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Friday, September 25, 2009 - 9:36amSanction this postReply
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[As a contribution to the discussion of Bill's fine essay, I thought we might begin with a talk by Alan Greenspan on the topic. I post it herewith. Tibor Machan]

The evolution of banking in a market economy
Chairman Alan Greenspan

[At the Annual Conference of the Association of Private Enterprise Education, Arlington, Virginia--April 12, 1997]

The Evolution of Banking in a Market Economy

Alan Greenspan

I am quite pleased and gratified to receive the Adam Smith Award this evening. Having been a bank regulator for ten years, I need something to remind me that the world operates just fine with a minimum of us. Fortunately, I have never lost sight of the fact that government regulation can undermine the effectiveness of private market regulation and can itself be ineffective in protecting the public interest.

It is most important to recognize that no market is ever truly unregulated in that the self-interest of participants generates private market regulation. Counterparties thoroughly scrutinize each other, oftenrequiring collateral and special legal protections; self-regulated clearing houses and exchanges set margins and capital requirements to protect the interests of the members. Thus, the real question is not whether a market should be regulated. Rather, it is whether government intervention strengthens or weakens private regulation, and at what cost. At worst, the introduction of government rules may actually weaken the effectiveness of regulation if government regulation is itself ineffective or, more importantly, undermines incentives for private market regulation. Regulation by government unavoidably involves some element of perverse incentives. If private market participants believe that government is protecting their interests, their own efforts to do so will diminish.

No doubt the potential effectiveness of private market regulation and the potential ineffectiveness of government intervention is well understood by those attending this conference on zero-based government. However, I am sure that you will not be taken aback to hear that many here in Washington are skeptical of market self-regulation and seem inclined to believe that more government regulation, especially in the case of banking, necessarily means better regulation.

To a significant degree, attitudes toward banking regulation have been shaped by a perception of the history of American banking as plagued by repeated market failures that ended only with the enactment of comprehensive federal regulation. The historical record, however, is currently undergoing a healthy reevaluation. In my remarks this evening I shall touch on the evolution of the American banking system, focusing especially on the pre-Civil War period, when government regulation was less comprehensive and less intrusive and interfered less with the operation of market forces. A recent growing body of research supports the view that during that period market forces were fairly effective in assuring that individual banks constrained risktaking to prudent endeavors. Nonetheless, the then nascent system as a whole proved quite vulnerable to various macroeconomic shocks essentially unrelated to the degree of banking regulation. I shall conclude by drawing some implications for how banking regulation needs to evolve in the future, with greater reliance on private market regulation.

The Roots of Banking

Many of the benefits banks provide modern societies derive from their willingness to take risks and from their use of a relatively high degree of financial leverage. Through leverage, in the form principally of taking deposits, banks perform a critical role in the financial intermediation process; they provide savers with additional investment choices and borrowers with a greater range of sources of credit, thereby facilitating a more efficient allocation of resources and contributing importantly to greater economic growth. Indeed, it has been the evident value of intermediation and leverage that has shaped the development of our financial systems from the earliest times--certainly since Renaissance goldsmiths discovered that lending out deposited gold was feasible and profitable.

When Adam Smith formulated his views on banking, in the Wealth of Nations, he had in view the Scottish banking system of the 1760s and 1770s. That system was a highly competitive one in which entry into the banking business was entirely free. Competitors included a large number of private, that is, unincorporated, bankers who discounted commercial paper and issued bank notes. Those private bankers sought no government assistance.




Chartered Banking (1781-1838)

From the very beginning the American banking system has had an entirely different character. Although some private individuals undoubtedly circulated limited volumes of bank notes, those seeking to circulate a significant volume of notes invariably applied for a corporate charter from state or federal authorities. Entry into the banking business was far from free. Indeed, by the early 1800s chartering decisions by state authorities became heavily influenced by political considerations. Aside from restrictions on entry, for much of the antebellum period state regulation largely took the form of restrictions inserted into bank charters, which were individually negotiated and typically had a life of ten or even twenty years. The regulations were modest and appear to have been intended primarily to ensure that banks had adequate specie reserves to meet their debt obligations, especially obligations on their circulating notes.

