Aspired by Peter Klein, I have to tell my story of the one time I met a Fed Chairman.
But Ron Paul was nice enough once to, when I, as Doug said, had the pleasure and honor of working for him,
take me along to a private breakfast with Paul Volcker.
So we're waiting in the Chairman's private dining room.
A few just said they lived very well there at the Fed, just in case you were wondering.
Sitting there with a staffer and Volcker, of course, great tall, handsome guy,
and hung up his very expensive coat
before turning around and said in a breathless voice,
what's the price of gold?
What's the price of gold?
So this was right about the time
that it was heading up towards 800.
And of course it warmed Ron's heart and mine too
to know they were that concerned.
But then we wondered of course,
exactly to what extent they might be manipulating
the price of gold.
But that's, so today I wanna talk about
a tale of two economists who lived parallel lives.
but also pursued very contradictory goals.
One was devoted to liberty, one devoted to the state.
The first remained a teacher for his entire life,
never in any prestige institution
and never exercising any power.
Indeed, he used his teaching post
to teach against the exercise of power
and became the world's most powerful voice
for libertarianism.
This man who loved liberty died in 1995, but his books are selling as never before, all
of them, and his star is rising by the day. His name is Murray N. Rothbard.
The second one became the most powerful and influential economist in the world, practically
running the world, it seemed, for a very long time. While he was in power, he was revered
by Anyone Who Was Anyone. His every utterance could cause billions to be made or lost in
the market, but he will live out the rest of his days under a cloud of derision and
discredit, defending himself against the perception that he created history's largest financial
calamity. His name is Alan Greenspan. Now let's track these two lives and consider
What are the choices that these two men made? They were both born in New York City in 1926.
Rothbard was born on Tuesday, March 2nd. The following Saturday, March 6th, Alan Greenspan
was born. They had a not-unsimilar background and upbringing. Greenspan of German-Jewish
heritage, Rothbard of Russian-Jewish heritage. Both attended private schools, both pursued
their respective passions. It is after high school that their lives diverged. Whereas
Rothbard followed a very mainstream path in academic economics, one that would seem to
clear the way for him as a giant in the profession, Greenspan went to the Juilliard School to
pursue his true love, the clarinet. As remarkable as it may seem today, Greenspan showed no
Greenspan showed no interest in economics.
I mention this because it is an implausible beginning for the man who would later take the helm
of the institution that would purport to manage the World Reserve currency
and a man after whom a professorship at New York University is named.
Meanwhile, Rothbard chose to attend Columbia University.
He was not at first an economics major.
His passion was mathematics.
Mathematics, and this was even before the full mathematicization of the profession.
At Columbia, he studied under the famed statistician, Harold Hotelling, and it may have been Hotelling
who led Rothbard to economic studies. And certainly very early on, Rothbard the mathematician
could see what was wrong with the application of statistical methods to economic theory.
He would later build on Mises to construct a systematic theory of economics, rooted in
and logical deduction in the matter of 19th century theorists, all the while his libertarianism
was in strong formation throughout his youth and from early in his youth.
As implausible as it may seem today, Rothbard's biography would seem to be exactly what made
for professional triumph in the mainstream of opinion and with the powers that be. What
made that impossible were the choices he made, choices made on principle and for the love
Love of Truth and Liberty.
Unlike Rothbard, Greenspan was not a good student, at least early on.
His grades were only average, and he departed to perform with the Harry Jerome Orchestra,
playing saxophone or clarinet as needed.
He traveled by bus to engagement after engagement and, not unsurprisingly, tired of that life
and decided to become an economist.
and he changed his school and his major. School he went to was New York University, where
Mises had begun teaching that very year. But Greenspan did not study with Mises, whom he
might have regarded as a washed-up old man who could do nothing for his primary concern,
which was his career. Instead he chose the NYU division called The Factory, 9,000 students
competing in various fields of specialization in business. He graduated with honors in 1945
and enrolled in the master's program graduating in 1948. At this point the lives of Rothbard and
Greenspan briefly intersect in a sense at Columbia University. Two years earlier Rothbard had received
his own master's in economics from Columbia after a BA summa cum laude and he enrolled in the PhD
program. Professor Arthur Burns was the most prominent faculty member there. Burns would
and later become Eisenhower's chairman of the Council of Economic Advisers and Nixon's chairman of the Federal Reserve.
One might say he was the Greenspan of his day. Greenspan dropped out of the Columbia economics program to follow Burns to Washington,
a model for a life of chasing powerful people and powerful positions. Greenspan watched Burns carefully,
Economics in an Age of Positivism can be used in the service of state-connected careers.
