The banking crisis of 2008 and its attendant deep recession have been hailed by statists the world over as the ultimate demonstration of capitalist greed and a justification for more and more regulation and government control of the economy, particularly the financial sector. Their argument boils down to an accusation that private actors in the marketplace are incapable of dealing with systemic crises and that government is the only agent that can address the market as a whole in order to combat panics and economic shocks. That argument won out in the aftermath of the recession, leading to a raft of new regulations, most notably the voluminous Dodd-Frank Act.

But this is far from the correct lesson to take from the financial crisis. Much ink already has been spilled on the real causes of the crisis: government-caused distortions of the home-lending market through Fannie Mae and Freddie Mac, and firms operating with the tacit promise of bail-outs should things go south. These government policies created the systemic problems that devastated the economy. Yet there is still a great deal to say about the actual process of dealing with crises once they have started. Most of “orthodox” economics, both of the left and the right, places central banks at the heart of dealing with crises. In fact, it was a financial crisis in 1907 that prompted the formation of the Federal Reserve. However, the choice to promote the role of government in the economy in 1907, just as in 2008, represented a fundamental misunderstanding of the power of business leaders to resolve crises without any need of government interference.

Indeed, the crisis of 1907 serves as one of the most enduring examples of the private economy’s ability to save itself, even in the face of negative government interference. The Panic of 1907 began in October with a failed attempt to corner the market on the stock of the United Copper Company. The cornering effort had been financed by a number of banks, and when the effort failed, so did the overexposed banks. Other banks financially linked to the early failures swiftly fell, and soon there was a nationwide panic complete with bank runs and emergency closures.

At first glance, the story might sound like a cautionary tale about the excesses of unregulated capitalism, but that judgment is quashed by the incredible response that followed the initial panic.

Out of the panic, a leader emerged to take charge of the situation: John Pierpont Morgan. As the financial crisis seemed about to sink the stock market, and the economy, Morgan began holding meetings with the presidents of the country’s major banks in his library. For weeks, Morgan coordinated rescue efforts on institutions deemed capable of surviving, while measures were taken to untangle and insulate those solvent firms from those that could not be saved.

The result of Morgan’s efforts was not only a calming of the market, but the very survival of the American financial system. With only very limited injections of cash from the U.S. Treasury, the whole economy was preserved by the coordinated efforts of the private sector.

Morgan nearly failed in his efforts, thanks to the untimely prying of the government at the final stage of the rescue. One of the last steps taken to shore up the financial sector relied on the saving of the Tennessee Coal, Iron and Railroad Company (TC&I), the stock of which was being used as collateral by a major brokerage house. If the broker went belly-up, the panic could begin anew. Morgan’s solution was simple: merge TC&I with his own U.S. Steel. Doing so would save TC&I, which would save the brokerage firm, which would save the economy from further panic. To those involved, it seemed like a simple, non-invasive solution.

Then the government intervened. Theodore Roosevelt’s administration was adamantly opposed to anything that smelled of monopoly, and it nearly blocked the merger under the Sherman Antitrust Act. Fortunately, the president eventually listened to his advisors and allowed the merger to go through. Had that not happened, the United States could well have been plunged into a deep depression, the financial system in ruins.

It’s true that Morgan had a personal interest in staving off a financial panic that would inevitably affect his holdings, and he would soon become a key figure in the development of the Federal Reserve, which became increasingly intrusive and unaccountable in administering its vast, government-mandated power over the economy. But if there is one lesson to take from 1907, it is that not only are governments a chief cause of financial crises, they are also a frequent impediment to their resolution.

 Perhaps we should look to the example of Morgan and his private-sector compatriots who ended the panic and concurrent recession within a year, as opposed to the meddling Federal Reserve, which helped make the Depression great and has lately presided over the worst economic “recovery” ever.

John Engle (johnengle.heartland@gmail.com) is a communications intern at The Heartland Institute, a free-market think tank. He is attending Oxford University in the fall.