Nonetheless, the very early history of American banking was an impressive success story. Not a single bank failed until massive fraud brought down the Farmers Exchange Bank in Rhode Island in 1809. Thereafter, a series of severe macroeconomic shocks--the War of 1812, the depression of 1819-20, and the panic of 1837--produced waves of failures. What should be emphasized, however, is the stability of banking in the absence of severe macroeconomic shocks, a stability that reflected the discipline of the marketplace. A bank's ability to circulate its notes was dependent on the public's confidence in its ability to redeem its notes on demand. Then, far more than now, there was competition for reputation. The market put a high value on integrity and punished fly-by-night operators.

When confidence was lacking in a bank, its notes tended to exchange at a discount to specie and to the rates of other, more creditworthy banks. This phenomenon was evident as early as the late 1790s in Boston, where large amounts of notes issued by New England country banks circulated. In 1799 the Boston banks agreed to accept notes of certain country banks only at discounts of one-half percent. Several years later they began systematically sending back country notes for redemption, and they eventually refused for a time to accept such notes, even at a discount. Early in the 1800s private money brokers seem to have made their first appearance. These brokers, our early arbitrageurs, purchased bank notes at a discount and transported them to the issuing bank, where they demanded par redemption.

Difficulties in redeeming the notes of New England country banks eventually produced the first notable example of cooperative self-regulation in American banking, known as the Suffolk Bank System. The Suffolk Bank was chartered in 1818 and entered the business of collecting country bank notes in 1819. In effect, the Suffolk Bank created the first regional clearing system. By doing so, it effectively constrained the supply of notes by individual banks to prudential levels and thereby allowed the notes of all of its associated banks to circulate consistently at face value. In the 1830s, there was a large expansion of state-chartered banks, many of which were severely tested and found wanting during the panic of 1837. However, very few banks failed in New England, where the Suffolk Bank continued to provide an effective, and entirely private, creditor discipline.

Free Banking (1837-1863)

The intense political controversy over the charter renewal of the Second Bank of the United States and the wave of bank failures following the panic led many states to fundamentally reconsider their approach to banking regulation. In particular, in 1838 New York introduced a new approach, known as free banking, which in the following two decades was emulated by many other states. The nature of free banking and the states' experience with this approach to regulation have been the subject of profound misconceptions. Specifically, many seem to believe that free banking was banking free from government regulation and that the result was a series of debacles. They conclude that the experience with free banking demonstrates that market forces cannot effectively constrain bank risktaking.

In fact, the "free" in free banking meant free entry under the terms of a general law of incorporation rather than through a specific legislative act. The public, especially in New York, had become painfully aware that the restrictions on entry in the chartered system were producing a number of adverse effects. For one thing, in the absence of competition, access to bank credit was perceived to have become politicized--banks' boards of directors seemed to regard those who shared their political convictions as the most creditworthy borrowers. In addition, because a bank charter promised monopoly profits, bank promoters were willing to pay handsomely for the privilege and legislators apparently eagerly accepted payment, often in the form of allocations of bank stock at below-market prices.

If free banking was not actually as free as commonly perceived, it also was not nearly as unstable. The perception of the free banking era as an era of "wildcat" banking marked by financial instability and, in particular, by widespread significant losses to noteholders also turns out to be wide of the mark. Recent scholarship has demonstrated that free bank failures were not as common and resulting losses to noteholders were not as severe as earlier historians had claimed. In addition, failure rates and loss rates differed significantly across states, suggesting that whatever instability was experienced was not inherent in free banking per se. In particular, widely cited losses to holders of notes issued by free banks in Indiana, Illinois, and Wisconsin appear to have resulted from banks in these states being forced to hold portfolios of risky state bonds that were not well-diversified, were not especially liquid, and too often defaulted. It was, in short, state regulation that caused the high failure rates.

