Libertas

Ayn Rand and Alan Greenspan

While searching through some books on gold and the economy several of them mentioned Alan Greespan’s essay “Gold and Economic Freedom.” Ron Paul also mentioned it, so I thought I ought to read it. I found it in Ayn Rand’s CAPITALISM: The Unknown Ideal.

This a wonderful essay, but what happened to the man who wrote it? Why did he do the very things he warned against? How could Alan Greenspan, the same man who wrote “Gold and Economic Freedom,” do the things he did as the Federal Reserve Chairman?

Greenspan attacks the opponents of gold immediately in the first paragraph:

“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.”

He then covers a short history of money, also found in Murray Rothbard’s book, What Has Government Done to Our Money? The two differ, however, on fractional reserve banking. Greenspan accepts fractional reserve banking, believing that the gold reserves would keep banks from overextending themselves and keep nations from creating “easy money.” Rothbard, however, doesn’t buy it: it’s all a fraud.

After explaining the different booms and busts of the late nineteenth century, he writes:

“But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business.”

He writes as if that’s a bad idea. It seems like a bad idea. It is a bad idea!

SO WHAT HAPPENED TO ALAN GREENSPAN?!

Next he gives a short history of the Federal Reserve System, beginning with its creation in 1913 and its manipulation of the money supply to protect Great Britain. The FED stopped Britain’s loss of her gold reserves, saving her from the embarrassment of having to raise interests rates, but:

“it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.”

IF HE KNEW THIS, WHAT HAPPENED?!

Statists, he argues, blame gold for the Great Depression, but the real reason they hate gold is that the welfare state is impossible with a gold standard. Taxation cannot support it, therefore, government must resort to borrowing, but gold hampers government deficit spending. By increasing the money supply, the value of the currency falls.

“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, therefore, 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 their 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 a wonderful essay, but what happened to the man who wrote it? Why did he do the very things he warned against? How could Alan Greenspan, the same man who wrote “Gold and Economic Freedom,” do the things he did as the Federal Reserve Chairman?

Gold and economic freedom are inseparable.” “

Deficit spending is simply a scheme for the confiscation of wealth.”

Despite all the damage he did as the Federal Reserve Chairman, his essay “Gold and Economic Freedom” should not be condemned. He may have praised laissez-faire capitalism or the free market early on, but he did not practice it as the FED chairman. He did the very things he warned about in his essay.

Recommended:

“The Real Legacy of Alan Greenspan” by Ryan McMaken

CAPITALISM: The Unknown Ideal by Ayn Rand, Nathaniel Brandon, Alan Greenspan, Robert Hessen

What Has Government Done To Our Money by Murray Rothbard