Rothbard meanwhile stayed behind at Columbia, writing and studying. One of his seminal articles
in this period was published in a book in honor of Mises that supposedly washed up old
man who just so happened to have a penchant for saying, speaking the truth to power. Just
Just as Burns became Greenspan's model, Mises had been Rothbard's model. Two more opposing
career paths can hardly be imagined. Mises had been tossed out of two countries for his
Rothbard would follow a similar path. His article, written in honor of Mises, published in 1956, was a reconstruction of utility and welfare economics along non-mathematical lines. And here we have the graduate student doing what a principled scholar does. He was pursuing truth through research and writing. He maddened his students with his research and writing.
would have chosen to echo the rising Keynesianism and Positivism of his day. Certainly he was
intellectually capable of becoming the master of both fields. Instead he rejected them intellectually
and took a different path along the lines laid out by Mises.
And what was Greenspan doing? He was running around Washington, pandering to the big shots,
watching their every move, striving to be like them and attempting to follow in their
Rothbard received his Ph.D. in 1956, but only after jumping over a thousand barriers
that had been put in his place by none other than Greenspan's own mentor. There were times
when Burns' recalcitrance drove Murray to despair. He felt he could never comply with
Byrnes's dictates, it could not please Byrnes, and that Byrnes seemed to be sabotaging his work.
Byrnes was not even his dissertation advisor, but such was his power in the department that he could intervene.
Ironically, Byrnes had known Murray since he was a little boy. They lived in the same apartment building,
and there could be no question that this was a personal attack on Rothbard.
Only when Burns moved to Washington and became so wrapped up in politics that he no longer cared did Rothbard finally have his Ph.D. awarded in 1956.
Now let me make a few comments about Rothbard's dissertation.
It was an empirical account of America's first serious business cycle, the Panic of 1819.
He scoured every source he could find, producing many pages of detailed economic data.
He also knew the importance of ideology and personality in the history of economics, so he recounted all the debates.
Then as now, people urge intervention. But unlike today, the government did not respond to the demands for inflation, price supports, bailouts and fiscal stimulus.
As a result, the panic ended and the economy recovered very quickly.
What was the fate of this dissertation?
For more than 50 years it has been the standard reference on this episode.
It was printed and reprinted many times.
Today the Mises Institute has an edition and it continues to sell on a large scale.
Let me hop ahead to Greenspan's dissertation, which wasn't filed with New York University until more than two decades later in 1977.
It was quickly sealed and continues to be unavailable to anyone.
No one had any idea what was in it until last year, when a single copy was leaked to a reporter at Barron's.
What it contained was so irrelevant that it barely made the news.
It was a collection of reports that had been written for various purposes over the previous 20 years.
A Ph.D. granted for life experience, we might say.
What did Greenspan do in the intervening years?
He founded a consulting company, Townsend Greenspan, and worked for the National Industrial Conference Board.
To understand Greenspan's firm and what it did, it's important to understand the role of the economic expert in an age of positivism.
In the post-war period, the scientists with Gnostic-style knowledge and shadowy connections to power ascended to massive public fame.
The substance itself didn't matter so much as the illusion of expertise, but his firm's
sole was Greenspan to such clients as JP Morgan & Company and similar big banks and big investment
banks. Greenspan carefully crafted his image as an omniscient pundit on all matters related
to economics. He used his connections to Burns and rising connections to all related power
and the power elites to build up a reputation as a monk-like data collector, pouring over charts and coming up with printable comments and predictions.
It was mostly illusion. There were no charts and data collections and machines to make perfect predictions.
What Greenspan did was commodify his own pandering ways and sell them to a culture hungry for illusion.
All throughout the 60s and the decades following, he worked to craft his persona to fit perfectly with the prevailing ethos.
That ethos was statism, the glorification of central management by experts. Greenspan sought to be on the top of that heap.
Let me say a few words about Greenspan's connections to Ayn Rand.
The press routinely misunderstands the meaning of this relationship.
The only writer who I think has gotten it right, aside from people in the inner circle like George Reisman and Nathaniel Brandon, is Frederic Sheehan, author of the wonderful new book on Greenspan, Pandora to Power.
Sheehan points out that Greenspan's relationship with Rand was always opportunistic and never really had any effect on his life.
Sheehan was the famous author on The Rise. Greenspan was a master of hitching his wagon to any horse on the move.
Rand herself called him the undertaker. She would frequently ask her associates,
do you think Alan might be basically a social climber?