During the free banking era private market regulation also matured in several respects. Particularly after the panic of 1837, the public was acutely aware of the possibility that banks would prove unable to redeem their notes. Discounting of bank notes was widespread. Indeed, between 1838 and the Civil War quite a few note brokers began to publish monthly or biweekly periodicals called bank note reporters that listed prevailing discounts on thousands of individual banks. Research based on data from these publications has shown that the notes of new entrants into banking tended to trade at significant discounts. If a bank demonstrated its ability to redeem its notes, over time the discount diminished. The declining discount on a bank's notes implies a lower cost of funds, the present value of which can be considered an intangible asset, the bank's reputation. Banks had a strong incentive to avoid overissuing notes so as not to impair the value of this intangible asset. Throughout the free banking era the effectiveness of this competition for reputation imparted an increased type of market discipline, perhaps because technological change--the telegraph and the railroad--made monitoring of banks more effective and reduced the time required to send a note home for redemption. Between 1838 and 1860 the discounts on notes of new entrants diminished and discounts came to correspond more closely to objective measures of the riskiness of individual banks.

Another element of the maturation of private market regulation in banking was the emergence of full-fledged bank clearing houses, beginning with the establishment of the New York Clearing House in 1853. The primary impetus for the development of clearing houses was the increasing importance of checkable deposits as a means of payment. Large merchants were making payments by checks drawn on their deposit accounts as early as the 1780s. But in the 1840s and 1850s the use of checks spread rapidly to shopkeepers, mechanics and professional men. The clearing house reduced the costs of clearing and settling the interbank obligations arising from the collection of checks and banknotes, and thereby made feasible the daily settlement in specie of each bank's multilateral net claim on, or obligation to, the other banks in the clearing house. By itself, such an efficient clearing mechanism constrained the ability of individual banks to expand their lending imprudently. From the very beginning, however, clearing houses introduced other important elements of private, self-regulation. For example, the New York Clearing House's 1854 constitution established capital requirements for admission to the clearing house and required members to submit to periodic exams of the clearing house. If an exam revealed that the bank's capital had become impaired, it could be expelled from the clearing house.

National Banking (1863-1913)

One compelling piece of evidence that contemporary observers did not regard free banking as a failure is that the National Banking System, established by an act of Congress in 1863, incorporated key elements of free banking. These included free entry and collateralized bank notes. However, unlike the state laws, the federal law interfered with private market forces by imposing an aggregate limit on note issues, along with a set of geographic allocations of the limit that produced a serious maldistribution of notes.

Although the aggregate limit on note issues was repealed in 1875, the collateral requirement for note issues continued to unduly restrict the longer-term growth of the money supply, eventually producing a significant price deflation and, in the 1890s, very poor economic growth. In addition, the restrictions on note issues precluded the accommodation of temporary increases in demands for currency. The inelasticity of the note issue produced strains in financial markets each spring and fall as crops were planted and then brought to market. More seriously, when depositors periodically became nervous about the health of the banks, the demands to convert deposits into well-secured bank notes simply could not be met in the aggregate, and attempts to do so resulted in withdrawals of reserves from the money centers that severely and repeatedly disrupted the money markets.

Private markets innovated in ways that tempered the adverse consequences resulting from these flaws in the government regulatory framework. Most notably, the New York Clearing House effectively pooled its members' reserves by issuing clearing house loan certificates and paying them out as substitutes for reserves in interbank settlements, first in the panic of 1857 and in every subsequent panic. By 1873, clearing houses in many other cities were following the same policy. In addition, the clearing houses accepted as settlement media other currency substitutes issued by their members including certified checks and cashier's checks. In effect, the clearing houses were assuming some of the functions of central banks.

But a true central bank was perceived through most of the 19th century as an infringement of states' rights. A central bank, in any event, was deemed by many as superfluous given the fully functioning gold standard of the day. It was only with the emergence of periodic credit crises late in the century and especially in 1907, that a central bank gained support. These crises were seen in part as a consequence of the inelastic currency engendered by the National Bank Act. Even with the advent of the Federal Reserve in 1913, monetary policy through the 1920s was largely governed by gold standard rules. Fiscal policy was also restrained. For most of the period prior to the early 1930s, obligations of the U.S. Treasury were payable in gold or silver. This meant the whole outstanding debt of our government was subject to redemption in a medium, the quantity of which could not be altered at the will of the government as it can with today’s fiat currency. Hence, debt issuance and budget deficits were constrained by the potential market response to an economy inflated with excess credit, which would have drained the Treasury’s gold stock. Indeed, the United States skirted on the edges of bankruptcy in 1895 when our government gold stock shrank ominously and was bailed out by a last minute gold loan, underwritten by a Wall Street syndicate. In the broadest sense, the existence of a gold standard delimited the capability of the banking system to expand imprudently.

