Limited government proved too successful for its own good
Note: This is a condensed version focusing on core arguments. For the full essay with detailed historical analysis and comprehensive economic theory, please see the complete version.
History proves free markets work. The smallest government in human history (early America) became the largest, destroying the economic engine that created unprecedented prosperity. The Federal Reserve and government intervention transformed the world’s most successful economy into a debt-ridden, inequality-plagued system heading toward collapse.
The Problem: Central banking destroys the natural price mechanism for money (interest rates).
How markets should work: Interest rates are set by millions of people making decisions about saving vs. spending. When there’s insufficient savings, rates rise naturally, encouraging saving. When there’s excess savings, rates fall, encouraging investment.
How the Fed destroys this: A few academics manipulate interest rates artificially, stripping away market signals. Add money printing (quantitative easing), and you create massive economic distortions.
The result: Boom-bust cycles. The Fed inflates bubbles, then tries to cure each crash with more monetary stimulus. Each bubble requires larger doses of intervention, creating bigger crashes.
Hidden taxation: Inflation is a regressive tax that hurts the poor most while benefiting asset owners. The Fed Chair may be the most powerful person in the world—markets move 50% based on Fed policy alone.
The foundation: The Enlightenment brought ideas of individual liberty and free markets. America was founded on self-ownership and property rights with a Constitution designed to limit government power.
The results: World GDP growth over 2,000 years shows capitalism unleashed unprecedented prosperity starting in the 1800s. Every measurable statistic improved—life expectancy, wealth, food production, education, infant mortality.
The problem: Free markets were too successful. The wealth created led to inequality, which politicians exploited by promising redistribution in exchange for votes.
Two critical events marked America’s decline: 1. Income tax introduced (originally 1% for the wealthy) 2. Federal Reserve created (after a secret meeting at Jekyll Island)
When foreign countries demanded gold for their dollars, there wasn’t enough. Nixon ended gold convertibility, creating pure fiat currency.
Solution to maintain dollar dominance: - Petrodollar system: Forced oil transactions in dollars - Volcker’s interest rate shock: 20% rates to fight inflation
Since the 1980s, the Fed’s strategy: fight every deflating bubble by inflating a bigger one. Each crisis requires larger monetary stimulus.
Hidden inflation: Consumer prices haven’t risen much due to: - Outsourcing manufacturing to China - Massive productivity gains (prices should be falling, not staying flat) - Changed inflation measurement formulas
Asset inflation: Houses, stocks, and commodities have exploded in value. The middle class feels squeezed—homes that cost $50,000 thirty years ago now cost $500,000, but salaries aren’t 10x higher.
The numbers: Trillion-dollar annual deficits. Republicans and Democrats agree on 95% of spending—they only fight over 5%.
The trap: The Fed can no longer raise interest rates without destroying the federal budget. Since COVID, the Fed has financed nearly all government debt because foreign buyers can’t absorb the trillions being issued.
Modern Monetary Theory (MMT): Democrats now propose unlimited money printing to fund all programs. This isn’t a revenue problem—even 100% tax rates on the rich wouldn’t cover spending. It’s a massive spending problem.
People are frustrated but don’t understand why. Trump’s election was Americans lobbing a grenade into Washington. Unfortunately, Trump destroyed fiscal conservatism, opening doors to massive spending programs.
The pattern: Economic frustration leads to political extremism. When people can’t afford homes their parents could easily buy, they blame the wrong causes because they don’t understand monetary policy.
The US story isn’t unique. Throughout history:
1. Empires with sound money create massive wealth
2. They overextend themselves (militarily and fiscally)
3. They dilute their currency to fund spending
4. They eventually collapse
Modern example: Chile embraced free markets in the 1970s and became the wealthiest Latin American country with GDP per capita 50% higher than Mexico or Argentina.
The Libertarian Party offers solutions to restore America’s economic engine: - End the Fed - Massive spending cuts - Return to constitutional limits on government - Eliminate corporate welfare and regulations
The problem: Republicans and Democrats agree on keeping out competition. Few people have heard of the Libertarian Party despite it being the third-largest party on all 50 state ballots.
The irony: Many people describe themselves as “fiscally conservative and socially liberal”—exactly what Libertarians represent.
Current system: Crony capitalism where companies lobby for regulations that eliminate competition.
True capitalism: Would have much less inequality because:
- No corporate welfare
- No regulatory barriers to entry
- No Fed-created asset bubbles
- Sound money that can’t be inflated away
History proves free markets create prosperity. Government intervention and central banking destroy the mechanisms that generate wealth. The solution isn’t more government—it’s returning to the principles that made America prosperous.
The choice: Continue down the path of increasing government control and economic decline, or return to the free market principles that created the greatest economic expansion in human history.
Continue to Part 4 for how to live with this knowledge and move forward.
Disclosure: The content herein is my own opinion and
should not be considered financial advice or recommendations.