TIME TO RELEARN THE CONNECTION BETWEEN PROSPERITY AND FREEDOM

There is nothing new under the sun. The United States has endured major financial panics in 1837, 1873, 1893, 1907, 1929, 1933 and now in 2008. Most of these economic events had ideological and political consequences – as well as the inevitable economic play-outs.

And, if history is any guide, contrary to the hope of some and the fear of others, this is not the end of capitalism as we have known it.

But it is true that usually, major economic events have had political as well as economic consequences. For instance, the panic of 1893, which in some ways is similar to the current panic, was caused by overbuilding and sloppy financing of the railroads.

The 1880s had enjoyed dramatic economic expansion, which lead to dangerous speculation. Once the railroad bubble burst there was a run on the banks, a contraction of credit, and European investors demanded gold for payments which forced the reduction in the value of the dollar.

Unemployment went from 3 percent in 1892 to 18 percent in 1894 – not returning to single digits (6.5 percent) until 1899. Many out-of-work middle-class citizens failed to meet their mortgage obligations, abandoned their homes and moved West. This was the end of the Gilded Age.

After years of close presidential elections, William McKinley's decisive victory in 1896 – fought out over economic issues – brought on political realignment and the beginning of the Progressive Era. With the exception of President Wilson from 1912-20 (who won in 1912 only because Teddy Roosevelt split the Republican vote), Republicans controlled the White House from 1897 to 1933.

If economic events affect politics, it is also true that political events often have economic consequences. For example, the fall of the Soviet Union two decades ago deeply compromised the credibility and appeal of government-managed economies.

As a result, throughout the world – and particularly in the United States – these last two decades have seen deregulation and a respect for market forces flourish. Not only Marxists, but even conventional big-government Democratic liberals in the West consistently lost the policy arguments to those of us who argued for a more vigorous, deregulated and free-wheeling capitalism.

Those abiding and ever-true principles of economics will be tainted, for awhile, by recent economic events.

Now, waiting in the grass to leap up and champion the cause of anti-free markets are the left-wing two-thirds of the Democrats here in America, our mainstream media, the socialists and regulators in Europe, and the Mussolini-style corporatists in Russia, China and in America, too.

We had a taste of this urge for fierce regulatory recrudescence Sunday evening in the words of Democrat Rep. Rahm Emmanuel, who warned, in calculated tones of inflamed class resentment, that once the Democrats saved the day, they would assure the end of deregulated markets (although after leaving the Clinton White House, he had taken a position at the investment bank Dresdner Kleinwort Wasserstein in Chicago, where he worked from 1999 to 2002 and reportedly earned $18 million).

In December, in somber rather than triumphant tones, the leading conservative economic commentator Martin Wolf of the British Financial Times warned that:

"What is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transaction-oriented financial capitalism." He went on to warn that when the crisis hits (as it now has) "that will certainly mean the end of the neoliberal consensus that has dominated politics for almost a generation."

Or, as Newsweek's Howard Fineman wrote this week in more informal words: "The era of cowboy capitalism has died, largely of self-inflicted wounds." I don't take those words as prophecy – but they are certainly shrewd warnings of the political things that may come.

And, it is true that it is harder this week than it was last week to persuasively argue pure free-market principles if one has endorsed the $700 billion bailout and partial nationalization of the credit industry (and I do emphatically endorse the bailout as the only available and preferable alternative to the calamitous economic status quo).

So, in the months and years to come, it falls to those of us who advocate for free markets to persist in making our case. It is true that momentary events likely will cloud the public judgment and provide nefarious opportunity for statists and other political hustlers.

But it is also the truth, which is vouchsafed by any fair reading of history, that excessive regulation and taxation – which means political management of private property and previously free markets – are inherently corrupt and inefficient.

Prosperity and the dignity of human freedom are two sides of the same coin. It is an old lesson that must now be re-taught and re-learned. And it shall be.

Tony Blankley is executive vice president for global public affairs at Edelman International, and  visiting senior fellow at the Heritage Foundation.