Would privatising banking make capitalism stable?
It is claimed that the existence of the state (or, for minimal statists, government policy) is the cause of the business cycle (recurring economic booms and slumps). This is because the government either sets interest rates too low or expands the money supply (usually by easing credit restrictions and lending rates, sometimes by just printing fiat money). This artificially increases investment as capitalists take advantage of the artificially low interest rates. The real balance between savings and investment is broken, leading to over-investment, a drop in the rate of profit and so a slump (which is quite socialist in a way, as many socialists also see over-investment as the key to understanding the business cycle, although they obviously attribute the slump to different causes — namely the nature of capitalist production, not that the credit system does not play its part — see section C.7). In the words of Austrian Economist W. Duncan Reekie, “[t]he business cycle is generated by m
