Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year’s crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives. We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan.
“There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard.” It would be easy to dismiss this statement as a quaint relic from Mr. Greenspan’s earlier days as an Ayn Rand acolyte; his article on “Gold and Economic Freedom” appears in her 1966 compendium “Capitalism: The Unknown Ideal.” But Mr. Greenspan said it, rather emphatically, last October on the Fox Business Network. He was responding to the interviewer’s question: “Why do we need a central bank?”
Whatever well-intentioned reasons existed in 1913 for creating the Federal Reserve — to provide an elastic currency to soften the blow of economic contractions caused by “irrational exuberance” (and that will never be conquered, so long as humans have aspirations) — one would be hard-pressed to say that the financial fallout from this latest money meltdown will have less damaging consequences for the average person than would have been incurred under a gold standard.