Creation of the Federal Safety Net

When the efforts of the Federal Reserve failed to prevent the bank collapses of the 1930s, the Banking Act of 1933 created federal deposit insurance. The subsequent evidence appears persuasive that the combination of a lender of last resort (the Federal Reserve) and federal deposit insurance has contributed significantly to financial stability and has accordingly achieved wide support within the Congress. Inevitably, however, such significant government intervention has not been an unmixed blessing. The federal safety net for banks clearly has diminished the effectiveness of private market regulation and created perverse incentives in the banking system.

To cite the most obvious and painful example, without federal deposit insurance, private markets presumably would never have permitted thrift institutions to purchase the portfolios that brought down the industry insurance fund and left future generations of taxpayers responsible for huge losses. To be sure, government regulators and politicians have learned from this experience and taken significant steps to diminish the likelihood of a recurrence. Nonetheless, the safety net undoubtedly still affects decisions by creditors of depository institutions in ways that weaken the effectiveness of private market regulation and leave us all vulnerable to any future failures of government regulation. As the history of American banking demonstrates, private market regulation can be quite effective, provided that government does not get in its way.

Indeed, rapidly changing technology is rendering obsolescent much of the old bank examination regime. Bank regulators are perforce being pressed to depend increasingly on ever more complex and sophisticated private market regulation. This is certainly the case for the rapidly expanding bank derivatives markets, and increasingly so for the more traditional loan products. The lessons of early American banking should encourage us in this endeavor.

In closing, I should like to emphasize that the rapidly changing technology that is rendering much government bank regulation irrelevant also bids fair to undercut regulatory efforts in a much wider segment of our economy.

The reason is that such regulation is inherently conservative. It endeavors to maintain the status quo and the special interests who benefit therefrom. New ideas, new products, new ways of doing things, all, of necessity, raise the riskiness of any organization, riskiness for which regulators have a profound aversion. Yet since the value of all wealth reflects its future productive capabilities, all wealth creation rests on uncertain forecasts, which means every investment is risky. Or put another way, you cannot have wealth creation without risktaking. With technological change clearly accelerating, existing regulatory structures are being bypassed, freeing market forces to enhance wealth creation and economic growth.

In finance, regulatory restraints against interstate banking and combinations of investment and commercial banking are being swept away under the pressures of technological change. Much the same is true in transportation and communications.

As we move into a new century, the market-stabilizing private regulatory forces should gradually displace many cumbersome, increasingly ineffective government structures. This is a likely outcome since governments, by their nature, cannot adjust sufficiently quickly to a changing environment, which too often veers in unforeseen directions.

The current adult generations are having difficulty adjusting to the acceleration of the uncertainties of today’s silicon driven environment. Fortunately, our children appear to thrive on it. The future accordingly looks bright.


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Friday, September 25, 2009 - 11:18pmSanction this postReply
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Thanks, Tibor, for the very interesting discussion by Greenspan on the history of banking. I was surprised to see his taking that laudatory a view of the market as late as 1997. You wouldn't know it was the same guy from his current willingness to blame capitalism for the recent financial meltdown.

- Bill

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Saturday, September 26, 2009 - 10:10amSanction this postReply
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Yes, Bill, I was quite shocked when I heard him back in 1996 (I think it was). I even have a picture of him, Jack Wheeler and me taken that day. I had seen a long interview with him conducted on PBS and there, too, he was very firmly in the pure free market camp. I am baffled why he said what he said. I wrote the piece below in response to that remarks of his:

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Homo Economicus vs. True Selfishness

Tibor R. Machan

For a year now much abuse has been heaped upon homo economicus or "economic man." The abuse got exacerbated when former Federal Reserve Bank Chief Alan Greenspan claimed that he had too much confidence in the idea. But what he said was very misleading despite the fact that he had been closely associated with Ayn Rand and her Objectivist philosophy, the ethical portion of which considers selfish conduct morally virtuous.