But what the Rand episode further illustrates is an actually terribly unflattering thing about Greenspan.
After all, it's one thing to be a person who cravenly seeks power while remaining in ignorance.
But as Greenspan revealed in his 1965 article called Gold and Economic Freedom, written for Ayn Rand,
He actually knew the truth. He knew that the Fed creates business cycles. He wrote this in his article, even getting the story of the Great Depression right.
He knew that fiat money builds the state. He said that gold is the only monetary guarantor of freedom.
It's bad enough when a person devotes himself and his life to the service of power when he does it in a state of intellectual ignorance.
Thus was the relationship to Rand no different from his relationship to anyone else. He used her as a stepping stone to his goal.
I may add another parallel. Rothbard was also a member of the Rand Circle, though expelled when he refused the demand to convert his wife, Joey, to atheism or divorce her.
The Ranser. It was only a few years following his gold article that Greenspan angled his way into the Nixon campaign of 1968, taking the job of coordinator of domestic policy research.
He began a shuttle back and forth between New York and Washington that would define the rest of his life.
In 1970, his mentor Burns was sworn in as head of the Fed, and here is where Greenspan
set his sights on the position as his lifetime goal. Every choice he made after that point
was dedicated to this. All the while he maintained his high public profile, making as many as
80 speeches a year, pulling in huge consulting fees, while otherwise pretending to live a
monk-like existence studying charts and tables and doling out bits of advice and wisdom for
for High Dollars Despite the personality cult he was building,
his predictions were almost always wrong. Let me give only the most famous example.
On January 7th, 1973, The New York Times featured his picture with a spread on brilliant market
forecasters. He was quoted as follows, It's very rare that you can be as unqualifiedly
Bullish as you can now.
Four days later the market peaked and headed down for the next year to 46%, down 46% and
this was typical of him, somehow able to build a reputation as a prophet while being wrong.
His method was always the same, using high-flown rhetoric and obscure language while dissembling
and faking.
was a perfect method for government work.
And so that same year he became head of the Council of Economic Advisers.
In 1974 he urged President Ford to propose
a new tax as a way to combat inflation.
He was involved in the Whip Inflation Now campaign with its win buttons.
Though he knew full well that the real culprit was not a lack of morale,
but a Fed that would not stop the printing press.
A few years later, he went on his way into the Reagan inner circle and became head of the Social Security Commission.
He urged dramatically higher payroll taxes, which of course we got.
All of this was mere prelude to 1987, when the goal of his career was at hand.
He was nominated for the position he had been training for his entire life, head of the Fed.
What happened soon after that was the famous stock market crash of 1987.
Here he did what he would do again and again during his 20 years tenure. He opened up the monetary spigots. He did it again and again. Monetary pumping was his one weapon.
Think of the Mexican debt crisis, the Asian contagion, long-term capital management, Y2K, the dot-com collapse, and finally the 9-11 terrorist incidents in Washington and New York.
Oh, and never forget that Greenspan on November 13th, 2001 was awarded the Enron Prize.
Essentially he proved himself adept at serving the state whenever it needed help, and he
did so as the world's biggest counterfeiter. You can see the map of this in the federal
funds rate during his tenure. Looking at the chart from the 60s to the present, we see
We see a huge arch with a peak in 1979 and the rate trending steadily downward to the present level of zero.
The only way this could be justified would be through large increases in savings and capital.
Of course, we've not seen this. This picture of lower and lower rates is wholly artificial.
Not only that, but of course it's bubble-inducing in the extreme.
What we are experiencing now is a direct result of Greenspan's tenure,
which led to the greatest economic catastrophe in modern times.
And make no mistake, every bit of this can be blamed on Greenspan directly.
He ruled the Federal Open Market Committee, meetings with an iron fist,
never seeking anyone else's opinion nor tolerating any dissent to his political intuitions.
He would beat back any contrary views with withering stares and implicit and explicit rebukes.
was ruled by fear and intimidation through his political and banking connections.
He also, of course, continued to cultivate his public image as a way of crushing disagreement both within the Fed and out.
The message he sent through his high status was, don't you dare disagree with this God on Earth, whom all people revere.
For a time we had the entire Wall Street and Washington establishments singing one long, united chorus of the hymn,
Thank God for Greenspan
He encouraged this, sending his minions to tell the press that he deserved credit for all things
An uptick in employment, a downtick in the trade deficit, an optimistic earnings report from Wall Street
No matter what the news, he would take the credit
Those were crazy times
An article appeared in the New Republic that told of a cult on Wall Street
on Wall Street, involving candles, incense, and Buddha-like statues of Greenspan.
