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Date: Sat, 21 Dec 2002 21:22:10 -0600
Subject: [libnetd] FW: [PT-Refuge] Gold and Economic Freedom by Alan Greenspan
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> -----Original Message-----
> From: DJ <thenaturalway101@yahoo.com>
> [mailto:thenaturalway101@yahoo.com]
> Sent: Saturday, December 21, 2002 9:45 AM
> To: PT-Refuge@yahoogroups.com
> Subject: [PT-Refuge] Gold and Economic Freedom by Alan Greenspan
>
>
> http://www.usagold.com/gildedopinion/Greenspan.html
>
> Gold and Economic Freedom
> by Alan Greenspan
>
> [Editor's note - It may surprise more than a few gold devotees to
> learn they have an ideological friend in none other than Federal
> Reserve Board chairman Alan Greenspan. Starting in the 1950s, in
> fact, Greenspan was a stalwart member of Ayn Rand's intellectual
> inner circle. A self-designated "objectivist", Rand preached a
> strongly libertarian view, applying it to politics and economics, as
> well as to religion and popular culture. Under her influence,
> Greenspan wrote for the first issue of what was to become the widely-
> circulated Objectivist Newsletter. When Gerald Ford appointed him to
> the Council of Economic Advisors, Greenspan invited Rand to his
> swearing-in ceremony. He even attended her funeral in 1982.
>
> In 1967, Rand published her non-fiction book, Capitalism, the Unknown
> Ideal. In it, she included Gold and Economic Freedom, the essay by
> Alan Greenspan which appears below. Drawing heavily from Murray
> Rothbard's much longer The Mystery of Banking, Greenspan argues
> persuasively in favor of a gold standard and against the concept of a
> central bank.
>
> Can this be the same Alan Greenspan who today chairs the most
> important central bank of them all? Again, you might be surprised.
> R.W. Bradford writes in Liberty magazine that, as Fed
> chairman, "Greenspan (once) recommended to a Senate committee that
> all economic regulations should have fixed lifespans. Senator Paul
> Sarbanes (D-Md.) accused him of  'playing with fire, or indeed
> throwing gasoline on the fire,' and asked him whether he favored a
> similar provision in the Fed's authorization. Greenspan coolly
> answered that he did. Do you actually mean, demanded the Senator,
> that the Fed 'should cease to function unless affirmatively
> continued?' 'That is correct, sir,' Greenspan responded."
>
> Bradford continues, "The Senator could scarcely believe his
> ears. 'Now my next question is, is it your intention that the report
> of this hearing should be that Greenspan recommends a return to the
> gold standard?'
> Greenspan responded, 'I've been recommending that for years, there's
> nothing new about that. It would probably mean there is only one vote
> in the Federal Open Market Committee for that, but it is mine.'"
> -- Editor, The Gilded Opinion ]
>
> GOLD AND ECONOMIC FREEDOM
>
> 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.
>
> In order to understand the source of their antagonism, it is necessary
> first to understand the specific role of gold in a free society.
>
> Money is the common denominator of all economic transactions. It is
> that commodity which serves as a medium of exchange, is universally
> acceptable to all participants in an exchange economy as payment for
> their goods or services, and can, therefore, be used as a standard of
> market value and as a store of value, i.e., as a means of saving.
>
> The existence of such a commodity is a precondition of a division of
> labor economy. If men did not have some commodity of objective value
> which was generally acceptable as money, they would have to resort to
> primitive barter or be forced to live on self-sufficient farms and
> forgo the inestimable advantages of specialization. If men had no
> means to store value, i.e., to save, neither long-range planning nor
> exchange would be possible.
>
> What medium of exchange will be acceptable to all participants in an
> economy is not determined arbitrarily. First, the medium of exchange
> should be durable. In a primitive society of meager wealth, wheat
> might be sufficiently durable to serve as a medium, since all
> exchanges would occur only during and immediately after the harvest,
> leaving no value-surplus to store. But where store-of-value
> considerations are important, as they are in richer, more civilized
> societies, the medium of exchange must be a durable commodity,
> usually a metal. A metal is generally chosen because it is
> homogeneous and divisible: every unit is the same as every other and
> it can be blended or formed in any quantity. Precious jewels, for
> example, are neither homogeneous nor divisible. More important, the
> commodity chosen as a medium must be a luxury. Human desires for
> luxuries are unlimited and, therefore, luxury goods are always in
> demand and will always be acceptable.
