Working Papers

A Libertarian Defence of Alan Greenspan

The scapegoating of Alan Greenspan across the political spectrum has been shameful and shameless.  It is therefore pleasing to see that the Cato Institute has published a timely defence of Greenspan by David Henderson and Jeff Rogers Hummel.  Henderson and Hummel argue that:

Alan Greenspan stands out as the most competent—and arguably the only competent—helmsman of United States monetary policy since the creation of the Federal Reserve System…

his policy may have ended up slightly too discretionary.  But that possibility hardly justifies the “asset bubble” hubris of those economic prognosticators who, only well after the fact, declaim with absolutely certainty and scant attention to the monetary measures, how the Fed could have pricked or prevented such bubbles…

Rather than demonstrating that monetarist rules are obsolete and free banking unnecessary, Greenspan’s policies suggest that the more thoroughly either of those two objectives is implemented, the greater the macroeconomic stability our economy will enjoy.

I made a similar argument here about how contemporary central banking closely approximates the free banking ideal of a market-determined monetary order.


posted on 10 November 2008 by skirchner in Economics, Financial Markets

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You will note, of course, that Henderson and Hummel have had their thesis comprehensively debunked. Not only by the Mises Institute, but by a paper put out by the Federal Reserve System (google it).

The fundamental problem with your argument re: free banking is the total lack of historical context. Most economists share this flaw; they   look at economics only from the point of view of the latest textbooks and articles, and don’t add the social perspective of a historian.

We don’t have to speculate what free banking would look like. There are many historical examples that we can turn to. Thus, I don’t see how the present fiat money system approximates “free banking”. The closest thing to free banking was the US in the 19th century. Now we have the exact OPPOSITE of a ‘market-determined monetary order’. For more on this, read ‘A History of Money and Banking in The United States’ by Murray Rothbard.

I could be mis-understanding your argument, of course. Perhaps it would be better if you expressed it more fully and sent it to the Quarterly Journal of Austrian Economics.

Posted by Sukrit Sabhlok  on  11/21  at  07:36 PM

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