Gold and Economic Freedom by Alan Greenspan 1966

This is a little bit of information most people never knew and it is worth your time to read and get acquainted with.

Written by Alan Greenspan in 1966, it shows a rationality and a view of what a sound monetary policy should resemble that is not at all evident from his attitude and actions from the mid 90s forward. Did Alan Greenspan sell out or did he genuinely change his mind somewhere between the Mexican Peso crisis and his final days in office? We don’t know and likely never will. What is rumored however,  is a private conversation Alan Greenspan allegedly was having with a financier some time before he was appointed Fed Chairman. During the alleged conversation, Greenspan is believed to have said that he’d love to be Fed Chairman during the Kondratiev winter because he thought he’d be able to overcome it by manipulating interest rates and liquidity. If true, this statement shows that non only was Greenspan acquainted with economic cycle theory, but also that he was aware of the perils of runaway credit and deficit spending unbacked by real wealth. But regardless of rumors, this essay shows Greenspan was aware of how a sound monetary system should operate.

I am posting the link to this letter in my “links” space on this blog for future reference. You can also follow up on Kondriatev from links in my blog.

Some excerpts:

“But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.”

“Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital.”

“If banks can continue to loan money indefinitely-it was claimed [by the statist interventionists] – there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government.”

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Today then, it is legitimate to ask: what happened to make Alan Greenspan completely reject his earlier beliefs and almost single-handedly bring about the credit crisis?


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