Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

The Hypocrisy of Greenspan

Posted by Jesse on October 24, 2008

Can Greenspan provide stable markets and prosperity? All evidence is again to the contrary. Smart? Obviously. Principled? Ha!

Those who tirade against President Bush do not believe what Bush says. Naturally the opposition will use examples provided by Bush’s failures to bolster and re-enforce the position that theirs is the correct view.

And Greenspan? Same principle. Opposition forces will employ the same means and exploit such failures to the same end.

Yet, what evidence is given to prove the opposition is therefore correct?

Let’s reproduce the evidence given by the opposition:

·”Greenspan claims to be representative of the practice of “laissez-faire capitalism”

·“Greenspan admitted there was a “flaw” in his ideology”

·“Therefore, “laissez-faire capitalism is to blame for the alleged “crisis”

Not only is this lacking in substance, but the facts are incorrect.

How does the Federal Reserve, of which Greenspan was the Chairman, in any way, represent laissez-faire capitalism? This question is never asked. Instead the emphasis and attack is on Greenspan’s alleged ideology.

Read it and weep. Greenspan abandoned “his” laissez-faire ideology a long time ago:

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. 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.


I would recommend listening to a man who has stayed principled and cannot be blamed for any of the current economic “crises” but instead has served as a teacher and voice of reason on these issues of our day.

The Economics of a Free Society [mp3]


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