The Judge Recants

Karl Polyani noted that “Laissez-faire was planned; planning was not.” Planning was always an ad hoc response to the failures of capitalism and never constituted a single, rational response, but always a piecemeal attempt to correct the failures. Over time, a vast bureaucracy grows up, ever focused on the past failures, and unable to anticipate the next failure. Further, the bureaucracy itself is always under constant thrreat and its powers weakened over time, or co-opted by the very people they are supposed to watch. But at the point of failure, those who were most insistent that the government stay out of the market are the very ones who must insist that they government get back in.

A recent illustration of this principle is a book published last year by Judge Richard Posner. Posner is a Federal Appeals Court judge and has been the most articulate advocate of laissez-faire from the federal bench. He described himself as a libertarian to Reason Magazine, and is a co-blogger with Gary Becker, the Chicago-School economist who is a winner of the pseudo-Nobel prize in economics.

The title of the book will come as a shock to some, but not to others who are familiar with the historical process. The title is A Failure of Capitalism: The Crisis of '08 and the Descent into Depression. One does not actually need to read the book to grasp its significance; everything you need to know—the title and the author—is on the first page. Part of that significance is the use of the indefinite article, “a” failure rather then “the” failure. That is to say, just a minor glitch and not a substantial and recurring feature of capitalism.

As to the book itslef, it is a workman-like appreciation of the crash, similar to many others. But it does have some curious lapses. Throughout the book, the Judge talks of the banks “lending out their deposits,” which means he has not adequately diagnosed the problem. In one sentence late in the book, and in that sentence alone, he concedes that the banks do not lend deposits, but create money by lending it. That is, it is the banks, not the government, that creates money, which the government (and everybody else) must then borrow and pay a tribute to the banks.

The Judge does not hesitate to use the D-word in describing the current situation. But despite that, his “solutions” are tepid indeed. He urges everybody to be “pragmatic” (without of course defining that term) and endorses the combination of monetary and fiscal policies that the administration has been following, only more so. In other words, he wants us to follow Friedman and Keynes simultaneously. Hence, the book is merely an interesting artifact, an illustration of a recurring theme in capitalism, the same theme noted by Belloc and Polanyi: when the crunches come (and they come all the time) the capitalist looks to the government to bail him out.