Gold and Economic Freedom by Alan Greenspan
Greenspan goes straight to the matter in the first paragraph:
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.He then goes over a short history of money, similarly found in Murray Rothbard's What Has Government Done to Our Money? The two differ, however, on the value of fractional reserve banking. Not surprisingly Greenspan allows for fractional reserve banking believing that gold reserves would keep banks from overextending and nations from creating "easy money." Rothbard, however, says it's all a fraud. Then, after explaining the different booms and busts of the late nineteenth centure, I read:
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. He writes as if that's a bad idea. It seems like a bad idea. It is a bad idea. SO WHAT THE HELL HAPPENED?! He then gives a short history of the 'FED' beginning with it's creation in 1913 and it's manipulation of the money supply to protect Great Britain. The 'FED' did stop Britain's loss of her gold reserves, saving her from the embarrassment of having to raise interests rates, but:
it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. SO WHAT THE HELL HAPPENED?! Statists, he argues, blame gold for the Great Depression, but the real reason they hate gold is that the welfare state is impossible with a gold standard. Taxation cannot support it, therefore, the government must resort to borrowing, but gold hampers government deficit spending. By increasing the money supply, the value of the currency falls. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. 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. 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. This is a wonderful essay. "Gold and economic freedom are inseparable." "Deficit spending is simply a scheme for the confiscation of wealth." SO WHAT THE HELL HAPPENED TO ALAN GREENSPAN?!
Categories: Finance, Commodities, History, Economy, Monetary Policy Tags: Alan Greenspan, Murray Rothbard, Fed, inflation Showing comments 1—1 of 1
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