The Soviet system took 70 years to collapse. But then 72 hours changed the world...

TWENTY YEARS AGO, Professor Richard Ebeling witnessed first hand the demise of the Soviet system, writes Toby Baxendale of the Cobden Centre.

His recent article for Northwood University is a truly remarkable eye witness account of the 72 hours that changed the world. Pause on that: just 72 hours to move from seemingly unassailable Communist Party rule to the new beginnings of the Russian nation we have today.

As we know, Mises had shown in the early 1920s how it was impossible for a pure socialist system to centrally plan; in the absence of a price system, they could not properly allocate scare resources. In the late '30s, Hayek showed us how it was impossible that any one group of planners match the interpersonal transactions of hundreds of millions of people, each with their own particular subjective values on each of the specific things they were doing.

It took 70 years for the total collapse of the Soviet system. Then 72 hours changed the world.

We see that Soviet-style planing of money still lingers on in the world today. We are not accustomed to thinking that the Bank of England, the Federal Reserve and the European Central Bank are money planning bureaus, but that is what they do: try to plan our money supply.

We have nine wise men in the Monetary Policy Committee who do this in the UK. In our case, they do this by inflation targeting via interest-rate adjustments and their own bond purchases. Yet the money supply needs no more planning than the price of apples does.

To all policy makers, those 72 hours Ebeling writes about are a stark reminder that when confidence blows in something, and people lose faith in the status quo, things can change very quickly indeed!

The credit-induced boom of the central banks, with their private sector mints, the private banks, lending recklessly during the noughties, led to catastrophe by 2007. The policy response of our dear leader Gordon Brown involved the socialisation of banking losses. Having assumed the liabilities of the banks, national governments across the Western world are now in crisis. Like the cartoon character who runs off the edge of the cliff with his legs still spinning, suspended in mid air, it may be the sudden awareness of an untenable position that brings the paper money system crashing back down to earth.

Are we due for our own 72 hours of reckoning?

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