Thomas E. Woods Jr. is a successful historian who doesn't hide his libertarian views about American history, politics and economics but instead emphasizes them. Among his nine books are "The Politically Incorrect Guide to American History," a 2004 New York Times best-seller, and last year's "33 Questions About American History You Aren't Supposed to Ask."

Woods is a senior fellow at the Ludwig Von Mises Institute in Auburn, Ala., which describes itself as "the world center of the Austrian School of economics."

Austrian economics is the polar opposite of the Keynesian or socialist economics practiced today by the United States and most of Europe. Austrians -- who advocate for and defend the free-market economy, private property and sound money -- believe it is government intervention in the economy that causes crises like the current one.

It is from an Austrian point of view that Woods has written his latest book, "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse." A New York Times best-seller earlier this year, its first chapter can be read at tomwoods.com).

Q: Can you briefly describe what your book is about?

A: It's the truth about the economic crisis that you don't get from CNBC or the usual suspects. It defends the free market against the extremely unfortunate conventional wisdom that the meltdown we've observed represents the collapse of the free market. It is no such thing. This is to the contrary a government- and Federal Reserve-instigated crisis from beginning to end. It is extremely important for people who believe in the free market and in a free society to know how to defend themselves, to know what the arguments are, in order that we might resist the expansion of government power that will take place using this crisis as a pretext.

Q: What part of the government would you indict as the major culprit?

A: More than anything else, it's the Federal Reserve System. Now strictly speaking, the Federal Reserve is a private institution. But it was created by Congress. A lot of its personnel are appointed by the government. And it enjoys government-granted monopoly privileges. So for all intents and purposes, it is a government-established central bank.

It is important to understand that at a time when we are being told that free-market economists must have egg on their face because their cherished system has collapsed, it was followers of Ludwig Von Mises, F.A Hayek - the great so-called Austrian economists of the 20th Century - who were mostly likely to have predicted this crisis.

So if this was a failure of the free market, why have the free-market economists predicted it more than anyone else? Obviously there must not have been a free market. Specifically, Hayek won the Noble prize in economics for showing that government-established central banks like the Federal Reserve are an intervention into the free market. They are destabilizing, not stabilizing. And by tampering with interest rates and the free market system they cause entrepreneurs and consumers alike to commit massive errors that eventually hit the economy in the form of a major bust.

So what has happened to us is not a failure of the free market but instead the inevitable working out of the consequences of intervention by government into the free market. So in other words, the problem with Alan Greenspan wasn't that he believed in the free market too much, it's that he didn't believe in it enough. He believed that he could be the monetary central planner, planning money and interest rates. The New York Times called him "the infallible maestro of our financial system." This is just goofy. Why doesn't Alan plan steel and concrete production for us while he is at it?

Q: So how did what the government did wrong affect the housing crisis?

A: It's hard to think of anything the government did right. In addition to the usual government policies we've all heard about - like the very existence of Fannie Mae and Freddie Mac -- I have a whole chapter on the housing situation and I identify half a dozen culprits. But, again, the key is the Fed. Because if you had really dumb government policies, you could really have a housing bubble develop - and by bubble I mean a sector of the economy where prices are unsustainably high.

Let's say there had been no Fed but that people had just started buying a lot of houses at random. What would have happened is the banks would have run out of money to lend and so interest rates would have shot up and that would have discouraged the bubble process from continuing; it would have discouraged people with no job from buying five investment properties, for example. It would have stopped it.

But instead, because we have a monetary central planner in our economy, we can create a lot of additional money out of thin air, so the banks feel like, "Oh, wait. Our resources are not depleted after all. We can keep on lending." So you can keep an illusion going and can pump it up and pump it up. But if it hadn't been for the Fed, the housing bubble - and therefore the terrible bust were now feeling the consequences of - could not have begun in the first place.

Q: What should the government do now to fix the problems government itself created?

A: If you were to make a list of all the things the government has been doing and then go down that list, you would actually find that they should be doing the exact opposite of every one of those things. I say that both with the help of the testimony of history, but also with sound economics. The bottom line is that instead of a stimulus package, so-called, which can't possibly help . we should be cutting the budget. I know that is the opposite of what all the drones tell us. But the drones are wrong on this.

Interestingly, when the U.S. was enduring a terrible depression in the year 1920, by 1922 the federal budget had been cut in half. So according to the conventional wisdom, the economy should have plunged deeper into a depression in that year. But instead by mid-1921 the economy was already turning around without the federal government or Federal Reserve involved.

Whereas, whenever you try the current approach - creating money out of thin air, dropping interest rates to zero, stimulus packages, propping up zombie companies - well, that's pretty much what Japan did in 1990 and 19 years later their economy still hasn't recovered. So why would they think it would have a better result now?

Q: As a historian, how do you explain that we - our leaders in government - have not learned from what Japan did and what our government did in the Great Depression, which most economists agree only prolonged the depression?

A: Well, partly, and I know this runs counter to the model of government we are all taught in civics class, government officials are not motivated by truth alone. Sometimes they just want to do whatever will bail out their friends, or whatever will get them some votes in their own district and to heck with country at large. But they frankly don't even care.

Frankly, for government, history is not a source of wisdom or insight. History is a propaganda device to be manipulated on behalf of government. Barack Obama actually has the audacity - pardon that word -- to cite the Japanese example as if it is evidence for his positions - "Well, we can't repeat what Japan did." Yes. You're right! But that's why we shouldn't do what we've been doing. They want to increase their power during times like this. Continued...