A FRAMEWORK FOR REFORM
OUR SYSTEM OF money, banking, and finance is not meeting our needs and reform is badly needed. Yet reform proposals are few and those that have been put forward are entirely too timid and limited in their range. One reason for the failure of imagination on the subject is too-ready acceptance of a free-market ideology, which sees only Adam Smith's invisible hand at work in the restless flow of funds across the globe in search of the highest return. The fact of the matter is that the expanding financial markets depend crucially on explicit and implicit government credit guarantees, guarantees that have been granted for the most part without much reflection on possible alternative uses of the government credit. It is the visible and still-powerful hand of government, quite as much as the invisible hand of the market, that is responsible for the form and function of modern financial markets. Genuine reform proposals must begin by recognizing that what the hand of government has brought forth by accident, it can and should redesign by intention.
In the rescue and reconstruction of the 1930s, the hand of government was used quite intentionally and purposefully to endorse and guarantee private credit. The quid pro quo was a thoroughgoing scheme of regulation, and