The press is
resounding with acclaim for the accession to Power of Alan Greenspan
as chairman of the Fed; economists from right, left, and center
weigh in with hosannas for Alan’s greatness, acumen, and unparalleled
insights into the "numbers." The only reservation seems
to be that Alan might not enjoy the enormous power and reverence
accorded to his predecessor, for he does not have the height of
a basketball player, is not bald, and does not smoke imposing cigars.
observer might feel that anyone accorded such unanimous applause
from the Establishment couldn’t be all good, and in this case he
would be right on the mark. I knew Alan thirty years ago, and have
followed his career with interest ever since.
I found particularly
remarkable the recent statements in the press that Greenspan’s economic
consulting firm of Townsend-Greenspan might go under, because it
turns out that what the firm really sells is not its econometric
forecasting models, or its famous numbers, but Greenspan himself,
and his gift for saying absolutely nothing at great length and in
rococo syntax with no clear-cut position of any kind.
As to his eminence
as a forecaster, he ruefully admitted that a pension-fund managing
firm he founded a few years ago just folded for lack of ability
to apply the forecasting where it counted when investment funds
were on the line.
real qualification is that he can be trusted never to rock the establishment’s
boat. He has long positioned himself in the very middle of the economic
spectrum. He is, like most other long-time Republican economists,
a conservative Keynesian, which in these days is almost indistinguishable
from the liberal Keynesians in the Democratic camp. In fact, his
views are virtually the same as Paul Volcker, also a conservative
Keynesian. Which means that he wants moderate deficits and tax increases,
and will loudly worry about inflation as he pours on increases in
the money supply.
There is one
thing, however, that makes Greenspan unique, and that sets him off
from his Establishment buddies. And that is that he is a follower
of Ayn Rand, and therefore "philosophically" believes
in laissez-faire and even the gold standard. But as the New York
Times and other important media hastened to assure us, Alan
only believes in laissez-faire "on the high philosophical level."
In practice, in the policies he advocates, he is a centrist like
everyone else because he is a "pragmatist."
As an alleged
"laissez-faire pragmatist," at no time in his prominent
twenty-year career in politics has he ever advocated anything that
even remotely smacks of laissez-faire, or even any approach toward
it. For Greenspan, laissez-faire is not a lodestar, a standard,
and a guide by which to set one’s course; instead, it is simply
a curiosity kept in the closet, totally divorced from his concrete
is only in favor of the gold standard if all conditions are right:
if the budget is balanced, trade is free, inflation is licked, everyone
has the right philosophy, etc. In the same way, he might say he
only favors free trade if all conditions are right: if the budget
is balanced, unions are weak, we have a gold standard, the right
philosophy, etc. In short, never are one’s "high philosophical
principles" applied to one’s actions. It becomes almost piquant
for the Establishment to have this man in its camp.
Over the years,
Greenspan has, for example, supported President Ford’s imbecilic
Whip Inflation Now buttons when he was Chairman of the Council of
Economic Advisers. Much worse is the fact that this "high philosophic"
adherent of laissez-faire saved the racketeering Social Security
program in 1982, just when the general public began to realize that
the program was bankrupt and there was a good chance of finally
slaughtering this great sacred cow of American politics. Greenspan
stepped in as head of a "bipartisan" (i.e., conservative
and liberal centrists) Social Security Commission, and "saved"
the system from bankruptcy by slapping on higher Social Security
Alan is a long-time
member of the famed Trilateral Commission, the Rockefeller-dominated
pinnacle of the financial-political power elite in this country.
And as he assumes his post as head of the Fed, he leaves his honored
place on the board of directors of J.P. Morgan & Co. and Morgan
Guaranty Trust. Yes, the Establishment has good reason to sleep
soundly with Greenspan at our monetary helm. And as icing on the
cake, they know that Greenspan’s "philosophical" Randianism
will undoubtedly fool many free market advocates into thinking that
a champion of their cause now perches high in the seats of power.
Volume 9, Number 10
by Murray N. Rothbard
has received his foreordained reappointment as chairman of the Fed,
to the smug satisfaction and contentment of the entire financial
For them, Greenspan’s
still in his heaven, and all’s right with the world. No one seems
to wonder at the mysterious process by which each succeeding Fed
chairman instantly becomes universally revered and indispensable
to the soundness of the dollar, to the banking and financial system,
and to the prosperity of the economy.
When it looked
for a while that the great Paul Volcker might not be reappointed
as Fed chairman, the financial press went into a paroxysm of agony:
no, no, without the mighty Volcker at the helm, the dollar, the
economy, nay even the world, would fall apart. And yet, when Volcker
finally left the scene years later, the nation, the economy, and
the world, somehow did not fall apart; in fact, ever since, none
of those who once danced around Volcker for every nugget of wit
and wisdom, seem to care any longer that Paul Volcker is still alive.
