Jon E. Dougherty is a Missouri-based political science major, author, writer and columnist. Follow him on Twitter.
A 1966 newsletter article written by Alan Greenspan supporting a gold-based U.S. economy is reflective of the Federal Reserve chairman’s beliefs even today, WorldNetDaily has learned, even though his Fed policies are diametrically opposed to those that would support a gold standard economy.
The article, entitled, “Gold and Economic Freedom,” was written for the July 1966 issue of The Objectivist newsletter, a publication that also featured authors Ayn Rand and Nathaniel Branden.
In it, Greenspan discusses “the specific role of gold in a free society,” as well as the importance of a tangible monetary “standard.”
“If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forego the inestimable advantages of specialization,” he wrote.
A congressional source told WorldNetDaily that Greenspan still agrees with the premise of his article today, even though the U.S. went off the gold standard in 1972.
According to the source, Greenspan — following a March House Banking Committee meeting — told one lawmaker that if given a chance to add any “disclaimers” to the 34-year-old article, Greenspan said he still “would not change a single word.”
He could not be reached for comment.
In his article, Greenspan wrote that “a logical extension of the creation of a medium of exchange [monetary system] is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.”
“… Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth,” he said.
Disclosure of the article comes as one group, the Gold Anti-Trust Action Committee, has charged that the Federal Reserve, the U.S. Treasury Department, the Bank for International Settlements, and various investment houses, have all conspired to manipulate — that is, artificially depress — the price and value of gold.
Last week, one GATA analyst, Reginald Howe — who has filed suit against the U.S. and international financial agencies and investment houses — said he discovered Federal Reserve Board meeting minutes dated Jan. 31, 1995, that he says indicates proof of GATA’s allegations.
His suit alleges that the Treasury Department’s Exchange Stabilization Fund, or ESF, has been, as GATA long has alleged and as the Treasury Department has denied, surreptitiously intervening in the gold market by lending gold, Howe wrote in a statement.
The meeting minutes feature a question asked by then-Federal Reserve Board governor Lawrence Lindsey, who asked J. Virgil Mattingly, the Fed’s general counsel, about the ESF’s legal authority to engage in a financial rescue package for Mexico.
“It’s pretty clear that these ESF operations are authorized. I don’t think there is a legal problem in terms of the authority. The statute [31 U.S.C. s. 5302] is very broadly worded in terms of words like ‘credit’ — it has covered things like the gold swaps — and it confers broad authority. Counsel at the White House called the Treasury’s general counsel today and asked, ‘Are you sure?’ And the Treasury’s general counsel said, ‘I am sure.’ Everyone is satisfied that a legal issue is not involved, if that helps,” the minutes say.
Whether the Fed, the Treasury Department, and others have been engaged in market manipulations of the price and value of gold will eventually be decided by a court. But according to Greenspan’s own words, he defends the use of gold as the underlying supportive value for the U.S. dollar and the U.S. economy.
And, according to his article, Greenspan said that gold — in the past — was responsible for stopping “the unbalanced expansions of business activity,” salient points which are relevant in today’s sagging, over-speculative economy and markets.
“Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off and the economy went into a sharp, but short-lived, recession,” he wrote. “Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.”
Greenspan explained that at the time of the creation of the Federal Reserve in 1913, “the process of [monetary policy] 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,” he wrote. “If banks can continue to loan money indefinitely, it was claimed, there need never be any slumps in business.”
The result of such thinking, he said, was the creation of the Fed.
“Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government,” he wrote. Technically, the U.S. “remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper” reserves) could serve as legal tender to pay depositors.”
Even then, Greenspan seemed to understand the kind of negative implications associated with the creation of credit based on no tangible asset.
“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset,” he said. “But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets.
“A large volume of new government bonds can be sold to the public only at progressively higher interest rates,” he said. “Thus, government deficit spending under a gold standard is severely limited.”
Also, he said the “abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.” Even then, he said, “the fact is there are now more claims outstanding than real assets” to redeem those claims.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation,” he concluded. “There is no safe store of value” for the dollar.
“This is the shabby secret of the welfare statists’ tirades against gold,” he wrote. “Deficit [government] spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
A congressional source told WND, “There is no doubt in my mind that the current monetary system is not only impractical in an economic sense, as well as being unconstitutional, it is immoral and dishonest from a biblical viewpoint.”
As GATA has reported, the “short” positions held by many investment houses outstrips the available above-ground supplies of gold several hundred-fold, as well as the annual production level of gold from all producers for the next several years.
A sharp increase in the price per ounce of gold would bankrupt these investment houses, GATA says, causing losses in the hundreds of billions of dollars.
In January 2000, soon-to-be Democratic vice presidential candidate Sen. Joseph Lieberman, D-Conn., asked then-Treasury Secretary Lawrence Summers and Federal Reserve Chairman Alan Greenspan to answer a series of questions about national gold policy, in response to an inquiry from GATA.
In a letter, Lieberman mentioned GATA’s unsuccessful bid for answers about possible gold market manipulation and asked if both men would address them “at your first opportunity.”
Neither official responded — at least no responses that Lieberman has made public.