The Communist Manifesto, that little piece of literature so dog-eared and marked by nearly every college grad, is full of statements that have become particularly interesting in light of the last few weeks of activity on Capitol Hill and along Wall Street. In the Manifesto, Marx outlines ten measures that must be enacted in the successful Communist Revolution. It was a bit chilling to revisit pages 25 and 26 of my old Oxford World's Classics edition and a read through the entire list was illuminating (and recommended if you can find your dusty copy). Of particular interest, given the state of the American economy, is his fifth measure:
Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly."
Current events, otherwise known as the Economic Crisis (rivaled only by the Great Depression, I'm told), point towards the realization of something like this Marxist measure as the U.S. government attempts to bailout the American market with a plan that centralizes private capital under federal control and grants greater power to government institutions to influence and manage what was private property and money.
There are two distinctly sad things about this economic bailout turned federal takeover. The first is that it moves America sharply towards a socialist government, more sharply because it has been endorsed by political liberals and conservatives alike—especially because it has been touted as the way out by pundits and politicians who supposedly support free-market economics. It's no wonder the libertarians are in an uproar.
[There are] dire consequences [to] having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles.
Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices.
The confusion of Chicago school economics on monetary issues is so profound as to lead its adherents today to support the largest government grab of private capital in world history. By adding their voices to those on the left, these confused free-marketeers are not helping to “save capitalism”, but contributing to its destruction.
The conclusion of government intervention in the free market will, at the very least, delay the inevitable down-turn of the market and most likely make the great specter of depression loom larger than it otherwise would have. Worse, the consolidation of financial power with the State, as Marx gleefully noted, is yet one step further along the path to a socialist society in which the chimerical dream of a utopian "association, in which the free development of each is the condition for the free development of all" will ultimately bring about a great deal of suffering and destruction rather than the promised Eden.
The words of Freidrich Hayek ring as true today as they did in 1932:
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about ...”