“The myth of the free market can no longer be legitimised.”

The myth of the free market is that there was one.

Name any relevant country, where the price and supply of money was not controlled by government policy including a central bank explicitly intended to override the free market. Now admit that there was no free market.

What we had, and have, is a system in which government has wide-ranging powers backed by millions of pages of regulations and armies of hundreds of thousands of official to arbitrarily control virtually any and every transaction in the economy, driven only by the need to bribe blocs of political favourites for votes with money confiscated or sneaked from someone else. And the author wants more of that to fix the problems it caused!

The purpose of all the government-sponsored manipulation of the system of money and banking described in this article, was precisely to preserve the rentier status of the government, to preserve its prerogative to sneak-tax the population with inflation, however destructive and unjust the consequences to everyone else.

In other words, aided and abetted by anti-capitalist academics (sound familiar?), governments set up a complicated anti-free-market system that was bound to fail for the same reason that central planning must fail, and that Mises correctly predicted in 1912 would fail: http://www.mises.org/books/tmc.pdf

Then when it failed, they all say the problem was the (non-existent) free market, and we need even more central planning.

Re-regulation and nationalisation of the financial system means the *re-vivification*, not euthanasia of the rentier. Nationalisation of capital markets mean government control of all production and is in effect the same as socialism. Yet no-one has *ever* refuted the Mises’ 1921 argument proving that economic calculation is impossible under public ownership of the means of production; and that therefore socialism is not only impossible in practice, but in theory too.

It is intellectually dishonest of the author to run this line without having first refuted Mises. Go ahead: try. http://mises.org/econcalc.asp

It is amazing, and disgraceful, that this unreconstructed Marxist balderdash is still being peddled by tax-funded academics – and in economics at that! - when it has been definitively refuted both in theory and practice over and over and over again.

North Korea and Burma have nationalised their financial system – all for social justice and the greater good of course - that’s the kind of result you could expect.

“It should be conceded that despite the desirability and urgency of these reforms, the outcome will be ultimately determined by the configuration of political power and geo-political imperatives.”

It is urgent and desirable to reform the system, but why should the outcome be determined by “the configuration of political power and geo-political imperatives”? Does that sound good to you?

What makes you think replacing the Mega-State National Bamboozling Corporations with a Mega-State International Bamboozling Corporation is going to result any less in siphoning money from poor people and nations, and giving it to rich people and nations, and funding unnecessary fascism and wars?

Why should the outcome not be determined by each person’s being free to choose whether to enter into a given transaction or not?

Nothing the author has said has provided the slightest justification for governmental control of the money supply.

I totally agree that a whole new monetary system is needed.
Bretton Woods came into being when the world was on its knees and the only country with any money was America. It was inevitable that the USA could dictate the form of the world economy would take.
But things change. We no longer live in a immediate post war economy and America, far from being the only game in town, is now a total liability to the rest of the world.
Time to scrap Bretton Woods and have a system of where countries can trade on an equal status.
Keynes' Bancor was a good idea. No doubt we can improve it but if it had been adopted in 1944 it could not have been worse than the Dexter-White plan that was adopted. I think we would have all been a lot better off.

"It appears that the US monetary authorities would be very reluctant to surrender their privileges of dollar seigniorage until the outbreak of a major irreversible dollar crisis."

After WW2 the US gdp was about 50% of the world's gdp. This has dropped substantially, but it is still by far and away the largest, shadowed only by the EU. Until a viable alternative is available, the hegemony of the the US dollar is unlikely to change.

Treasury bonds issued by the federal reserve pay interest and have value if so perceived by others. Until China buys euro bonds, thisis unlikely to change, and a prof saying it is not right will not carry much wieght.

The original conception of the Bretton Woods Institutions was to guarantee global equal treatment through the effective operation of free market principles. Mandella in his biography describes his joy at hearing the outcome of the Atlantic Treaty where the guiding principles were formulated of the Bretton Woods Institutions were formulated. The Global economic crisis has brought home the short comings of the some of the Bretton Woods institutions but these shortcomings have been the subject of considerable discussion priot to that. See for example Stiglitz (Globalization and its discontents) Collier (The Bottom Billion) Sands (Lawless World) all of them have argued that the central failure has been the undue optimism of the possibility of implementing a free market. Smith's original model of the invisible hand was only designed to cover relatively small markets. A global free market to be effective would require all the participants to have perfect knowledge of all the possibile transactions; few would argue that this is indeed possible. Furthermore what few people were prepared to acknowledge is that the success of the USA economy is due to government protection of industries in its embryonic state - free market principles can work to a limited degree in mature economies for emerging economies they can be a disaster.

Where has this writer been? The major cause of the present crisis was a failure in the American financial system, where the seriousness of that failure was due to lack of regulation by the Americans. No one is really disagreeing with this. But this does not mean markets have to be overthrown. It means the yanks have to get busy and start regulating their banking system properly.
As for the failure of the international system of money exchange causing the depression to be so prolonged, the author virtually alone in stating this. As is now well recognised the depression was one of a cycle of peaks and troughs which occur in a free market system. The trouble was that the Federal Reserve of the the time reacted to a severe slump by greatly restricting liquidity and allowing a slew of banks to vanish completely (along with their depositor's funds). This time around they increased liquidity in the system and banks were merged or sold off rather than wiped out. Crucially, the depositor's funds survived. Although the slump is a severe one it will not be as deep or as long as feared, and certainly not a patch on the depression.
In the 30s the Americans compounded the Federal Reserve's error by the Snoot-Hawley act which jacked up tariffs on everything. All the other countries responded, further deepening the crisis. Nothing like that has happened this time around.
Thus, although the financial storm has proved to be severe, it will pass and life will go on, albeit with some review of banking systems urgently needed. Markets boom and bust. Its what they do. We simply have to live with the occasional bust. The trend towards free markets will continue. The author will have to find another crisis.