The connection of Alan Greenspan to Ayn Rand, decades ago, is being used to blacken her name and her ideas.

 

This from the Leftist “Mother Jones” publication is one of the milder expressions:

“In a historic moment, former Fed chair Alan Greenspan acknowledged he had been wrong for years to assume that government regulation was bad for markets. Whoops–there goes decades of Ayn Rand down the drain.”

Rightist publications are joining in the smear: Forbes magazine’s online blog states:

“Greenspan, protege of Ayn Rand and the driving mind behind the notion that risk can be contained by having ever growing numbers of market players taking pieces of that risk, has now admitted that ‘Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.’ […] “The whole concept of self-regulation through self-interest is now dead,”

In response, I posted this comment on the Forbes site:

The lesson people have drawn from Greenspan’s failure is exactly backwards. Greenspan, “the maestro,” and his dream-team staff, couldn’t figure out how to run the economy. It was the Fed’s expansion of the money supply (1% interest rates!) that created the bubbles. So interventionism has failed, as it always does. Can anyone seriously say, “an even smarter version of Greenspan will get it right next time”?

 

The article says self-regulation is now dead. Okay, what’s the alternative? Regulation by the state–i.e., by new Greenspans? Forbes, above all publications, should be clear that the alternative to self-regulation is state dictation, the command economy.

 

Deregulation? There were 51,000 NEW regulations added over the last 12 years. Banking, housing, and insurance are the most regulated areas of the economy. They are strangled by regulations. This is the failure of the regulatory state.

 

As to Greenspan, this is the penalty of betraying Ayn Rand’s philosophy. To paraphrase Lloyd Bentsen’s famous riposte: Dr. Greenspan, I knew Ayn Rand, and you’re no Objectivist.

Let’s review the record in regard to Greenspan’s progressive split from Ayn Rand.

 

I can’t say I knew Alan Greenspan, though, being an associate of Ayn Rand, I met him a few times in the 1960s. But by 1970–almost 40 years ago–I and a couple of other Objectivists in that circle already realized that Greenspan was compromising on her philosophy. Little did we know how far his anti-Rand journey would take him. As the years rolled on,


  • he was hailed as the man who “saved” Social Security–by extending its confiscatory power,

  • when Bill Clinton’s State of the Union address called for socialized medicine, he rose to his feet, standing next to Hillary Clinton in giving a standing ovation to that proposal,

  • he became head of the mammothly anti-capitalist Federal Reserve, directing the government’s manipulation of money and credit,

  • he provided a laudatory dust-jacket blurb for a book attacking Ayn Rand (by a woman he had “irrevocably” condemned in print in 1968). Yet he repeatedly refused to contribute to or lend his name to the Ayn Rand Institute,

  • he wrote, in 1995, that government central banking is a necessity: “Only a central bank, with unlimited power to create money can guarantee that such a process [“a cascading sequence of defaults”] will be thwarted before it becomes destructive.” (Note that we just witnessed this “cascading sequence of defaults” despite –or, actually, caused by –our central bank.),
  • he wrote in his autobiography about coming to reject Objectivism: “as contradictions inherent in my new notions began to emerge . . . the fervor receded”,


  • and now he has blamed free markets (as if we had them!) for his failures at the Fed. In conceding that his “ideology” was wrong, he was understood to be saying Ayn Rand was wrong–even though he had long ago forgotten or evaded every essential of what Ayn Rand stood for.

How much did he forget? Consider this interview with him from a year ago:

Fox Interviewer: “Now you were a great admirer, in fact an acolyte, of Ayn Rand, the great philosopher, who believed in the absolute most limited role that the government could play in people’s lives. She probably wouldn’t have been a fan of the Federal Reserve Board, would she?

 

Greenspan: “Well, uh, I don’t know, because we never discussed that in particular.”

He doesn’t know that Ayn Rand opposed the Fed?! Every Objectivist knows it. The Fox Interviewer knew it. Anyone who can form a syllogism, and who knows Ayn Rand’s major premises knew it. But Alan Greenspan doesn’t, because, he claims, they never discussed that in particular. Okay, let’s imagine that’s true; they never discussed that in particular. But did they not discuss in all those years, the principle of individual rights? the proper functions of government? the fact that Atlas Shrugged advocates a gold standard? her famous dictum about the absolute separation of State and Economics? Did he not read the very book he published in–Capitalism: The Unknown Ideal?

 

From “Common Fallacies About Capitalism,” in that book:

“All government intervention in the economy is based on the belief that economic laws need not operate, that principles of cause and effect can be suspended, that everything in existence is ‘flexible’ and ‘malleable,’ except a bureaucrat’s whim, which is omnipotent; reality, logic, and economics must not be allowed to get in the way. This was the implicit premise that led to the establishment in 1913 of the Federal Reserve System . . .”

Perhaps Greenspan would claim, absurdly, he never read that particular article. But look at his own article in CUI, “Gold and Economic Freedom”:

“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.”

So his statement that “he never discussed that in particular” with Ayn Rand is either evidence of how much his evasions have automatized or is an outright lie.

