Hayek and his contradictions

Reader comment on: Hayek Versus Keynes

Submitted by Joseph Hitselberger (United States), Nov 10, 2011 13:19

I don't think any of the speakers brought out a contradiction in Hayek's thinking. That is, while Hayek supports competition, the free market and private enterprise, he had not criticized governmental favoritism in the granting of privileges to the banks. Particularly noteworthy is fractional reserve banking where the government has granted the banks the franking privilege of creating money from nothing. Indeed, most of the money present today in the economic system was not created by the government, but rather from credit by the banks. It should be a source of outrage that the government granted a privilege once reserved for kings to the banks.

Free markets and competition operate most effectively without government created monopolies. Banks and finance were the cause of both the Depression and the Great Recession. It is clear this government created monopoly should be ended.

The way to end loose banking is to gradually tighten and eliminate credit and debt by gradually increasing the reserve rate to an extremely high rate (and other tightening measures). By itself, reducing lending, debt and credit is deflationary and contractionary. As an offset, the circulation of money with the people should be increased. Monetarily speaking, the money and purchasing power reduced by shrinking credit and debt (negative) would be replaced by positive money with the people.

It works out that by eliminating a government created monopoly in the economy, more competition is created. A primary goal in free market economics is the creation of competition (as well as freedom of choice). Banking predates free market economics and is a rather medieval institution. Most attempts by free market theorists to justify present banking operations are rationalizations. Competition does not work with government favoritism.

Note: Comments are moderated by the editor and are subject to editing.

Comment on this item

Mark my comment as a response to Hayek and his contradictions by Joseph Hitselberger

Email me if someone replies to my comment

Note: Comments are moderated by the editor and are subject to editing.