I recommend Lanny Ebenstein’s piece on NRO, in which he discusses the intellectual battle that raged in the 1940s and has recently taken on renewed urgency, between the Keynesians, who argue that the free market is inherently unstable and needs frequent government correction in the form of increases in “aggregate demand,” and the Austrians, who argue that economic instability is overwhelmingly due to erratic government policies that give us the boom-and-bust cycle.

In my view, this is the intellectual battle. If people continue to think that government control is what we need in order to have economic growth and stability, the result will be increasing waste of resources (as capital and labor are drawn into projects dictated by politicians), and decreasing freedom (as the politicization of the society leads to constant erosion of our liberty to make our own decisions). As Hayek famously argued, the Keynesian mindset leads down the road to serfdom.

Here’s a point that I think is worth noting. Capitalism is supposedly unstable, but the American colonies and then the United States went 200 years with laissez-faire (the British government’s few efforts at taxing and restricting trade were quite ineffective) before we had a recession in 1819, which Rothbard has demonstrated was due to the monetary manipulation of the First Bank of the U.S. Laissez-faire coupled with sound money does not lead to economic instability. People carefully evaluate and plan their investments, leading to maximal growth and minimal unemployment if left alone. It takes the power of the state to cause the massive misallocation of resources that are evident in recessions and depressions.

It isn’t just mistaken economic thinking that has the Obama administration embracing Keynes and ignoring Hayek. The prescription to expand the state is exactly what they wanted to do anyway.