Greenspan's reference to "self-interest" is radically different from Ayn Rand's. The latter means by self-interest "whatever will enhance the objective well being of an agent." It calls to mind the exchange between Crito and Socrates in one of Plato's dialogues, the Phaedo, where Crito asks, "When you are gone, Socrates, how can we best act to please you?" and Socrates replies: "Just follow my old recipe, my friend: do yourselves concern yourselves with your own true self-interest; then you will oblige me, and mine and yourself too."

This is pretty much the substance of Ayn Rand's ethics of Objectivism: Do what in fact advances your best interest as the individual human being you are! In contrast, Greenspan was talking about the contemporary idea prominent in neo-classical economics, namely, homo economicus, according to which every free person always acts in his or her interest which is simply whatever anyone does if one is free to choose for oneself. The former idea of self-interest or selfishness requires of people to adhere to strict standards of conduct while the latter requires no standards for them to follow only to choose to do whatever they want to do.

Once again it is evident that the enemies of human liberty are desperately trying to stick it to the free market system by claiming that the empty homo economicus idea underlies it. In fact that idea underlies nearly all economics in our time, including that of John Maynard Keynes who is paraded around now as the great sage whose advices we did not follow and for which we are now paying with the current economic fiasco. Both Keyneseans and non-Keyneseans accept the "everyone is always selfish" view of market agents, the one Greenspan claims misled him.

That idea is in point of fact nearly useless since what it produces is vacuous claims, such as "Everyone will do whatever he or she will do if left alone, unregulated by the government." This is a wholly uninformative claim and that is, in fact, its main merit as far as many economist claim. Economists tend to stay away from morally or otherwise evaluating how people act in the free market. At least as economists they have no concern about that--as fathers, friends, citizens and so forth they may very well make such judgments but as economists all they care about is to explain what happens in markets. And they believe that assuming the truth of their idea of self-interested conduct, they can provide such explanations. This very, very broad "explanation" amounts, in essence, to the claim, "People do what they do in the free market because that is what they want to do."

The proper defense of the free market system is far more substantial than this. It states that if people aren't pushed around by governments and criminals, they will most likely do their best at figuring out what they should do, including how to earn and spend their resources. What the "best" is, however, cannot be told in general terms. But it can be told in particular cases, if one knows the agent well. And free men and women tend, in the main, to figure out what is best for them to do and pursue, objectively.

Whether the above is true is an important matter to determine but it isn't what Greenspan and other economists advance in defense of the free market place. (I think they should but that's another issue entirely.) Greenspan and most other prominent economists who favor markets tend to say simply that in free markets people are able to seek whatever they want. That is all they claim for freedom. But there is far more to it than this.


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Saturday, September 26, 2009 - 2:45pmSanction this postReply
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Alan Greenspan is the perfect example of a rationalist from an Objectivist perspective. As far as political-economic theory, he was solid. In practice, he betrayed his beliefs to ingratiate himself to political elites and keep his powerful position as head of the Federal Reserve. It's really a tragic story. Even Leonard Peikoff, who defended Greenspan for a long time due to Greenspan's personal association with Ayn Rand, had to finally admit that Greenspan was no longer the person he once was--or had once professed to be.
(Edited by Jon Trager on 9/26, 2:48pm)


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Saturday, September 26, 2009 - 4:32pmSanction this postReply
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I wish to say a few things about the following passage: "In practice, [Greenspan] betrayed his beliefs to ingratiate himself to political elites and keep his powerful position as head of the Federal Reserve. It's really a tragic story. Even Leonard Peikoff, who defended Greenspan for a long time due to Greenspan's personal association with Ayn Rand, had to finally admit that Greenspan was no longer the person he once was--or had once professed to be." While I have been very disappointed with Greenspan, I am unable to confirm that "he betrayed his beliefs to ingratiate himself to political elites and keep his powerful position as head of the Federal Reserve." Might be so but also could be way off. It needs evidence or some kind of analytical argument that rules out other possible accounts. He may have had a change of heart/mind, he might have calculated that he would be better for freedom than anyone else in the running for the job, etc., etc. I just don't know and nothing said above helps me here.

