Two Alan Greenspan’s

June 4, 2001 – It is probably not too surprising for you to learn that at the recent conference in Durban, South Africa sponsored by , a number of questions were asked of me and the other speakers about Alan Greenspan. People eagerly want to learn more about the man.

It seems that his words and actions are followed as closely outside the US as they are within this country, which I guess is understandable. As the largest single economy, the health of the US has a big influence on people’s financial well-being throughout the world. And the Dollar’srole in international finance and commerce remains without equal.

Because of the influence of the Federal Reserve on both the US economy and the Dollar, decisions by the Fed are therefore felt worldwide. And rightly or wrongly, Alan Greenspan is seen as a leader who stands head-and-shoulders above his colleagues at the Fed and the all-important Federal Open Market Committee. So regardless of the fact that the Fed is a large organization, Mr. Greenspan gets all of the attention. Not one question was asked in Durban about any of his Fed colleagues. For that matter, as far as I can recall, I’ve never heard at other conferences attended by me any discussion of the Fed in which questions were posed about anyone other than the Fed Chairman. It is Alan Greenspan’s show, so to speak.

I’ve met Alan Greenspan only once, in 1983 when he was an advisor to the Reagan administration. He was a speaker at a conference I was attending in Florida, and I suppose it is not too surprising to readers that I asked him about gold. My questions were about the Reagan administration’s position on restoring a link to gold, which you may recall was a topic that Reagan mentioned frequently in his campaign for the presidency.

Mr. Greenspan gave me no new insight on this topic that wasn’t already available in the newspapers. But I found him to be cordial, and very considerate in that he seemed very sincere in wanting to make sure that my questions were answered. I enjoyed meeting him and talking with him.

Over the years since that brief meeting, and particularly since his appointment as Chairman of the Federal Reserve in 1987, I’ve often wondered whether there are in fact two Alan Greenspan’s. The first one is Alan Greenspan’s public persona as Chairman of the Fed. The second one is the private Alan Greenspan, a devotee of Ayn Rand who was a member of her close circle of colleagues in the 1960’s. Few remember today that she attended the ceremony in 1974 when Alan Greenspan was sworn in as Chairman of President Ford’s Council of Economic Advisers, in those day’s a powerful and prestigious advisory group whose members had the ear of the President.

You didn’t realize that Alan Greenspan was part of Rand’s inner-circle for many years? Back in the mid-1960’s, he actually wrote some very provocative stuff, perhaps more fitting for John Galt instead of the Fed Chairman. For example, in 1966 he penned:

“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.“

Not Galt-like enough for you? Then how about this quote from the same essay, Gold and Economic Freedom:

“The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold…. 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.“

These are strong words, and they clearly are not what anyone would expect to hear from anyone in the Federal Reserve, let alone its very powerful Chairman. But there is an obvious inconsistency here.

The Federal Reserve is the principal mechanism that provides the soft-money necessary to fund and perpetuate the welfare state. The Fed makes sure that the deficit spending is financed, but it is also responsible for that other “hidden confiscation of wealth” – inflation. So how can Alan Greenspan work for an organization that is diametrically opposed to what he wrote? Has Alan Greenspan abandoned the principles that he so forthrightly championed in the 1960’s?

I don’t think so, and recently we got some confirmation for that conclusion. In his April 11th, 2001 newsletter, Jay Taylor (Gold & Technology Stocks, Box 770871, Woodside, N.Y. 11377) quoted a letter he had just received from Congressman Ron Paul, probably the leading proponent in Washington, D.C. for sound money. The letter read in part:

“Last week when Alan Greenspan was before the Banking Committee, I asked him to autograph the original Objectivist newsletter published in 1966, which contained his article, Gold and Economic Freedom. In signing it I asked him if he wanted to add any disclaimers, since it is a great article and supports our position. He said that he had recently reread the entire article and ‘would not change a single word.’ His views expressed in this article of course are in direct opposition to the policies he follows at the Fed.“

Thus, I think there are two Alan Greenspan’s. One is the Chairman of the Fed, who in his position as a hired-gun works as a technocrat perpetuating the welfare state and special position of the big banks. Then there is the other Alan Greenspan, who stands by the principles he espoused in his 1960’s writings.

How he can possibly manage to work for the Fed without compromising his principles, I don’t know. But a careful reading of Mr. Greenspan’s speeches and testimony before Congress clearly indicate that he is true to his word – he still believes in the principles about which he wrote in the 1960’s. For example, in 1963 he wrote:

“Government regulation is not an alternative means of protecting the consumer. It does not build quality into goods, or accuracy into information. Its sole “contribution” is to substitute force and fear for incentive as the “protector” of the consumer. The euphemisms of government press releases to the contrary notwithstanding, the basis of regulation is armed force. At the bottom of the endless pile of paper work which characterizes all regulation lies a gun.”

Again, some pretty strong stuff. Now consider what Mr. Greenspan said about government regulation in a speech on April 12th, 1997:

“I have never lost sight of the fact that government regulation can undermine the effectiveness of private market regulation and can itself be ineffective in protecting the public interest…. As we move into a new century, the market-stabilizing private regulatory forces should gradually displace many cumbersome, increasingly ineffective government structures. This is a likely outcome since governments, by their nature, cannot adjust sufficiently quickly to a changing environment, which too often veers in unforeseen directions.“

There is no caustic, biting tone to this last quote, but the message is the same. Alan Greenspan doesn’t think much of government regulation, a conclusion that is readily apparent when reading the entire speech. And he expresses optimism for the future by noting that government regulation will essentially disappear.

So in the future when someone mentions Alan Greenspan to you, ask to which Alan Greenspan he is referring. The outspoken critic of government regulation, or the government regulator who is as the Chairman of the Federal Reserve.