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Friday, February 12, 2010

An Enemy Of Capitalism

Alan Greenspan, the former chairman of the Federal Reserve, was often considered as one of the most powerful men on earth. Interestingly, he was once an acolyte of the novelist-philosopher Ayn Rand, and a proponent of the Gold Standard. It is indeed an irony that he later renounced his views on Gold Standard and headed the very institution he attacked-The Federal Reserve.

As advocates of a free market economy know, enemies of capitalism blame the evils of interventionism on the free market. It is, they say, the “laissez faire” policies of Alan Greenspan, which caused the present economic crisis. They conveniently forget that Greenspan gave up his views on Capitalism long ago. It is also forgotten that the existence of the Federal Reserve is incompatible with a free market economy. How is Government manipulation of money and credit a free market policy? Isn’t it a form of central planning? Isn’t it ridiculous to blame the present mess on Capitalism when Capitalism never existed in the first place?

My introduction the concept of gold standard was through an article-“Gold And Economic Freedom” he wrote for Ayn Rand’s “Capitalism-The Unknown Ideal”. In the article, Greenspan made a strong case for free banking, the Gold Standard and a free economy. It is safe to assume that he renounced his free market views for the Chairmanship of the Fed. He is no longer an Objectivist or a Capitalist. He might be considered as a traitor to Objectivism and Capitalism. He wrote in his autobiography about Objectivism that "as contradictions inherent in my new notions began to emerge the fervor receded”.

When Greenspan was asked whether Ayn Rand would have been a fan of the Federal Reserve, he answered that they never discussed the issue in particular. This is certainly a dishonest statement. In his 1966 article for the Objectivist Newsletter, Greenspan himself wrote these words: "Under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth." And More: “A free banking system would have been compelled, by economic necessity, to put the brakes on this process of runaway speculation. Credit and investment, in such a case, would be drastically curtailed; the banks which made unprofitable investments, the enterprises which proved unproductive, and those who dealt with them, would suffer—but that would be all; the country as a whole would not be dragged down. However, the "anarchy" of a free banking system had been abandoned—in favor of "enlightened" government planning.” However, when Greenspan was made the Chairman of the Fed, he didn’t even make a move to institute the Gold Standard.

In his Biography, Greenspan wrote that he has always harbored nostalgia for the Gold Standard which guaranteed price stability. Further, he wrote that he doesn’t see the likelihood of its return in the near future and it is a necessary cost for the existence of the welfare state. What is this statement intended to mean? It is certainly that the Federal Reserve creates money out of thin air to fund the welfare state. Moreover, Greenspan got it all wrong. Price stability is both unachievable and undesirable. As Friedrich Hayek had once written, the "impossibility of achieving in practice an absolute stabilization of the level of prices in a dynamic economy has been proven time and again."

When he was asked in an interview some time back whether he was wrong, he replied-"Well, partly." "’A critical pillar to market competition and free markets did break down,’ Greenspan said. ‘I still do not understand why it happened.’" “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” Was this the man who wrote this about the 1929 Crash that “The excess credit which the Fed pumped into the economy spilled over into the stock market--triggering a fantastic speculative boom.”? He blamed the fraud of Enron, WorldCom and Global Crossing on “infectious greed”. Wasn’t it Greenspan who wrote for the Objectivist Newsletter that "it is precisely the 'greed' of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer?"

The greatest crime that Greenspan had done was not his inflationary policies during his term. It was that he “admitted” that his belief in enlightened self interest was wrong! Greenspan was just passing the blame to the market. Surely, this man is a hypocrite!

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