Greece cannot
pay its debts ... ever. Nor can several other members of the European Union.
That’s why Europe’s elite are loath to place Greece in default. If Greece is
allowed to abrogate its debts, why should any of the other debtor members of
the EU pay up? The financial consequences of massive default by most of the EU
members is hard to predict, but it won't be pretty. Europe has built a
financial house of cards, and the slightest loss of confidence will bring it
crashing down.
The tragedy of
Europe has socialism at its core. Europe has flirted with socialism since the
late nineteenth century. Nineteenth century Bismarckian socialism produced two
world wars. Leninist socialism slaughtered and enslaved hundreds of millions
until it collapsed, mercifully without a third world war. Yet, not to be
deterred, in the ashes of World War II, Europe’s socialists embarked on a new
socialist dream. If socialism fails in one country, perhaps it will succeed if
all of Europe joined a supra-national socialist organization. Oh, they don't
call what has evolved from this dream “socialism,” but it is socialism
nonetheless.
Socialism will
not work, whether in one country, a multi-state region such as Europe, or the
entire world. Ludwig von Mises explained that socialism is not an alternative
economic system. It is a program for consumption. It tells us nothing about
economic production. Since each man's production must be distributed to all of
mankind, there is no economic incentive to produce anything, although there may
be the incentive of coercion and threats of violence. Conversely, free market
capitalism is an economic system of production, whereby each man owns the
product of his own labors and, therefore, has great economic incentives to
produce both for himself, his family, and has surplus goods to trade for the
surplus product of others. Even under life and death threats neither the
socialist worker nor his overseer would know what to produce, how to produce
it, or in what quantities and qualities. These economic cues are the product of
free market capitalism and money prices.
Under
capitalism, man specializes to produce trade goods for the product of others.
This is just one way of stating Say’s Law; i.e., that production precedes
consumption and that production itself creates demand. For example, a farmer
may grow some corn for his family to consume or to feed to his own livestock,
but he sells most of his corn on the market in exchange for money with which to
buy all the many other necessities and luxuries of life. His corn crop is his
demand and money is simply the indirect medium of exchange.
Keynes
attempted to deny Say’s Law, claiming that demand itself — created artificially
by central bank money printing — would spur production. He attempted,
illogically and unsuccessfully, to place consumption ahead of production. To
this day Keynes is very popular with spendthrift politicians, to whom he
bestowed a moral imperative to spend money that they did not have.
We see the
result of 150 years of European socialism playing out in grand style in Greece
today. The producing countries are beginning to realize that they have been
robbed by the EU’s socialist guarantee that no nation will be allowed to
default on its bonds. Greece merely accepted this guarantee at face value and
spent itself into national bankruptcy. Other EU nations are not far behind.
It’s time to give free market capitalism and sound money a chance: it’s worked
every time it’s been tried.
The views
expressed on Mises.org are not necessarily those of the Mises Institute.
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