Economy and State in the Regulation of Financial Markets

By Gustavo Morles (University of Phoenix)

This work aims to provoke a conversation about the state’s role in the regulation of Financial Markets. At one end capitalism is defined as the exercise, by the individual, of the free will to choose the products, goods and services consumed. At the other end statism is defined as the deliberate tendency to put in the hands of bureaucrats the organization of the economy. State capitalism, capitalistic only in name and statist in practice, leads to increasing totalitarianism. However, the moral problem is deeper, Statism exalts theft as an ethics and ignores the right of individuals to exercise their economic freedom.

The global financial crisis has renewed calls to increase government oversight and regulation of Financial Markets, forgetting that, despite this sector being one of the most regulated and supervised in the economy, it is a sector with a history of recurrent crises in every country in the world. Upon the occurrence of the crisis, the State arbitrarily decides to save some of the financial institutions and not others, through the injection of public resources which results in the privatization of profits and socialization of losses. The solution is not to create new and deeper regulations to increase state control over the financial system. We need to create a financial system that protects the wealth of the citizens of its expropriation by the state. Statism, based on the assumption that government officials know what is best for society, destroys competition and private regulation of economic activity, and ends up destroying individual liberty and free will which are the factors that generate wealth-producing activity.

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