• Alan Greenspan: A Minority Report

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    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.

    The astute
    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.

    Greenspan’s
    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
    policy conclusions.

    Thus, Greenspan
    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
    taxes.

    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.

    THE FREE
    MARKET

    Volume 9, Number 10
    October 1991

    The Mysterious
    Fed

    by Murray N. Rothbard

    Alan Greenspan
    has received his foreordained reappointment as chairman of the Fed,
    to the smug satisfaction and contentment of the entire financial
    Establishment.

    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.

    So
    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
    misplaced.

    Mystery, appeals
    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.

    The mystery
    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.

    It
    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.

    Of course,
    anyone who thinks that these regional bank presidents are insufferable
    anti-inflation "hawks" ain’t seen nothing yet. Wait till
    they meet some Misesians!

    From the
    August 1987 Free Market.

    Murray
    N. Rothbard
    (1926–1995) 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.

    Murray
    Rothbard Archives

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