I'M an economics fan like some people are sports fans. I support the free-market team. Adam Smith is my star player. I've got all his memorabilia: The Wealth of Nations, The Theory of Moral Sentiments, the division of labour bobble-head doll. It's my hobby. I wrote a book about it.

So people ask me, "What would Adam Smith say about this financial meltdown?" Usually these are people who are forgetting to remember that the free market is the greatest reserve of our freedoms.

Freedom of speech is important if you've got anything to say. I've checked on the internet. Nobody does. Freedom of belief is important if you believe in anything. I've watched pay TV. I can't believe it.Freedom of assembly is important if you have an assembly to go to. Butmost people go to the mall. Andat the mall they exercise economic freedom.

But the free market is dead.

The free market was killed by the Bolshevik revolution, by fascist central planning, by Keynesianism, the Depression, World War II economic controls, the British Labour Party victory of 1945, Keynesianism again, the Arab oil embargo, Tony Blair's and Bill Clinton's "third way" economic policies, and by the present financial crisis.

That's 10 times the free market has died in the past 100 years. And every time the free market dies, everybody wants to know, "What would Adam Smith say?" He'd be laughing too hard to say anything.

Smith spotted the cause of our financial disaster 232 years before 2008. "A dwelling house, as such," he wrote in The Wealth of Nations in 1776, "contributes nothing to the revenue of its inhabitant." He went on to point out that, even if the house were rented "as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue".

So Smith concluded that "the revenue of the whole body of the people can never be in the smallest degree increased" by a bunch of ugly condominiums and tacky housing developments. Voila! Sub-prime mortgage meltdown.

For Europeans of Smith's generation, the "speculative bubble" was a defining disaster of history. This was their Gallipoli in a financial sense. The South Sea Bubble and the Mississippi Scheme had blown up just a couple of years before Smith was born. There were at least 100 other bubbles just as famous. And while Smith was in Scotland writing The Wealth of Nations, the collapse of a real estate boom set off a run on Scottish banks. Only three of Edinburgh's 30 private banks survived.

The reaction of Scottish investors sounds very familiar. Smith wrote that the speculators seemed to have thought that "the banks were in honour bound to supply the deficiency, and to provide the speculators with all the capital which they wanted". Smith knew that speculative bubbles were not caused by the free market. Speculative bubbles are the result of a breakdown in something -- sometimes common sense, sometimes rule of law -- but they're not the result of a breakdown in market freedoms.

The free market is not a creed or a belief system that we capitalists ask people to take on faith.

What the free market does (and all that it does) is tell us what people are willing to pay for a given thing at a given moment. It gives us one piece of important information.

The free market is a bathroom scale. We may not like what we see when we step on the bathroom scale. "Jeez, 105kg!" But we can't pass a law making ourselves weigh 85kg. And socialists and fools -- to the extent that there's a difference -- think we can.

So how would Smith fix our financial crisis? Sorry, but it's fixed already. The answer to a decline in the value of speculative assets is to pay less for them.

We could pump the banks full of our national treasure. But Smith said: "To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils."

We could send in the experts to manage our bailout. But Smith said: "I have never known much good done by those who affect to trade for the public good."

And we could nationalise our economies. But Smith said: "The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary." Not to mention chairman of General Motors.

Ronald Reagan summed up our problem in one sentence: "The nine most frightening words in the English language are, 'I'm from the government and I'm here to help."'

Our greatest fear should not be the recession. Our greatest fear should be that our national leaders are engaged in "recession preservation". That their policies will make this crisis probably worse and definitely more prolonged.

I'm not saying that they mean to do this. But I'm not saying they don't. What's bad for us is good for politicians. The politicians are here to save us. And why would we want a politician here, if there's nothing to save us from?

P.J. O'Rourke is delivering the Centre for Independent Studies' annual lecture in Sydney tonight. For information and tickets, go to www.cis.org.au or phone (02) 9438 4377.