.)

All
In the absence of government's explicit and implicit support for inflating banks, they would go broke for the simple reason that people would withdraw their deposits if they thought they might lose them.

The idea that ‘greed’ affects private but not governmental actions is simplistic and erroneous. What is enabling the greed to take on gargantuan proportions is government’s control of the money supply, because it favours endless inflation, and grants to banks the privilege of creating money substitutes unbacked by money in specie – cash.

In the absence of such policies, the greed of the lending banks would be checked by the countervailing greed of the depositors. What prevents that happening is government.

No-one has refuted this argument.

Those calling for government to fix the problem never explain where government is going to get the super-competence from, and where are they going to get the voters, officers or politicians unaffected by greed.

By the way, Geoff Davies, what about logic, geometry and mathematics? They do not fit the definition of science you have given. Do you think they can be called science and if not why not?

Have you actually read the Austrian theory of the business cycle?

Fatfingers
There are universal propositions applicable to human action regardless of historical category, and which cannot be denied without self-contradiction. Mises derives the entire body of economics from these axioms. For example:
- man acts
- in acting man prefers A to B

You are so right Ozandy, because it was long ago that Adam Smith, father of the free-market warned about being very conscious of the difference between need and greed.

In fact, Smith did write about a warning sign, regarding when Laisez-faire had been taken too far - would like someone to verify it?

Regards,BB,WA.

Geoff Davies said
"the theoretical basis for the central claim about free markets is nonsense, at least for large modern markets, as distinct from a village produce market. Most of the critics here haven't engaged with that central point. At least fatfingers has had a go."

Geoff you seem to think that knowing the hard sciences qualifies you for determining what type of economic system works best. I think you are wrong and history has proved this as it was science that the Soviets relied upon for its economic guidance.

Being of the hard science you should know that all systems tend towards maximum randomness, ie. entropy. You should also know that chaotic systems are by definition impossible to predict and only an evolutionary learning process stand some chance in trying to determine possible scenarios with probabilities but nothing more.

Of course all discussion about which systems are best are futile as any system and I mean ANY system will be corrupted by humans and beyond recognition including our present system.

What we do know from history is this:

- Our system worked for many years after the great depression with minimal inflation and real progress in all areas

- Left leaning systems collapsed

- Or system is presently breaking down not because it’s unworkable but because it has been corrupted mainly by left leaning thinking and right wing Ponzi schemers.

Free markets can look after those who can’t look after themselves. In fact free markets provide the best means of looking after those who cant look after themselves - again history proves this.

What Free markets don’t do is look after those that don’t want to help themselves. And to those people I would say go to hell.

Dr Davies, if you were aware of diseconomies of scale, etc, why did you explicitly state "The assumptions on which the neoclassical theory is built [include] there should be no economies of scale"?

Unless you count 'armchair economist' as name-calling, I haven't done any such thing. I've pointed out ignorance and arrogance, that's all.

Your "specific evidence" is nothing of the sort. You brought up the broadest of indicators over very large time scales and declared 'neoliberalism' (whatever that is) to be inferior to "Keynesian intervention". This was a display of ignorance - the first Keynesian intervention was the latter part of the New Deal, an abysmal failure. Compare it to the performance of the UK and Australia, who balanced budgets instead. Keynesianism brought about stagflation in the 1970s. Japan's Keynesian intervention of the 1990s was a horrible mistake, leading to weak growth even today.

History has given us comparative studies (though imperfect and indicative only). Contrast East and West Germany, North and South Korea. Look at the explosion in growth in China when they loosened controls and liberalised a bit. Look at Vietnam's surge after Doi Moi.

If you want careful statistical studies on the benefits of free trade, you can start here: http://go.worldbank.org/ZOI6DW46K0 - the evidence is overwhelming that it is better than managed trade.

Your central claim about unrealistic assumptions is wrong, partly because you think some assumptions are made when they are not, and partly because the assumptions you correctly identify don't qualitatively change the results compared to real economies.

Fatfingers-
There are diseconomies of scale, but economies of scale dominate. That's why many major industries are dominated globally by a handful of giant corporations, in plain violation of neoclassical predictions. If free(er) markets are superior then the evidence I cite should show it, and it doesn't. And let's not get distracted by the semantics of whether the post-war regimes were 'Keynsian'. East Germany, North Korea - FF I'm not advocating socialism or communism, as I've already made clear. Your assertions at the end are just incorrect, which you would see if you took the trouble to read a full account of my work.

GovernmentsAreTheProblem-
I'm not talking old-fashioned 'hard science'. I'm talking modern complexity - find out about it and then debate. It's consistent with living systems and very different from old clockwork physics. Complex and living systems are far from equilibrium and tend LOCALLY to high levels of order (lower entropy).

Wing Ah Ling-
You interpret me correctly - logic, geometry and mathematics are not in themselves science. They are marvellous abstract constuctions, and very useful tools in science. However science is the process of creating theories (stories if you like) that are useful guides to how the real world behaves. It is a two-stage process. First, conceive a promising story (hypothesis). This is a creative process, not a logical one. Second, deduce implications and compare with observations of reality. Maths is very useful for deducing implications, but you also have to COMPARE WITH REALITY. That's the part neoclassical economics neglected. Good science can often be done with very little mathematics. Sometimes sophisticated mathematics is appropriate and useful, but the presence of sophisticated maths doesn't make it science, unless there are also rigorous comparisons with reality.

All three-
These kinds of criticisms of my necessarily brief article are not well-informed enough to be worth pursuing further.

And if government is innately wicked then there's not much more to be said. But most of us don't accept that.