Greenspan 1966 vs. Greenspan 2009

As many of you know, or if you have read my profiles, you will see that I am constantly researching the interaction of philosophy, fundamental premises and politics. If there was ever a time to learn about these subjects, now is the jackpot!

One person who intrigues and puzzles me more than any other is Alan Greenspan, but not for the reasons you might think. I couldn't care less about the Fed's opinion of what interest rates "should" be; however, Mr. Greenspan's personal history is worth digging into.

Waaay back in the 50's and 60's and before his Federal Reserve days, Greenspan was very close personal friends with Ayn Rand, the creator of the Objectivist Philosophy, which touts the benefits and morality of Lais'-sez Faire' ("Hands Off!") Capitalism. In fact, he was one of only a few who were able to read and critique Atlas Shrugged while it was being written.

This period is when he wrote one of his most poignant and profound essays on free market systems - particularly the gold standard, Gold and Economic Freedom. It is a short essay, and well worth the read; however of particular interest are the following quotes:

"Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale."

"Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion."

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves."

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

WOW - not very hard to see a philosophical trend in those statements!

Fast-forward to the statement that Greenspan made Tuesday night to the Economic Club of New York on NBCNewYork.com:

"Despite my preference for low federal regulation of the financial markets, I see no alternative to a set of heightened federal regulatory rules for banks and other financial institutions."

Tsk, tsk, tsk, Alan - I have NEVER seen a more radical 180 degree turn in fundamental premises. What happened to, "the law of supply and demand is not to be conned?"

On Greenspan's Wikipedia Page, we learn, "he has come under criticism from Harry Binswanger, who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. However, when questioned in relation to this, he (Greenspan) has said, "in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled. He said he himself had to make such compromises, because he believes that 'we did extremely well' without a central bank and with a gold standard."

Ah, there we are - the magic word - COMPRIMISE a/k/a PRAGMATISM. So, in other words, when the government wants to confiscate a little of your wealth, but you don't want to give them any, you should comprimise - after all, Alan Greenspan had to make such "comprimises" to achieve his level of "success!"

Will the real Alan Greenspan please stand up!