Alan Greenspan Vs. Ron Paul

Over the years, some of the most interesting dialog during former fed chairman Alan Greenspan's reign was between him and Congressman Paul in the Financial Services Committee. It was interesting because Mr Greenspan was an Ayn Rand devotee and sound money advocating economist before he became fed chairman. In fact this is what he said back in 1967 in relation to a gold standard...

"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."

So we have that quote to digest. Over the next few years, Mr. Greenspan was seduced by the power of the fiat money system. I'd compare him to a fictional young Anakin Skywalker being seduced by the dark side of the force. Mr. Greenspan sold his soul and was handsomely rewarded with the chaimanship of the all powerful Federal Reserve System.

So fast forward to 1997 when Dr. Paul returned to Congress. He and Mr. Greenspan had some fascinating discussions about monetary policy during Mr. Greenspans once every other month in half testimony in the Financial Services Committee. Here are some of the better quotes from these exchanges...

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2/17/2000 — DIALOGUE ONE
(In which Ron Paul gets Greenspan to admit that the Fed has no way of knowing how much money the economy needs.)

Dr. PAUL. "My concern is what is going to happen when this bubble bursts? I think it will, unless you can reassure me. But the one specific question I have is will M3 shrink? Is that a goal of yours, to shrink M3, or is it only to withdraw some of that credit that you injected through the noncrisis of Y2K?"

Mr. GREENSPAN. "Our problem is, we used M1 at one point as the proxy for money, and it turned out to be very difficult as an indicator of any financial state. We then went to M2 and had a similar problem. … The difficulty is in defining what part of our liquidity structure is truly money. … Our measures of money have been inadequate and as a consequence of that we … have downgraded the use of the monetary aggregates for monetary policy purposes.”

Dr. PAUL. "It is hard to manage something you can’t define."

Mr. GREENSPAN. "It is not possible to manage something you cannot define."

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2/11/2004 — DIALOGUE TWO
(In which Ron Paul gets Greenspan to admit the Fed has ‘inordinate power.’)

Dr. PAUL. "Maybe there is too much power in the hands of those who control monetary policy, the power to create the financial bubbles, the power to maybe bring the bubble about, the power to change the value of the stock market within minutes? That to me is just an ominous power and challenges the whole concept of freedom and liberty sound money."

Dr. GREENSPAN. "Congressman, as I have said to you before, the problem you are alluding to is the conversion of a commodity standard to fiat money. We have statutorily gone onto a fiat money standard, and as a consequence of that it is inevitable that the authority, which is the producer of the money supply, will have inordinate power."

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7/21/2004 — DIALOGUE THREE

(In which Ron Paul gets Greenspan to admit that, in fact, successful central banks must replicate gold standard - so why not return to it?)

Dr. PAUL. "Yesterday's testimony was received in the press as you painting a pretty rosy picture of the economy. … So my question to you is, how unique do you think this period of time is that we live in and the job that you have? … Since there is no evidence that fiat money works in the long run, is there any possibility that you would entertain that, quote, we may have to address the subject of overall monetary policy not only domestically but internationally in order to restore real growth."

Mr. GREENSPAN. "Well, Congressman, you are raising the more fundamental question as to being on a commodity standard or another standard. And this issue has been debated, as you know as well as I, extensively for a significant period of time. Once you decide that a commodity standard such as the gold standard is, for whatever reasons, not acceptable in a society and you go to a fiat currency, then the question is automatically, unless you have Government endeavoring to determine the supply of the currency, it is very difficult to create what effectively the gold standard did. I think you will find, as I have indicated to you before, that most effective central banks in this fiat money period tend to be successful largely because we tend to replicate that which would probably have occurred under a commodity standard in general."

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