 

For a breath of fresh air, look at this analysis of the financial crisis:

“The excess credit which the Fed pumped into the economy spilled over into the housing market–triggering a fantastic speculative boom. Belatedly, Alan Greenspan at the Federal Reserve tried to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by mid-2008 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.”

Pretty good summary, isn’t it? Only it was written not about today but about 1929–by Alan Greenspan. I simply changed the dates, made it the housing market instead of the stock market, and inserted Greenspan’s name. For the original, See his “Gold and Economic Freedom,” in CUI, p. 101.

 

Back to the Fox interview of a year ago:

“But I think she [Ayn Rand] recognized that there are lots of institutions which we would be better without, but nonetheless probably require them if indeed society as a whole decides to do that. Remember, we live in a democratic society and that compromise is the very essence of a democratic society. Because if we’re all individuals with different ideas and we want to live together we have to do that.”

This–about the world’s most famous opponent of compromise? The woman who wrote:

“In any compromise between food and poison, it is only death that can win. In any compromise between good and evil, it is only evil that can profit. In that transfusion of blood which drains the good to feed the evil, the compromiser is the transmitting rubber tube.” 

(It is not a compromise to accede to the majority vote in a constitutionally limited republic. But Greenspan was not doing that, not merely acknowledging the political impossibility of abolishing the Fed, he was endorsing the Fed, running it (badly), and arguing for its necessity, as in his 1995 paper.)

 

The essence of Greenspan’s testimony is: “a wrong ideology was to blame, not me.” What ideology? Well, in the popular mind it is Ayn Rand’s.

So the meaning, which certainly has been seized on by the commentators, is: Greenspan belatedly realized how foolish he has been to believe in Ayn Rand’s philosophy. The ideology of freedom, as taught by Ayn Rand to Greenspan, is what caused the current financial catastrophe.

 

What makes this especially revolting, is that the real destroyer of the economy is Greenspan, through his inflation-generating last years at the Fed.

 

So a man who betrays Ayn Rand, and who wrecks the economy of the U.S. in carrying out that betrayal, then succeeds in shifting the blame onto Ayn Rand and capitalism.

 

Not everyone is fooled by Greenspan. Note this interview on CNBC’s “Power Lunch” today with two former Federal Reserve Governors: Wayne Angell and Robert Heller.

CNBC reporter: Congress lately has been play the blame game, gentlemen. They had the hearings in the House Oversight Committee. Former Chairman Greenspan testified there. It got a little testy between him and Chairman Henry Waxman. Let’s remember what they were saying to each other last week. Listen to this:

[Video: of hearings:]

Waxman: Your view of the world, your ideology was not right. It was not working.

Greenspan: Precisely. No, that’s precisely the reason I was shocked, because I’ve going for 40 years or more, with very considerable evidence that it was working exceptionally well.

CNBC reporter: A pretty contrite Alan Greenspan there. Wayne Angell, do you blame him for the crisis we are in right now?

Angell: Yes, but not for what he says he now has repentance on. His ideology was correct. Markets do work–as long as the Federal Reserve doesn’t do any harm. But his Fed, policywise, did a great deal of harm, creating an unsustainable housing bubble, and the crash of that bubble was soon to follow. And that was what was wrong, not letting markets work.

CNBC: In other words, keeping rates as low as he did for as long as he did?

Angell: That’s it.

CNBC: Robert Heller, do you think so? Did he keep money too cheap for too long?

Heller: That’s right. And after that, the Fed then took rates very high, kept them high again. And that really pricked the bubble.

Let’s return for one final look at Greenspan’s statement: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.” 

What this means is: “I am shocked that lending institutions actually fell for the trap I set for them when I inflated the money supply.” And, of course, the whole purpose of his inflating the money supply was to get them to behave just the way they did–to increase loans. So he is in shocked disbelief that faking the supply of credit actually had financial consequences.

 

Once again he is saying, “I didn’t fail; it was you people out there who failed; you believed in the reality of the faked credit I created–where was your self-interest in doing that?” 

It turns out that if you wrap bankers from head to toe in regulations, then spin them rapidly around for awhile, they then stagger around and walk into walls. Who’d have thought it? It is on this basis that Alan Greenspan finds a flaw in his ideology.

 

If Greenspan had set out deliberately to destroy freedom, he couldn’t have done a more thorough job of destruction.

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Harry Binswanger

Dr. Binswanger, a longtime associate of Ayn Rand, is a professor of philosophy at the Objectivist Academic Center of the Ayn Rand Institute. Dr. Binswanger, a longtime associate of Ayn Rand, is an instructor of philosophy at the Objectivist Academic Center of the Ayn Rand Institute, and a Senior Contributor at RealClearMarkets.com. He is the author of How We Know: Epistemology on an Objectivist Foundation and is the creator of The Ayn Rand Lexicon: Objectivism from A to Z. Dr. Binswanger blogs at HBLetter.com (HBL)--an email list for Objectivists for discussing philosophic and cultural issues. A free one-month trial is available at: HBLetter.com.