<<<Read his speech at
fame.org.
Has Greenspan retracted this speech, too?>>>
To help explain how our monetary system works and make Mr. Greenspan's views more easily understood, I have: (1) translated his FedSpeak terminology into plain English; (2) added critical comments; and, (3) suggested areas where further explanation ought to be forthcoming. Where I believe he is mistaken, I say so.
This appears to be Larry Parks view on the world, not Greenspan's current views or current understanding.
If you ignore Parks lengthy comments, which seem distorted by his view on how to control and measure an economy (and probably his reputation and investment portfolio), it is difficult to figure out what Greenspan is attempting to do with that speech. He certainly didn't say he wanted to go back to a gold standard. He was contrasting the current system of money creation with the gold standard. Both have good points and bad points. The question is, which one works best to encourage and ensure an economy's participants can grow and prosper maximally under any set of conditions, good or bad. The gold standard seeks to stop bad lending. It has nothing to do with some magical property of gold. It is simply a human construct that solves one problem, while introducing many others. It is a short term instrument that ignores the fact that many changes take place over long periods of time, and could be choked off by such a policy. Development of many of the technologies and improvements we enjoy today, would have been delayed or eliminated under the constraints of such a system.
The current system works well, for the most part. Problems occur now and then, but no system devised by humans is perfect. It is necessary for it to change and adapt as we enter the new age humans are on the threshold of. Freedom from global war is just a start. Knowledge, food, shelter, freedom from disease,...for the first time the world is able to eliminate a lot of past physical perils, and focus on increasing it's knowledge base to the betterment of all. I see no reason to change a system that allows all parts of an economy to grow on their own merits.
Restricting lending under the gold standard because some parts of the economy have produced bad loans, penalizes the rest of the economy that could be experiencing excellent growth. Lending is one small activity in the economy. The gold standard seeks to control lending activity. It is an imperfect regulator in the modern economy.
A currency is basically a commodity like any other, and subject to the laws of supply and demand. If people want it, it strengthens, if they don't want it, it weakens. The US$ has a perceived value in this world, just like gold. I see little difference in the two except one can be created easily and cheaply, and the other cannot. The value of that dollar as perceived by others is more important than how it is created. If the US does not take care to support and ensure each dollar retains it's perceived value worldwide, through economic growth, world trade, proper management, and fiscal responsibility, the US$ will suffer through a drop in it's value. It is up to each countries' policymakers to ensure they protect the value of their currencies. I think the current system works well, and allows the flexibility needed to ensure growth through all economic conditions. Inflation can be controlled, with or without the gold standard.
Actions speak louder than words. You should look at what Greenspan does now, more than what he said years ago. That Greenspan article from his book was what he wrote in 1967. What was he thinking then?,...what were world conditions then? What was his knowledge base then 33 years ago. Whenever the gold standard question comes up in recent questioning, Greenspan states its pros and cons, reflects on the current economic reality and moves on. He has taken no steps to support the re-adoption of this standard, and I know of no instance recently that he has said we should re-adopt it immediately to cure the problems in the economy. I doubt Greenspan supports the return of the Gold Standard in the year 2000. He has shown by his actions he supports intervention in the economy to prevent excesses and inflation. He uses words more than actions. He takes slow cautious steps and monitors their effects to insure he doesn't harm one part of the economy, just to remove the excesses from another. He learns from his actions, and he doesn't have his head stuck in the past.
Economies are complex things. When you cut off credit by introducing some choker like the gold standard, you hurt many parts of the economy that were performing very well, were not producing excesses, and were not causing undue credit risk and inflation. You delay advancements that would improve the human condition. You hurt more than you cure.
I think the real reason gold bugs support this gold standard stuff, is they want their investments to increase. Why should the rest of us accept "hurt" for gold bugs gain?
If you find another transcript on a recent Greenspan speech of interest to us, let's talk about it :-)) |
