The Case for the Free Market

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FOR the men who lived before 1914 the western economic order represented a final conquest by the modern world. That there should be famine or that money should not be convertible seemed to them as inconceivable as a change in the movement of the stars. Some of them recognized that the division of wealth permitted the existence of grave social inequalities and that the cycle of periods of prosperity and of depression inflicted sufferings on large sections of the population which nothing justified. But no one imagined that it could become necessary to ration foodstuffs for a lengthy period, if not indefinitely, or that a considerable mass of the people could, for several decades, be condemned to unemployment. Even in 1918 expert opinion believed that there would be a rapid return to prewar conditions, and the possibility of large-scale monetary depreciation was not taken seriously.

But the order which our fathers thought so durable was slipping away under their feet. The disorders first appeared in isolated patches, painful but localized. In France in 1919, for example, it was discovered with astonishment that living accommodations (the price of which was controlled) could not be found. At the end of 1920 unemployment made its appearance in England. This created no surprise because it followed an economic crisis, and an upset in price movement had always been accompanied by unemployment. At the end of several months, as in earlier crises, unemployment began to decrease. But the factor which was new was that in 1924, when the fall in unemployment came to an end, there were still more than a million unemployed workers in England. The number of unemployed practically never fell below this level until 1939.

Opinion noted these unhealthy symptoms, but since it did not believe they were permanent, it did not at first attach great importance to them. The explanations put forward for the housing shortage were wartime destruction, population movements, the interruption in building, the change in the nature of demand. The explanation of unemployment was the closing of certain markets as a result of political changes or industrialization of undeveloped countries, the replacement of coal by oil or water power, technical progress causing the replacement of men by machines. The characteristic common to these various explanations lay in their quantitative nature: there was a crisis because supply or demand had changed...