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Previously published on LewRockwell.com

Alan Greenspan: Corrupted by Power or Schizophrenic Alchemist?

by Eric Englund

Alan Greenspan is a perplexing individual. When he testifies in Congress or delivers a speech, he inevitably leaves people scratching their heads – due to his torturing of the English language and of logic itself. Even more confusing is Dr. Greenspan’s radical change of heart when it comes to commodity money. At one time, in the 1960s, he was a Randian and an ardent defender of the gold standard. Yet now, as the Federal Reserve Chairman, he has become an unabashed denigrator of commodity money. Dr. Greenspan understands, as a servant of the state, that the health of the modern state is inextricably linked to how its fiat currency is managed. However, when it comes to commodity money – i.e., gold and silver – Federal Reserve Chairman Alan Greenspan’s words are denigrating and deceitful. For the sake of the state’s power and his own power, it appears that Dr. Greenspan disparages and spreads misinformation about commodity money – thereby "protecting" the state’s sacred fiat currency. On the other hand, considering that Alan Greenspan was a Randian and a fierce defender of the gold standard, one could argue that his present-day anti-gold mindset reveals that he has simply become schizophrenic.

Although the power versus schizophrenia question cannot be definitively answered here, it is interesting to compare and contrast the transcript of a recent Alan Greenspan speech with an essay he wrote in 1966. The aforementioned speech was delivered on January 16, 2002 and was titled The History of Money. This speech was riddled with errors/misinformation and contempt for gold and silver. Conversely, when Alan Greenspan was a Randian, he wrote an essay titled Gold and Economic Freedom. This essay was published, in 1966, in the newsletter The Objectivist. Later, this essay was republished in Ayn Rand’s book Capitalism: The Unknown Ideal. What follows are three excerpts from his 1966 essay followed by three contrasting excerpts from his 2002 speech. Dr. Greenspan’s paradigm shift – away from commodity money – is breathtaking and makes one wonder if he has been corrupted by power, has he lost his marbles, or a combination of both?

The Emergence of Money

1966 essay: 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.

Position as Federal Reserve Chairman (2002 speech): The history of money is the history of civilization or, more exactly, of some important civilizing values. Its form at any particular period of history reflects the degree of confidence, or the degree of trust, that market participants have in the institutions that govern every market system, whether centrally planned or free.

To accept money in exchange for goods and services requires a trust that the money will be accepted by another purveyor of goods and services. In earlier generations that trust adhered to the intrinsic value of gold, silver, or any other commodity that had general acceptability. Historians, digging deep into the earliest evidence of human practice, link such commodities' broad acceptability to peoples' desire for ostentatious gold and silver ornaments. (Italics added for emphasis)

Without a doubt, Alan Greenspan’s 1966 position is less than perfect, however it is clear he believed that money emerged on the free market with commodity money (i.e. gold and silver) ultimately being selected as the preferred media of exchange. In contrast, as Federal Reserve Chairman, Dr. Greenspan introduces nebulous terms such as "trust" and "confidence" as if commodity money had characteristics similar to fiat money. He sounds like an alchemist here. Additionally, what ancient "institutions" were involved in money’s selection process? Perhaps Alan Greenspan believes Fred Flinstone was a central banker too. Of course, he takes a pot-shot at commodity money by using the derogatory adjective "ostentatious" when describing gold and silver.

The Gold Standard: Abandoned by the Market or Abolished by the State?

1966 essay: 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. (Italics added for emphasis)

Position as Federal Reserve Chairman (2002 speech): In the twentieth century, bank reputation receded in importance and capital ratios decreased as government programs, especially the discount window and deposit insurance, provided support for bank promises to pay. And, at the base of the financial system, with the abandonment of gold convertibility in the 1930s, legal tender became backed – if that is the proper term – by the fiat of the state.

The value of fiat money can be inferred only from the values of the present and future goods and services it can command. And that, in turn, has largely rested on the quantity of fiat money created relative to demand. The early history of the post-Bretton Woods system of generalized fiat money was plagued, as we all remember, by excess money issuance and the resultant inflationary instability.

