Forum Post: Mr. Rubenstein, You're No Adam Smith

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With the existence of the Federal Reserve, Fannie Mae, Freddie Mac, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and other bodies that make up the 115 regulators that oversee the financial sector in the United States, the claim that such a system constitutes free-market capitalism is preposterous. The evidence is clear that Alan Greenspan's cutting of the federal-funds target rate in the early 2000s and the expansion of the monetary base set the stage for the housing bubble. That "unfettered exuberance" on Wall Street was only a byproduct of the Fed and government's intervention in the economy. Business fluctuations brought on by changing human demand do exist in true capitalism, yet they are self-correcting and don't lead to years of prolonged unemployment.

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Rubenstein's Smithian masquerade falls short due to his misunderstanding of the basic definition of capitalism. Unfettered free markets are made up of mutual transactions and private gains and losses. Government intervention, whether in the banking or education industry, retards such an enriching system to the benefit of those in political favor. To attribute the failure of public policy to capitalism is disingenuous as it provides justification for an increased role of the state into the private affairs of individuals.

Mises saw through such deception almost seven decades ago when he wrote,

As a rule, capitalism is blamed for the undesired effects of a policy directed at its elimination. The man who sips his morning coffee does not say, "Capitalism has brought this beverage to my breakfast table." But when he reads in the papers that the government of Brazil has ordered part of the coffee crop destroyed, he does not say, "That is government for you"; he exclaims, "That is capitalism for you."

http://mises.org/daily/5880/Mr-Rubenstein-Youre-No-Adam-Smith