>  Wheat is a luxury in underfed civilizations, but not in a prosperous
> society. Cigarettes ordinarily would not serve as money, but they did
> in post-World War II Europe where they were considered a luxury. The
> term "luxury good" implies scarcity and high unit value. Having a
> high unit value, such a good is easily portable; for instance, an
> ounce of gold is worth a half-ton of pig iron.
>
> In the early stages of a developing money economy, several media of
> exchange might be used, since a wide variety of commodities would
> fulfill the foregoing conditions.  However, one of the commodities
> will gradually displace all others, by being more widely acceptable.
> Preferences on what to hold as a store of value, will shift to the
> most widely acceptable commodity, which, in turn, will make it still
> more acceptable. The shift is progressive until that commodity
> becomes the sole medium of exchange. The use of a single medium is
> highly advantageous for the same reasons that a money economy is
> superior to a barter economy: it makes exchanges possible on an
> incalculably wider scale.
>
> Whether the single medium is gold, silver, seashells, cattle, or
> tobacco is optional, depending on the context and development of a
> given economy. In fact, all have been employed, at various times, as
> media of exchange. Even in the present century, two major
> commodities, gold and silver, have been used as international media
> of exchange, with gold becoming the predominant one. Gold, having
> both artistic and functional uses and being relatively scarce, has
> significant advantages over all other media of exchange. Since the
> beginning of World War I, it has been virtually the sole international
> standard of exchange. If all goods and services were to be paid for in
> gold, large payments would be difficult to execute and this would
> tend to limit the extent of a society's divisions of labor and
> specialization. Thus a logical extension of the creation of a medium
> of exchange is the development of a banking system and credit
> instruments (bank notes and deposits) which act as a substitute for,
> but are convertible into, gold.
>
> A free banking system based on gold is able to extend credit and thus
> to create bank notes (currency) and deposits, according to the
> production requirements of the economy. Individual owners of gold are
> induced, by payments of interest, to deposit their gold in a bank
> (against which they can draw checks). But since it is rarely the case
> that all depositors want to withdraw all their gold at the same time,
> the banker need keep only a fraction of his total deposits in gold as
> reserves. This enables the banker to loan out more than the amount of
> his gold deposits (which means that he holds claims to gold rather
> than gold as security of his deposits). But the amount of loans which
> he can afford to make is not arbitrary: he has to gauge it in
> relation to his reserves and to the status of his investments.
>
> When banks loan money to finance productive and profitable endeavors,
> the loans are paid off rapidly and bank credit continues to be
> generally available. But when the business ventures financed by bank
> credit are less profitable and slow to pay off, bankers soon find
> that their loans outstanding are excessive relative to their gold
> reserves, and they begin to curtail new lending, usually by charging
> higher interest rates. This tends to restrict the financing of new
> ventures and requires the existing borrowers to improve their
> profitability before they can obtain credit for further expansion.
> Thus, under the gold standard, a free banking system stands as the
> protector of an economy's stability and balanced growth.
>
> When gold is accepted as the medium of exchange by most or all
> nations, an unhampered free international gold standard serves to
> foster a world-wide division of labor and the broadest international
> trade. 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. Credit, interest rates, and prices tend to follow similar
> patterns in all countries. For example, if banks in one country
> extend credit too liberally, interest rates in that country will tend
> to fall, inducing depositors to shift their gold to higher-interest
> paying banks in other countries. This will immediately cause a
> shortage of bank reserves in the "easy money" country, inducing
> tighter credit standards and a return to competitively higher interest
> rates again.
>
> A fully free banking system and fully consistent gold standard have
> not as yet been achieved. But prior to World War I, the banking
> system in the United States (and in most of the world) was based on
> gold and even though governments intervened occasionally, banking was
> more free than controlled.
