It is well known that former Fed Chief Alan Greenspan was a disciple of Ayn Rand, who believed in (among other things) unregulated capitalism. When interviewed recently on NPR's Fresh Air, Greenspan was asked if he didn't see some irony that, despite his own self-proclaimed libertarian beliefs, he spent much of his time as one of the world's most powerful regulators.
Greenspan's response: Regulator? Moi?
Here is a transcript of the actual exchange. (This comes in the last seven minutes of the interview):
Greenspan: Well actually, we were not fundamentally regulators [at the Fed]. The vast portion of our efforts were not involved in bank regulation.
NPR: No, but you were regulating interest rates, which have a profound effect on world economies.
Greenspan: You're raising really a very interesting question. I have always argued that the gold standard of the 19th century was a very effective stabilizer. It kept inflation essentially at zero, and I felt it was critical for the tremendous growth that occurred for the American economy in the latter part of the 19th century. When we went off the gold standard essentially in 1933, we then had to have what we call "fiat money" which is essentially money that is - it's printed paper money. Which unless we restrict the volume of, can be highly inflationary.
The type of interest rate regulation that I and indeed most central banks in the last 20 years have been involved in...has been to try to replicate the laws and rules that were governing the gold standard. And so it is an odd situation where all the central bankers -- while none of them are advocating a return to the gold standard -- nonetheless try to replicate the various types of interest rate policies that the gold standard would have created. And it is an interesting question whether you call that regulation, or basically functioning of a central bank in stabilizing the economy."
In listening to his smooth, soothing voice, the meaning of his words can easily get lost. The man nearly puts you to sleep with what sounds like soothing wisdom. But in reading the above transcript, clarity returns with a vengeance. Allow me to clarify. What he said was: The gold standard was responsible for the tremendous growth during one of America's most innovative and productive periods, but unfortunately we "had to have" fiat money. (Really? We had to have it? Who made that decision for us?) Greenspan then goes on to admit that fiat money can be very inflationary, so it has to be regulated. However, in spite of the fact that he is the Chairman of the institution charged with regulating it, he is not the regulator.
How can this be possible!? Because, he soothingly reassures us, he was simply emulating the gold standard! He would have us believe (if we did not have brains) that he was simply an automaton - doing what the gold standard would have been doing automatically anyway. Which begs the question: If this is the case - if the gold standard worked so well - why do we need the Fed to attempt to emulate it?? Why not just bring the gold standard back?
This is an excerpt of a recent article posted by Michael Nystrom on his website www.bullnotbull.com
