What Happened to the Free Market?
by James Jaeger

Adam Smith's paradigm, for the most part, works well -- the idea that the free market, operating under the "invisible hand" of supply and demand, will be self-regulating and promote wealth. But here's the problem with today's capitalism: the market is not free. Only goods and services are free; money is not. The cost of money is regulated by the Federal Reserve. This is a serious flaw in today's capitalism and it's what's causing the wealth disparity we now see in the U.S. Here's why:

Money represents goods and services. Money is a medium of exchange we use to transact those goods and services. The money SUPPLY, therefore, must bear a close resemblance to the SUPPLY of goods and services in the economy. When these get out of whack, there is either too much money or too little money with respect to the products and services in the economy. Too much money and the price of products and services goes up. Too little money and the price of products and services goes down. It's very simple.

But again, here's where capitalism, as practiced today, goes off the rails. The price of money is set by the Federal Reserve Open Market Committee. This committee meets eight times a year in secrecy and sets, among other things, interest rates and reserve requirements. Interest rates are the cost of money, hence determine the demand for money. Reserve requirements set the amount of money, hence determine the supply of money. Thus, one can readily see this is NOT a free market because supply and demand, hence Adam Smith's "invisible hand," is not involved with money.

The reason this is a serious flaw is because money represents ALL the products and services in the economy. We use money to transact ALL the products and services in the economy. By REGULATING the cost and amount of money in the economy you are, in essence, regulating ALL of the economy. Thus, we live in a MANAGED capitalistic society -- not a FREE MARKET capitalistic society.

Any time the market is MANAGED, it benefits those who MANAGE it. In this case, the elite bankers connected with the Federal Reserve, Congress (the Fed's partners) and those who get the money first (all those around the beltway), such as lobbyists for the military-industrial complex.

This is why we now live in a plutocracy, NOT a democracy. The beneficiaries of a managed money supply have taken over the government because only they can afford to purchase favors from Congress. Only they can afford to rewrite the laws to favor their special (corporate) interests. The citizens are now merely figure-heads.

This is why Ron Paul says the Federal Reserve System must be dealt with.

15 October 2007

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