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Saturday, September 26, 2009 - 5:42pmSanction this postReply
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I would replace the word strict with rational in post number 2, Tibor, but that doesn't prevent me from sanctioning you.

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Sunday, September 27, 2009 - 12:12amSanction this postReply
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Just speculating. I think he may well have been sincere when he took the job of Fed Chairman, but to have since changed his views the way he has is remarkable, especially given his background in Objectivism. A little over two years ago on the General Forum, I posted the following to the thread "Alan Greenspan is no Objectivist."
Did anyone catch Leslie Stahl's interview of Alan Greenspan on 60 MInutes last week. Stahl had a copy of Atlas Shrugged in her hand -- the one with the locomotive on the cover -- as she noted that Rand referred to Greenspan as "too much of a social climber." Greenspan replied, "I don't know how to respond to that. Everybody seeks the approval of others, so by that standard everyone is a social climber." Greenspan, the social metaphysician?? Well, at least he wasn't seeking the approval of other Objectivists. But that was probably because they don't have enough social influence to make it worth his while.

Yesterday, I just happened to catch the tail end of a segment on NPR in which a familiar voice was being interviewed. The voice said that the income inequality under capitalism was a threat to the system and that although he wasn't comfortable with government redistributionist schemes, something needed to be done to equalize wealth, if capitalism was to survive. Now this is just the kind of rhetoric I'd expect to hear from an NPR spokesperson or from people the station typically interviews.

The voice continued to talk about his own past as a jazz musician. Hmm. Greenspan was a jazz musician. And the voice certainly sounded like . . . could it be . . . was it really . . . Greenspan himself?! A few minutes later, my suspicions were confirmed, as the host thanked him for appearing on the program, and said that Greenspan was the highest ranking government official he had ever interviewed.
In that same thread, Joe Maurone was kind enough to post the following comments from Greenspan's memoirs, Age of Turbulence,

"Rand's Collective became my first circle outside the university and the economics profession. I engaged in the all-night debates and wrote spirited commentary for her newsletter with the fervor of a young acolyte drawn to a whole new set of ideas. Like any new convert, I tended to frame the concepts in their starkest, simplest terms. Most everyone sees the simple outline of an idea before complexity and qualification set in. If we didn't, there would be nothing to qualify, nothing to learn. It was only as contradictions inherent in my new notions began to emerge that the fervor receded.

"One contradiction I found particularly enlightening. According to Objectivist precepts, taxation was immoral because it allowed for government appropriation of private property by force. Yet if taxation was wrong, how could you reliably finance the essential functions of government, including the protection of individual's rights through police power? The Randian answer, that those who rationally saw the need for government would contribute voluntarily was inadequate. People have free will; suppose they refused?"

Greenspan is being disingenuous, as if he didn't know that Rand had a better answer than simply to say that "those who rationally saw the need for government would contribute voluntarily." It is hard to believe that someone who was intimately associated with her and her inner circle would not have read her article, "Government Financing in a Free Society," which appeared in The Virtue of Selfishness.

As for the supposed contradiction in Objectivism that he claims to have pointed out, it is Greenspan himself who is guilty of a contradiction. He wants to know how you could reliably finance the protection of individual rights without taxation, ignoring the fact that taxation is itself a violation of rights, so that the real contradiction is the advocacy of taxation, a violation of rights, as a means of protecting them. It stretches credulity to think that as intelligent and perceptive a man as Greenspan is unaware of a contradiction that obvious.

I don't think that Greenspan's change of political philosophy is an innocent mistake. It is far more likely to be an exercise in evasion designed to curry favor with those in power and to engage in the kind of "social climbing" which he says is a natural part of everyone's psychology.

- Bill


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Sunday, September 27, 2009 - 6:43amSanction this postReply
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Bill, your take on Greenspan is fully vindicated, thanks. The man is confused. I am especially annoyed since I wrote a paper, published in my 1982 book, The Libertarian Reader (Rowman and Littlefield), which elaborates and defends against possible criticism Rand's idea that government can be funded without coercion (namely, extortion): http://www.ask.com/bar?q=Dissolving+the+problem+of+public+goods&page=1&qsrc=0&ab=7&title=Third%20Party%20Documents%20and%20Texts&u=http://www.stephankinsella.com/texts/

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Sunday, September 27, 2009 - 9:25amSanction this postReply
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The Randian answer, that those who rationally saw the need for government would contribute voluntarily was inadequate. People have free will; suppose they refused?"