> Periodically, as a result of overly rapid credit expansion, banks
> became loaned up to the limit of their gold reserves, interest rates
> rose sharply, new credit was cut off, and the economy went into a
> sharp, but short-lived recession. (Compared with the depressions of
> 1920 and 1932, the pre-World War I business declines were mild
> indeed.) It was limited gold reserves that stopped the unbalanced
> expansions of business activity, before they could develop into the
> post-World Was I type of disaster. The readjustment periods were
> short and the economies quickly reestablished a sound basis to
> resume expansion.
>
> 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. 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. Technically, we remained on the gold
> standard; individuals were still free to own gold, and gold continued
> to be used as bank reserves. But now, in addition to gold, credit
> extended by the Federal Reserve banks ("paper reserves") could
> serve as legal tender to pay depositors.
>
> When business in the United States underwent a mild contraction in
> 1927, the Federal Reserve created more paper reserves in the hope of
> forestalling any possible bank reserve shortage. More disastrous,
> however, was the Federal Reserve's attempt to assist Great Britain
> who had been losing gold to us because the Bank of England refused to
> allow interest rates to rise when market forces dictated (it was
> politically unpalatable). The reasoning of the authorities involved
> was as follows: if the Federal Reserve pumped excessive paper
> reserves into American banks, interest rates in the United States
> would fall to a level comparable with those in Great Britain; this
> would act to stop Britain's gold loss and avoid the political
> embarrassment of having to raise interest rates.
>
> The "Fed" succeeded; it stopped the gold loss, 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. Great Britain fared even worse, and
> rather than absorb the full consequences of her previous folly, she
> abandoned the gold standard completely in 1931, tearing asunder what
> remained of the fabric of confidence and inducing a world-wide series
> of bank failures. The world economies plunged into the Great
> Depression of the 1930's.
>
> With a logic reminiscent of a generation earlier, statists argued
> that the gold standard was largely to blame for the credit debacle
> which led to the Great Depression. If the gold standard had not
> existed, they argued, Britain's abandonment of gold payments in 1931
> would not have caused the failure of banks all over the world. (The
> irony was that since 1913, we had been, not on a gold standard, but
> on what may be termed "a mixed gold standard"; yet it is gold that
> took the blame.) 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.
>
> 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.
>
> by Alan Greenspan
> 1967
> Reprinted by USAGOLD with editorial content on July 6, 2001.
> ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
>
> http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=22597
>
> Friday, April 27, 2001
> ------------------------------------------------------------------
> '66 Greenspan article supports gold standard
> By Jon Dougherty
> ------------------------------------------------------------------
>
> A 1966 newsletter article written by Alan Greenspan supporting a gold-
> based U.S. economy is reflective of the Federal Reserve chairman's
> beliefs even today, WorldNetDaily has learned, even though his Fed
> policies are diametrically opposed to those that would support a gold
> standard economy.
>
> The article, entitled, "Gold and Economic Freedom," was written for
> the July 1966 issue of The Objectivist newsletter, a publication that
> also featured authors Ayn Rand and Nathaniel Branden.
>
> In it, Greenspan discusses "the specific role of gold in a free
> society," as well as the importance of a tangible monetary "standard."
>
> "If men did not have some commodity of objective value which was
> generally acceptable as money, they would have to resort to primitive
> barter or be forced to live on self-sufficient farms and forego the
> inestimable advantages of specialization," he wrote.
> A congressional source told WorldNetDaily that Greenspan still agrees
> with the premise of his article today [2001], even though the U.S.
> went off the gold standard in 1972.
>
> According to the source, Greenspan -- following a March House Banking
> Committee meeting -- told one lawmaker that if given a chance to add
> any "disclaimers" to the 34-year-old article, Greenspan said he
> still "would not change a single word."
>
> He could not be reached for comment.
>
> A congressional source told WND, "There is no doubt in my mind that
> the current monetary system is not only impractical in an economic
> sense, as well as being unconstitutional, it is immoral and dishonest
> from a biblical viewpoint."
> ..
> ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
>
>
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