Guided by the stupid Marxian slogan "anarchy of production," the present-day nonmonetary cycle doctrines explain the cyclical fluctuations of trade in terms of a tendency, allegedly inherent in the capitalist economy, to develop disproportionality in the size of investments made in various branches of industry. Yet even these disproportionality doctrines do not contest the fact that every businessman is eager to avoid such mistakes, which must bring him serious financial losses.
The essence of the activities of entrepreneurs and capitalists is precisely not to embark upon projects which they consider unprofitable. If one assumes that there prevails a tendency for businessmen to fail in these endeavors, one implies that all businessmen are short-sighted. They are too dull to avoid certain pitfalls, and thus blunder again and again in their conduct of affairs. The whole of society has to foot the bill for the shortcomings of the thick-headed speculators, promoters, and entrepreneurs.
Now, it is obvious that men are fallible, and businessmen are certainly not free from this human weakness. But one should not forget that on the market a process of selection is in continual operation. There prevails an unceasing tendency to weed out the less-efficient entrepreneurs, that is, those who fail in their endeavors to anticipate correctly the future demands of the consumers.
If one group of entrepreneurs produces commodities in excess of the demand of the consumers and consequently cannot sell these goods at remunerative prices and suffers losses, other groups who produce those things for which the public scrambles make all the greater profits. Some sectors of business are distressed while others thrive. No general depression of trade can emerge.
But the stupid proponents of the doctrines we have to deal with argue differently. They assume that not only the whole entrepreneurial class but all of the people are struck with blindness. As the entrepreneurial class is not a closed social order to which access is denied to outsiders, as every enterprising man is virtually in a position to challenge those who already belong to the class of entrepreneurs, as the history of capitalism provides innumerable examples of penniless newcomers who brilliantly succeeded in embarking upon the production of those goods which according to their own judgment were fitted to satisfy the most urgent needs of consumers, the assumption that all entrepreneurs regularly fall prey to certain errors tacitly implies that all practical men lack intelligence. It implies that nobody who is engaged in business (and nobody who considers engaging in business if some opportunity is offered to him by the shortcomings of those already engaged in it) is shrewd enough to understand the real state of the market.
But on the other hand the theorists, who are not themselves active in the conduct of affairs and merely philosophize about other people's actions, consider themselves smart enough to discover the fallacies leading astray those doing business. These omniscient professors are never deluded by the errors which cloud the judgment of everyone else. They know precisely what is wrong with private enterprise. Their claims to be invested with dictatorial powers to control business are therefore fully justified.
The most amazing thing about these stupid doctrines is that they furthermore imply that businessmen, in their littleness of mind, obstinately cling to their erroneous procedures in spite of the fact that the scholars have long since unmasked their faults. Although every textbook explodes them, the businessmen cannot help repeating them. There is manifestly no means to prevent the recurrence of economic depression other than to entrust -- in accordance with Plato's utopian ideas -- supreme power to the philosophers.
Basil Venitis asserts that central bank's artificial creation of credit is the culprit in the business cycle. As the boom turns into bust, the economy tries to readjust itself into a configuration that conforms to consumer preferences. That is why it is so essential for government to stay entirely out of the adjustment process, because arbitrary government behavior can only delay this necessary and healthy process.
Wages and prices need to be free to fluctuate, so labor and other resources can be swiftly shifted away from bloated, bubble sectors of the economy and into sustainable sectors of the economy where consumers want them. Bailouts obstruct that process by preventing the reallocation of capital into the hands of firms that genuinely cater to consumer demand, and by propping up instead those firms that have deployed resources in ways that do not conform to consumer preferences. Fiscal and monetary stimulus do nothing to address the imbalances in the economy, and indeed only perpetuate them.
Venitis asserts the very existence of a central bank such as the Federal Reserve and ECB aggravates, indeed institutionalizes, moral hazard. Since there is no physical limitation on the creation of paper money, firms know that no natural constraint exists on the power of the central bank to bail them out of any serious trouble. The Central Put is the implied promise that the central bank would intervene to assist the financial sector in the event of a serious downturn. No one has a right to be surprised when market actors behave accordingly.
Everybody's money income is somebody else's cost. In the case of the stupidus stimulus, the administration paid for it through taxation, borrowing, and printing new money. With all three methods the net result was that someone was made better off but only at the expense of someone else. When the government forced up the minimum wage, there was no added amount of production to offset the increase in business costs. Instead, we have seen a record level of teenage unemployment.
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