I wonder if that is Greenspan's explanation for why the tribe finds it an absolute necessity to implement forced blood giving?

This could be a faulty analogy; there are things we need more than blood.

Like, health insurance.

regards,
Fred



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Sunday, September 27, 2009 - 10:09amSanction this postReply
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Tibor: "It needs evidence or some kind of analytical argument that rules out other possible accounts."

And what evidence would satisfy you of that, Tibor? If Greenspan himself admitted that were true? He's obviously never going to do that.

The fact is that Greenspan wrote and spoke explicitly in defense of capitalism and against inflation while associated with Ayn Rand for many years. Suddenly, he's appointed chief of the Fed, and he ushers in an incredible expansion of the money supply while government spending skyrockets.

He just happened to honestly change his mind about what he publicly advocated for many years after he gained political power? Don't make me laugh. He might have calculated that he'd be better for freedom than anyone else in the running for the job? Given that the Federal Reserve itself isn't good for freedom, that conclusion makes no sense. He was an ambitious social climber, which would be unremarkable if it weren't for his background in Objectivism and association with Ayn Rand.

Further, that background and association allowed many news outlets after Greenspan's most recent testimony to Congress to say, "See? Even a disciple of Ayn Rand now admits that free-market capitalism is wrong!" Sickening.
(Edited by Jon Trager on 9/27, 3:43pm)

(Edited by Jon Trager on 9/27, 3:46pm)


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Sunday, September 27, 2009 - 2:36pmSanction this postReply
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"[H]e betrayed his beliefs to ingratiate himself to political elites and keep his powerful position as head of the Federal Reserve." It is the part about "to ingratiate himself to political elites from friends and relatives and keep his powerful position as head of the Federal Reserve" that needs showing, maybe via some memos, some testimony to friends or relatives, some letters, something. Just asserting that this is Greenspan's motivation, the reason he did it, is arbitrary or at best pure speculation. I don't deny it--I don't know--but the assertion needs support so as to stand. (It is not for nothing this site is called Rebirth of Reason!)
(Edited by Machan on 9/27, 2:38pm)


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Sunday, September 27, 2009 - 4:16pmSanction this postReply
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Tibor: "It is the part about "to ingratiate himself to political elites from friends and relatives and keep his powerful position as head of the Federal Reserve" that needs showing, maybe via some memos, some testimony to friends or relatives, some letters, something."

Memos or letters that say what? "Dear X, I'm betraying what I advocated for many years because I must pander to economically ignorant politicians to keep my influential job as Federal Reserve chairman. I'd appreciate you keeping this confession confidential."

Tibor: "Just asserting that this is Greenspan's motivation, the reason he did it, is arbitrary or at best pure speculation. I don't deny it--I don't know--but the assertion needs support so as to stand. (It is not for nothing this site is called Rebirth of Reason!)"

Assertions do require evidence. The evidence is the blatant contradiction between what Greenspan did before he became Fed chairman and what he did after. When other explanations for that behavior are unrealistic on their face, it's rational to accept the only plausible inference. I don't think a spoken or written confession to another party is required for a rational conclusion. Such confessions are rare. In the legal field, prosecutors often rationally determine the motive for a specific crime without that kind of evidence. They accept the only realistic explanation, given what they know of a given case and of the criminal mind.

In any case, discussing Alan Greenspan isn't something I'm interested in continuing. Regardless of his motivation, his legacy is a very unfortunate one from an Objectivist perspective.
(Edited by Jon Trager on 9/27, 4:24pm)

(Edited by Jon Trager on 9/28, 12:12pm)


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Sunday, September 27, 2009 - 4:50pmSanction this postReply
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Thank you guys for posting things of this nature. Its really instructive to us youngsters.

Alternate ideas to illustrate that you DO need more proof before asserting Greenspan's motivations.

1. He was trying to ingratiate himself with RAND and then reverted to his true colors after her death and/or once in a position of power.

