Le Docteur Is In
When the Republican nominees refer to "Wall Street greed" and "predatory lenders" to explain the global financial crisis, and the French remind us how capitalism should be done, something's really upside down. Economist Judy Shelton, author of Money Meltdown, writes in the WSJ of recent speeches Sarko gave on the U.S. economy, calling on world leaders to hold a summit by year's end to lay out proposals for a new approach to international financial and monetary relations:

France's president held out the possibility that all is not lost, that we can fix what is broken. "The financial crisis is not the crisis of capitalism," according to Mr. Sarkozy. "It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism."

The "true capitalism" Sarkozy describes is, Shelton writes, "a capitalism that accords primacy to the entrepreneur -- that compensates hard work, innovative solutions, stalwart commitment and personal discipline." She says it requires the following:

- Free-market clarity. Consumers must be able to properly judge the inherent value of goods brought to the marketplace if markets are to function properly; this applies to financial instruments as wholly as it does to products and services. When the trade-off between risk and return is obscured by an implicit government guarantee -- as exemplified by Fannie Mae and Freddie Mac securities offered with a "wink" from Uncle Sam to eager purchasers around the world -- the consequences can prove extremely damaging. False advertising leads to compromised market outcomes; it constitutes a betrayal of the consumer.

- Monetary integrity. Monetary-policy decisions that "stimulate" the economy by issuing too many claims to real production, or "constrict" the economy by reducing the amount of available purchasing power or capital investment, utterly confound the notion of stable money. Money represents a moral contract between government and ordinary citizens -- the sanctity of money rests in its reliability as a store of value. Inflation robs the worker of savings he has accumulated through his labors; by means of government stealth, it diminishes his future purchasing power. The U.S. mortgage mess can be partially traced to the environment of perpetual inflation that seduced citizens into believing the price of housing would rise forever.

- Financial validity. What turns the reputable practice of granting credits to deserving borrowers into a high-stakes casino game where the biggest stacks of chips are held by speculators working for the world's largest banks and investment houses? The $700 billion in bailout money begrudgingly approved by Congress only begins to address the problem of estimating the total overhang of outstanding financial instruments by settling on a price for the mortgage-backed securities. Imagine the Blackjack dealer staring into the anxious faces around the green velvet table; all the players are desperate to know what is printed on the face-down card as trillions in wagered bets await resolution. Exotic financial derivatives that gamble on the anomalies of the global economy -- currency movements, interest-rate disparities, governance incongruities -- mock the very concept of "investment" to generate future higher returns from production.

- Regulatory responsibility. Rule of law is a core requirement for civil society; without it, anarchy reigns. Government regulation does not create wealth, but it is a necessary condition to provide the stable and predictable environment that permits buyers and sellers to carry out economic and financial transactions with confidence. Trust is achieved through transparency, first and foremost. And while government regulation, at its best, merely functions as the incorruptible referee -- it will never dream up the breakthrough projects that become capitalism's greatest success stories, nor have the discernment of the venture capitalist who recognizes an entrepreneur with a brilliant idea -- it nevertheless plays a key role. Governments should view economic freedom as a basic human right, to be respected and protected by ensuring that markets function smoothly and openly.

- Entrepreneurial opportunity. Much of the resentment felt by citizens toward the massive investment companies who peddled bad government paper, and the craven politicians who promoted the practice, stems from the perception that capitalism is rigged toward the most powerful. When the owner of a small retail outlet or medium-sized service firm gets into financial trouble -- who steps in to help? Why are the rules to start a business so onerous, why is the bureaucratic process so lengthy, why are the requirements for hiring employees so burdensome? When does the entrepreneur receive the respect and cooperation he deserves for making a genuine contribution to the productive capacity of the economy? Equal access to credit is sacrificed to the overwhelming appetite of big business -- especially when government skews the terms in favor of its friends. It is time to pay deference to the real economic heroes of capitalism: the self-made entrepreneurs who have the courage to start a business from scratch, the fidelity to pay their taxes, and the dedication to provide real goods and services to their fellow man.

Shelton rounds out her piece with a little reminder from a speech Sarko gave to Congress last November, offering, in her words, "the most profound assessment of our nation's gift to the world":

"What made America great was her ability to transform her own dream into hope for all mankind," he said. "America did not tell the millions of men and women who came from every country in the world and who -- with their hands, their intelligence and their heart -- built the greatest nation in the world: 'Come, and everything will be given to you.' She said: 'Come, and the only limits to what you'll be able to achieve will be your own courage and your own talent.'"