Human cooperation is different from the activities that took place under prehuman conditions in the animal kingdom and among isolated persons or groups during the primitive ages. The specific human faculty that distinguishes man from animal is cooperation. Men cooperate. That means that, in their activities, they anticipate that activities on the part of other people will accomplish certain things in order to bring about the results they are aiming at with their own work.
The market is that state of affairs under which I am giving something to you in order to receive something from you. I don't know how many of you have some inkling, or idea, of the Latin language, but in a Latin pronouncement 2,000 years ago already, there was the best description of the market — do ut des — I give in order that you should give. I contribute something in order that you should contribute something else. Out of this there developed human society, the market, peaceful cooperation of individuals. Social cooperation means the division of labor.
The various members, the various individuals, in a society do not live their own lives without any reference or connection with other individuals. Thanks to the division of labor, we are connected with others by working for them and by receiving and consuming what others have produced for us. As a result, we have an exchange economy which consists in the cooperation of many individuals. Everybody produces, not only for himself alone, but for other people in the expectation that these other people will produce for him. This system requires acts of exchange.
The peaceful cooperation, the peaceful achievements of men, are effected on the market. Cooperation necessarily means that people are exchanging services and goods, the products of services. These exchanges bring about the market. The market is precisely the freedom of people to produce, to consume, to determine what has to be produced, in whatever quantity, in whatever quality, and to whomever these products are to go. Such a free system without a market is impossible; such a free system is the market.
Individuals and banks should be free to choose what money they use. This is an especially controversial, but absolutely essential, component of a truly free society. The government may not force us to use infinitely-inflatable, green pieces of paper. Historically, when left free from government-dictated currency, the overwhelming choice of individuals has been gold money — which has objective value, a stable quantity, and other qualities that make it an excellent form of money. Interest rates on a gold standard are set by supply and demand in the marketplace; there should be no governmental manipulation of interest rates, and thus no ability of the Federal Reserve to create massive bubbles such as the dot-com and housing bubbles.
Basil Venitis, twitter.com/Venitis, points out that since its inception in 1913, the Federal Reserve has helped to devalue the dollar by 96%. During the recent economic crisis, it has poured trillions of dollars into the economy with no oversight, made secret agreements with foreign banks and governments, and has refused to tell Congress who is getting the money or to give it the details of what deals are being made. We demand full transparency from the central banks.
Play misty to me! Venitis asserts that central banks play a confidence game with us. A confidence game is defined as an attempt to defraud a person or group by gaining their confidence. The victim is known as the mark, the trickster is called a confidence man, and any accomplices are known as shills. Confidence men exploit human characteristics such as greed, vanity, honesty, compassion, credulity, and naivete. The common factor is that the mark relies on the good faith of the confidence man.
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.
There has been much discussion of moral hazard in connection with the flurry of bailouts that began in 2008. Moral hazard refers to people's readiness to act with an artificially elevated level of risk tolerance because they believe that any losses they may incur will be borne by other people. Hence the bailouts will tend to make major market actors even less likely to behave prudently in the future, since if they believe they are likely to be considered too big to fail, they have more reason than ever to believe that they will not be allowed to go out of business, and therefore that they may continue to make risky bets.
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.
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