The story, of course, was preposterous, like so much else in the New Republic, but it took
some time before anyone realized that the whole story was a fake.
I don't need to tell you how the story of Greenspan ends. His world came crashing down
around him last year. He spends his time today trying to explain his way out of the blame.
Much to his everlasting disgrace, he has intimated on many occasions that the meltdown of 2008 was not, of course, his failure, not the failure of the government or the Fed, but a result of inherent flaws in the market.
Ayn Rand speculated that the undertaker might be a social climber.
She did not and could not have known that he would eventually climb all the way to the top,
fall down all the way to the bottom, and further betray the cause to which he pretended to her his devotion.
But anyone who looked at his life could see the pattern. It was not a complex one. He served the state.
As Rothbard himself wrote, Greenspan's real qualification is that he can be trusted never to rock the establishment's boat.
and Man's Boat. Indeed, he served the establishment from the first day to the last.
Now I'd like to return to Rothbard and his life. When he last left him, he had completed his dissertation.
He was about to embark on a journey that would consume him for his entire life.
He published in the establishment journals as long as he could, but at some point his quest for truth and love of liberty meant that he would be cut off from them.
Despite his background and his credentials, he did not get a prestigious academic appointment.
He worked instead for a private foundation reviewing all the latest books on philosophy, law and economics.
Indeed, his massive treatise on economics that appeared in 1963 had begun as a tutorial written on behalf of this foundation.
When he did get a position, it was at Brooklyn Polytechnic Institute.
He had a dumpy office, a bad salary, and taught mostly disinterested or uninterested students.
But he had the freedom to write and tell the truth, and that's what he wanted more than anything else.
And yet even here his options were limited.
As a brilliant and articulate supporter of the free market, one might think that conservative journals of opinion would have been open to him.
But after the Cold War intensified, he could not be quiet on an issue
was an issue that was vastly important to him, namely the relationship between liberty and military expansionism.
He saw the warfare state as nothing but a species of socialism, and so he adhered to the credo of the classical liberals,
a free market plus a peaceful international outlook, and for this he was excommunicated by the conservatives.
The result was he ended up building his own movement, one that began in his living room, but his two dozen books, his tens of thousands of articles, ended up in inspiring a global movement for liberty.
His economic writings bridged the gap between Mises and the current generation of Austrians.
His wonderful personality demonstrated to one and all that it was possible to have fun while fighting Leviathan.
As for Rothbard's own character, the contrast with Greenspan could not be more stark.
If Greenspan was the dreary undertaker, Rothbard was the happy warrior.
Rothbard thrilled to spend time with students and faculty and anyone interested in liberty.
When you spoke to him, he was glad to talk about the field of interest that was the other person's specialization.
Whether it was history, philosophy, ethics, economics, politics, architecture, art, religion, music, sports or even the soaps on TV, he always made others feel more important.
He was always excited to give credit to others and to draw attention to the contributions of everyone to the great cause.
He never held a grudge for long. Even for those who betrayed him personally, there was always an opportunity for reconciliation.
All of these traits derived from his amazing generosity of spirit, to which I attribute his love of truth above all else.
His too short life was cut off in 1995, but it was also that year that the web browser became common in offices and in homes and on campuses.
Those classes that Rothbard taught in his small New York classroom, and later at the University of Nevada, Las Vegas, are now being broadcast around the world through iTunes and Misesorg.
His books are all in print and selling as never before. There are not only his books, but books on his books, and an entire literature growing up around his legacy.
Some have said that Rothbard was his own worst enemy. People said the same of Mises. The idea here is that they could have helped their career by going along to get along. And that's true enough.
But is getting along all we really want out of life? Or do we want to make a difference in a way that will outlast us?
At some point in our lives, we all come to realize that all the money and all the power that one can accumulate will be useless after we die. Even large fortunes dissipate.
The legacy we will leave on this earth comes down to the principles by which we lived, is the ideas we hold and the way we pursued them that are the source of our immortality.
and Mortality. Greenspan will leave an economy in shambles and a lifetime of pandering. Rothbard
left a grand vision of liberty, united with science and an example of what it means to
truly think long term. In all ages and in all times, people must make a choice. Will
we accept the world as it is, try to fit in, getting as much as we can from the system
until we bow out, or will we stick to principle, pay whatever price that involves, and leave
the world a better place? I submit to you that anyone who has truly loved liberty has
chosen the second course. This is the course that the Mises Institute is dedicated to following.
May we all make that choice. Thank you.
Thank you very much.