What was Volcker’s
mysterious power? Was it his towering, commanding presence? His
pomposity and charisma? His strong cigars? It turns out that these
forces really played no role, since Alan Greenspan, now allegedly
the Indispensable Man, enjoys none of Volcker’s qualities of personality
and presence. Greenspan, a nerd with the charisma of a wet mackerel,
drones on in an uninspired monotone. So what makes him indispensable
now? He is supposed to be highly "knowledgeable," but
of course there are hundreds of possible Fed chairmen who would
know at least as much.
if it is not qualities of personality or intellect, what makes all
Fed chairmen so indispensable, so widely beloved? To paraphrase
the famous answer of Sir Edmund Hillary, who was asked why he persisted
in climbing Mt. Everest, it is because the Fed chairman is there.
The very existence of the office makes its holder automatically
wonderful, revered, deeply essential to the world economy, etc.
Anyone in that office, up to and including Lassie, would receive
precisely the same hagiographic treatment. And anyone out of office
would be equally forgotten; if Greenspan should ever leave the Fed,
he will be just as ignored as he was before.
It’s too bad
that people aren’t more suspicious: that they don’t ask what’s wrong
with an economy, or a dollar, that supposedly depends on the existence
of one man. For the answer is that there’s lots wrong. The health
of Sony or Honda depends on the quality of their product, on the
continuing satisfaction of their consumers. No one particularly
cares about the personal qualities of the head of the company. In
the case of the Fed, the acolytes of the alleged personal powers
of the chairman are never specific about what exactly he does, except
for maintaining the "confidence" of the public or the
market, in the dollar or the banking system.
The air of
majesty and mystery woven around the Fed chairman is deliberate,
precisely because no one knows his function and no one consumes
the Fed’s "product." What would we think of a company
where the President and his PR men were constantly urging the public:
"Please, please. Have confidence in our product our
Sonys, Fords, etc"? Wouldn’t we think that there was something
fishy about such an enterprise? On the market, confidence stems
from tried and tested consumer satisfaction with the product. The
proclaimed fact that our banking system relies so massively on our
"confidence" demonstrates that such confidence is sadly
to confidence, lauding the alleged qualities of the head: all this
amounts to a con-game. Volcker, Greenspan, and their handlers are
tricksters pulling a Wizard of Oz routine. The mystery, the tricks,
are necessary, because the fractional-reserve banking system over
which the Fed presides is bankrupt. Not just the S&Ls and the
FDIC are bankrupt, but the entire banking system is insolvent. Why?
Because the money that we are supposed to be able to call upon in
our bank deposit accounts is simply not there. Only about 2% of
that money is there.
and the confidence trick of the Fed rests on its function: which
is that of a banking cartel organized and enforced by the federal
government in the form of the Fed. The Fed continually enters the
"open market" to buy government securities. With what
does the Fed pay for those bonds? With nothing, simply with checking
accounts created out of thin air. Every time the Fed creates $1
million of checkbook money to buy government bonds, this $1 million
quickly finds its way into the "reserves" of the banks,
which then pyramid $10 million more of bank deposits, newly created
out of thin air. And if someone sensibly wants cash instead of these
open book deposits, why that’s okay, because the Fed just prints
the cash which immediately become standard "dollars" (Federal
Reserve notes) which pay for this system. But even these fiat paper
tickets only back IOU’s of our bank deposits.
is interesting that, of the rulers of the Fed, the only ones that
seem to be worried about the inflationary nature of the system are
those Fed regional bank presidents who hail from outside the major
areas of bank cartels. The regional presidents are elected by the
local bankers themselves, the nominal owners of the Fed. Thus, the
Fed presidents from top cartel areas such as New York or Chicago,
or the older financial elites from Philadelphia and Boston, tend
to be pro-inflation "doves," whereas the relatively anti-inflation
"hawks" within the Fed come from the periphery outside
the major cartel centers: e.g., those from Minneapolis, Richmond,
Cleveland, Dallas, or St. Louis. Surely, this constellation of forces
is no coincidence.
anyone who thinks that these regional bank presidents are insufferable
anti-inflation "hawks" ain’t seen nothing yet. Wait till
they meet some Misesians!
August 1987 Free Market.
N. Rothbard (19261995) was the author of Man,
Economy, and State, Conceived
in Liberty, What
Has Government Done to Our Money, For
a New Liberty, The
Case Against the Fed, and many
other books and articles. He was
also the editor with Lew Rockwell of The
Rothbard-Rockwell Report, and academic vice president of
the Ludwig von Mises Institute.