“Systemic Risk” for Profit

At the beginning of this month, commenting on the European debt crisis, Forbes‘s Charles Kadlec pointedly indicted Europe’s “governing elite” or “ruling class” as “the source of systemic risk to the global financial system.” Kadlec emphasized the relationship between Europe’s banking sector and its governments, adverting to laws that made supposedly “risk free” sovereign debt artificially appealing.

While the results of Kadlec’s computations are accurate in placing blame on European governments’ leaders, it is critical that we remember who the state is designed to benefit. Arguing that “the private sector has been attacked,” Kadlec condemns “generous transfer payments” to the unemployed and “high wages and even more generous pensions” to government workers.

But it isn’t for poor, laboring Europeans that the continent’s “public servants” sought to swell the state. Whatever their dishonest fustian about social and economic justice, the ruling class served not to attack Europe’s private sector banks, but to accommodate them. In Europe, economic centralization has witnessed big government grow in tandem with big business, which has goaded the development of a legal and regulatory regime that disqualifies small competitors.

Owners of capital command monopoly profits, rents and tolls on productive activity by precluding forms of self-employment and other enterprises that don’t rely on huge expenditures at the outset. When the only legal way to do something happens to be the most costly, inefficient way to do it, the one subsidized recurrently by the state, the people who can make big loans take a commanding position at the bargaining table.

Even further, productive, working people are legally prevented from organizing capital for themselves through legal tender laws and other affronts against a true free market in banking. Adding to their incapacitated position relative to powerful elites, working people are — quite unlike major banks — not regular recipients of government bailouts or influxes of counterfeit fiat currency.

With all of these systematic, coercive advantages to the big banks, stacked upon each other for generations, the notion that Europe’s financial system represents a free market is a blatant absurdity. And the injustices of the state’s banking cartel go hand in hand with that system’s inefficiencies, the crises that have become all too familiar to us.

As free banking advocate Professor George A. Selgin has observed, “the inability of banks to issue their own notes … eliminates the secondary note market that could otherwise do away with information asymmetries in the market for bank money.” Without the free movement of bank notes based on anything and everything free people deem capable of backing them up, enormous heaps of resources gather in a few vast wastes.

When those great misapplications of wealth are discovered — when the bubble ineluctably bursts — it is society at large that’s expected to settle up the tab. Just like all of their other costs, dispersed over an unwitting public, the price of crisis is foisted on people who played no part in creating the structure itself.

The average European is, rather than a willing accomplice of the powerful, freeloading off of the state, a hapless victim of coercive privilege. The true parasites are Europe’s politicians and corporate executives, in league together as an organized crime racket living on the industry of labor.

Consensual relationships and real trade — a “free market” — are ill-disposed to an indolent aristocratic class like Europe’s. Their time and that of their council, the state, is coming to an end; we ought to welcome that end with open arms.

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