Around 1920, in the United States, a group of self-righteous religious fundamentalists, moved by extreme zeal against what they perceived as sin, achieved the enactment of a law that forbade the manufacture and distribution of liquor.
Of course, nobody ignores the fact that the excessive intake of any substance is totally detrimental to the human body. However, if, by law, you try and forbid an individual from slowly killing himself with alcohol, tobacco or drugs, he will simply jump off a bridge or throw himself under a train. And then, what do you do next? Destroy bridges? Ban trains?
Besides, there is another paramount factor to consider. Many of the ill-conceived laws that aim to change behavioural patterns in society end up having profound and unintended consequences on the underlying economic fabric. That such government interference in the real economy causes distortions of an unimaginable magnitude is something that seems fairly obvious, except perhaps to the mentally blind.
Let's get back to 1920. Prohibition did not prevent people from drinking. Far from it. All it did was to create a flourishing black market in the trade of liquor, which, in a sense, was the free market trying to circumvent government interference. Al Capone almost sounded like a distinguished economist when he said:
- I am like any other man. All I do is supply a demand.
The unintended consequences of the 1920 law were many. The price of liquor went up, adulterated alcoholic beverages appeared on the market with grave health consequences, petty criminals were promoted to gangsters, government officials turned to corruption and violence became a daily occurrence. It took the massacre of St. Valentine's Day to bring people to their senses.
There is no doubt that the 2007-2008 economic crisis has come about as a result of governments around the world creating the conditions for excessive credit at ridiculously low interest rates. The unintended consequences have been the appearance of bubbles in government bonds, precious metals and sovereign debt, as capital seeks to obtain its just reward. If all three bubbles should burst at the same time, we will witness the total collapse of the financial system.
To make matters worse, governments are engaged in currency wars that, if left unchecked, will degenerate into full-blown trade wars. The last option is undoubtedly the nuclear war.
Should it happen, it will be back to barter, and the free market will, once more, prevail.
