Alan Greenspan is currently 95 years old.  He was chairman of the Federal Reserve (the Fed) from 1987 to 2006.  He once wrote a great essay on gold and economic freedom, which was published by Ayn Rand.

During his time as Fed chair, Greenspan largely sold out to the establishment.  Or maybe he sought to be part of the establishment all along and just went along with Ayn Rand when it was convenient.

When Ron Paul was in Congress, he used to enjoy questioning Greenspan.  One time, Greenspan said something to the effect that the Fed had advanced to where it could almost mimic the gold standard.

Just last year, Greenspan warned about growing debt and inflation, so it’s not clear how this is consistent with his previous statements.

Greenspan also signed his essay for Ron Paul one time and said he stands by every word, yet it is completely inconsistent with his actions as Fed chair.

Perhaps Greenspan is correct that the Fed could somewhat mimic a gold standard.  The problem is that it won’t.

You could also say that Congress could balance the budget.  But given the opportunity for power, it is unlikely to ever do so again except perhaps when forced to by the laws of economics.

You have to wonder if Greenspan would still make these comments about the Fed being able to mimic the gold standard.  With the explosion in the Fed’s balance sheet and the official CPI numbers getting closer to double digits, I would like to ask Greenspan the following:  How’s that working out for you?

Well, it’s working ok for Greenspan, but how is it working out for middle class America?  Most people aren’t getting annual raises at their corporate job in the neighborhood of 7%.

A Major Reason to Criticize the Central Bank

There are many reasons to criticize a central bank, or in this case, the Fed.  The Fed cannot properly allocate resources.  The Fed’s monetary inflation redistributes wealth and is immoral.  The Fed can’t know the proper price of money or the interest rate.  Only the free market can properly allocate capital in accordance with consumer demands.

With all of that said, one of the biggest reasons to criticize the Fed is the same reason libertarians criticize politicians and bureaucrats.  The problem is that the power will not be used for the good of the people or for the stated intentions.

Or as Harry Browne liked to say: The problem isn’t the abuse of power; it’s the power to abuse.

Again, the Fed could try to mimic the gold standard.  If it did, things would probably be pretty good.  I would contend that it is impossible to mimic what the free market would have done, but maybe the experts could get somewhat close.  We could probably go along with a very mild inflation rate where the money supply grows at a rate that is close to the overall economy (not that this is necessary).  We might even see some mild price deflation if this happened.

But this isn’t going to happen because it is politicians and bureaucrats in charge.  They have favors to do.  They have bailouts to give.  They have deficit spending to finance.  They have many promises to make.

The Fed isn’t going to restrain itself any more than politicians in Congress restrain themselves.  It’s not that they are all pure evil, but they tend to have a bias in doing things that benefit themselves and those close to them.

In other words, this statement Greenspan made many years ago about the Fed being able to mimic a gold standard is completely naïve at best.

When you give monopoly power over the money supply to an institution, you should probably expect that the institution won’t have the noblest of intentions.

Even if Greenspan was a great Fed chair (he wasn’t) and was really looking out for the good of the people, it doesn’t mean that every Fed chair and Fed member will be this way from now until the end of time.

This is why inflation is the natural state of the world when we have central banking.  They can’t help themselves, just as Congress can’t help but continue massive spending.

As long as we have central banks that have a monopoly over money, we will continue to see inflation.  There may be brief periods of deflation because the central bank overdid things, but we always return to a state of inflation.  Prices rise and the purchasing power of the money goes down.