Central bankers’ success, however, in containing inflation during the past two decades raises hopes that fiat money can be managed in a responsible way. This has been the case in the United States, and the dollar, despite many challenges to its status, remains the principal international currency. (Italics added for emphasis)

To use the term "abandonment" is an abuse of language and history. Dr. Greenspan is implying a voluntary and spontaneous move away from gold. So let’s get to the truth. As Murray Rothbard stated in his most excellent book A History of Money and Banking in the United States; "Two fateful steps were taken in 1933 by the incoming Roosevelt Administration. The first and most revolutionary deed, accomplished in April, was to go off the gold standard, to confiscate almost all the gold of American citizens and place it under the ownership of the Federal Reserve, to embargo the export of gold and to devalue the dollar to $35 a gold ounce." Clearly, government theft and coercion were integral to the abolishment of the gold standard. To convey this sad episode in American history, in any other manner, is delusional – such as using the term "abandonment." In 1966, Greenspan had it right. His position today is utter hogwash.

Antagonism toward the Gold Standard

1966 essay: 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.

Position as Federal Reserve Chairman (2002 speech): If the evident recent success of fiat money regimes falters, we may have to go back to seashells or oxen as our medium of exchange. In that unlikely event, I trust, the discount window of the Federal Reserve Bank of New York will have an adequate inventory of oxen.

Dr. Greenspan’s 2002 speech validates his own 1966 assertion that statists display a hysterical antagonism toward the gold standard. For if the fiat money regimes do falter, and the free market is allowed to reassert itself, most assuredly a gold standard would re-emerge. Nevertheless, Alan Greenspan refuses to mention gold as a natural replacement for defunct fiat currencies. Such a mention would pose a threat to the power of statists like him. Instead, he brings about the nonsensical notion that the world would plunge back into the darkness of subsistence living if fiat currencies failed. It is so odd that Alan Greenspan predicted his own hysterical behavior.

Greenspan the Alchemist (Just for Fun)

As mentioned above, Dr. Greenspan made some strange statements about commodity money. He postulated that trust and confidence were somehow involved with the natural emergence of gold and silver as media of exchange. It is as if the full faith and credit of something or other must be backing commodity money. Clearly this is misleading and bizarre. Perhaps Dr. Greenspan has discovered some super-money that is a fiat-commodity money?

So let’s have a little fun with this wild alchemy. Maybe Federal Reserve Chairman Greenspan has discovered a commodity to be wedded with his sacred fiat currency. If so, it would have the following characteristics (the following are the actual characteristics of an element – periodic table element symbol "Sb" – with a delicious name):

  • It is a silvery lustrous metal
  • It is toxic if ingested
  • It is flaky and brittle in its elemental form
  • It is a key ingredient in flame-retardant formulations used in fabrics
  • Best of all, it has a name with the delicious spelling of antimony

So perchance the perplexing and power-hungry Dr. Greenspan is an alchemist to boot? He understands that statists will retain power so long as fiat currencies don’t go down in flames. Thus, he has found the perfect mate for his precious paper currency. By government edict, all paper money will be treated with antimony-based fire retardant. Perhaps such a treatment will prevent his beloved paper currency from incinerating as inflation heats up. Therefore, Sir Alan’s dream – or hallucination – of a commodity-fiat currency will have become reality. Coming to you soon, fiat antimony-money, savior of the statists.

In all seriousness, one could plausibly assert that Alan Greenspan is an alchemist. For it could be argued that trying to fuse monetary central planning with the free market is a modern-day form of alchemy.


If Dr. Greenspan starts reading books about animal husbandry, is spotted walking an ox, and reveals a secret formula for turning a sow’s ear into a silk purse, you’ll know that he has lost all touch with reality. In the meantime, it is painfully apparent that he is willing to obfuscate and deceive for the sake of power. Such power, concentrated in the Federal Reserve and its chairman, will most likely end up impoverishing countless people as they bear witness to the inflationary and economically devastating conclusion to the United States’ experiment with a fiat currency. At this point, Americans will come to understand the madness behind trying to manage a spontaneous phenomenon: the wonderful and beneficent free market.

March 22, 2004


The Hyperinflation Survival Guide, Published by Eric Englund.