2. He's spineless. An objectivist in a room with a strong objectivist personality, a statist now that he's surrounded by them.

3. He's a broken man. Just got caught up in the system. He tried to stop the juggarnaught by jumping under the wheels (or to the reins).

I'm not saying that any of these things are true. I'm just illustrating that there are a LOT of reasons someone might pull a Greenspan.


Post 13

Monday, September 28, 2009 - 1:17amSanction this postReply
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Being my first post here I hope not to ruffle to many feathers,but here goes.Reading the first sentence of this article has me perplexed has it was my understanding that the Federal Reserve coming into being was the end of goverment control of the banking system not the beginning.Subsequently followed by the birth of the IRS and the SSA none of which are or were US government institutions all beginning with the installation of the Federal Reserve,a private bank owned by foreign interests that had from the birth of the nation tried to get their Central Bank as they had already placed in several other countries.No longer backed by gold or resource,as so many fought to keep, it was now merely paper money out of thin air with no real value except instant debt owed to the foreign bankers who printed their bills and lent with interest charged hence the need for the income tax.Also a one way train ride to economic collapse since all money was now debt.
With so many quotes on this subject from Jackson to Lincoln to Kennedy and others it may overwhelm this post so I will post from just one of them.
Woodrow Wilson-date-1916-in reference to the Federal Reserve Act- likely a compilation of 2 quotes from his book The New Freedom,1916
"I am a most unhappy man. I have unwittingly ruined my country.
A great industrial nation is controlled by its system of credit.
Our system of credit is concentrated. The growth of the nation,
therefore, and all our activities are in the hands of a few men.
We have come to be one of the worst ruled, one of the most completely
controlled and dominated governments in the civilized world.
No longer a government by free opinion, no longer a government by
conviction and the vote of the majority, but a government by
the opinion and duress of a small group of dominant men."
So yes I would say a goverment failure/banking infiltration at the Federal Reserve Act which would consequently lead to bank failures as the system of perpetual debt for the people of the nation cannot sustain itself and has no mathmatical choice but to fail as each dollar is printed with a negative value.A free market can only sustain itself for so long unless the monies in that market are backed by things of value,not backed by thin air and debt to a then foreign now international banking cabal.


Post 14

Monday, September 28, 2009 - 7:27amSanction this postReply
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Rob, that post is illegible. I assume English is your native language. Please type spaces after your commas and two spaces after your periods. Also, please check your spelling, and please make sure each sentence has a subject and a verb and that they agree.

(Edited by Ted Keer on 9/28, 12:22pm)


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Post 15

Monday, September 28, 2009 - 12:05pmSanction this postReply
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Rob,

And don't take Ted's criticism too personally. He's just oftentimes a stickler regarding grammar, etc. It's just Ted's style. He doesn't mean to be mean, but he can seem that way online. If Ted actually doesn't like you, then believe me, you will know about it (there will be no need to read in-between the lines).

Ed


Post 16

Tuesday, September 29, 2009 - 12:22amSanction this postReply
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It's no problem at all. This being a forum I had not planned on being edited for grammatical correctness. It is nice to know posts are look at so carefully here.  
 
As we are taught from the early stages in skool getting that SPELLing embedded is top priority! Assuredly there is a rezon for this. It may be of importents at sum point that we try to break away from the SPELL in spelling. Even if it is just for fun. These are topics for another post though so I will leave it at that. I will not be spell checking this particular post however as the mistakes in spelling were intentshunal, other posts I will spellcheck.
Thanks


Post 17

Tuesday, September 29, 2009 - 5:51amSanction this postReply
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Thanks, Rob.

You shur done good wit' gramma' etsetera this tyme. Ted'll have preshuss little ta' say 'bout it, I'm shur.

Ed


Post 18

Tuesday, September 29, 2009 - 8:39amSanction this postReply
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Runonsentenceshowever,withoutproperspacing,sentemce,withoutbothasubjectandaverb.

Whybotheringeventowritealongpostifyourreadersaregoingtoquitafterthesecondsentence?

If you actually wish to be read, editing is in your self interest.

Post 19

Tuesday, September 29, 2009 - 9:13amSanction this postReply
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Ok you Joyce wannabees, knock it off... ;-)

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