|If patience is a virtue, Alan Greenspan is a saint. For more than three decades he has endeavored to guide the nation toward sound money -- first as a radical intellectual, then as an business economist and presidential adviser, and currently as chairman of Board of Governors of the Federal Reserve System. His critics on the left seem unable to comprehend the destructive consequences of irresponsible fiscal policy and accommodative monetary policy. His critics on the right simply cannot appreciate the long-term perspective of Greenspan, a man who argued powerfully in the 1960s that "gold and economic freedom are inseparable" and who has steadfastly, albeit slowly, continued to pursue the realization of his intellectual ideals in the economic sphere. Arbitrary and capricious, he is not.
The benefits of a balanced budget
Instead of taking potshots at Greenspan reinforcing the claims of those who maliciously accuse him of waging a war against workers, advocates of sound money should be working with the Fed chairman toward the ultimate goal of price stability and restoration of a gold-based monetary system. It ain't gonna happen overnight; that is the fundamental lesson to be drawn from Greenspan's languorous pace. But with the achievement of a balanced budget agreement, we are making real progress.
Balancing the budget is a moral imperative because it means the government cannot indulge in excessive spending and then abuse its sovereign monetary authority by financing chronic deficits with increasing levels of federal debt -- a practice that results in inflation. Supply-siders who minimize the importance of a balanced budget do not show proper respect for the teachings of economist Ludwig von Mises, who observed:
Greenspan: A closet Keynesian?
Inflation is a policy. And a policy can be changed. Therefore, there is no reason to give in to inflation. If one regards inflation as an evil, then one has to stop inflating. One has to balance the budget of the government. Of course, public opinion must support this; the intellectuals must help the people to understand. Given the support of public opinion, it is certainly possible for the people's elected representatives to abandon the policy of inflation.
So the people's elected representatives have finally resolved to abandon the policy of inflation and phase out the budget deficit. Politicians on both sides are displeased with the compromise agreement forged earlier this month, but that is the nature of the process; it's messy but it's democracy. And as Washington journalist Bob Woodward chronicled in The Agenda, it's also the culmination of a personal campaign by Greenspan to convince government officials of all stripes that when they fund excess budget expenditures through the crafty means of government borrowing -- rather than the more straightforward approach of raising taxes -- they undermine not only the integrity of the nation's currency, but democracy itself. "Deficit spending is simply a scheme for the 'hidden' confiscation of wealth," Greenspan stated in The Objectivist some 30 years ago, noting: "Gold stands in the way of this insidious process."
His reasoning remains valid on both counts. If, under democratic capitalism, people freely choose to redistribute national income for purposes of social equity, defense, education or other communal objectives -- so be it. The necessary tax revenues should be collected and allocated accordingly. What is unacceptable is for Washington officials to shirk from demonstrating the political courage necessary to defend their spending decisions and instead obtain funds by issuing government bonds that eventually swell the money supply with unwarranted credit. No less a liberal luminary than economist John Maynard Keynes, in his Tract on Monetary Reform, recognized the folly of deficit financing:
The golden years?
It is common to speak as though, when a Government pays its way by inflation, the people of the country avoid taxation. We have seen that this is not so. What is raised by printing notes is just as much taken from the public as is a beer-duty or an income-tax. What a Government spends the public pay for. There is no such thing as an uncovered deficit.
Now that we are approaching that point where monetary policy can be isolated from fiscal policy, it is time to move purposefully toward the final objective of sound money based on gold convertibility. In a 1981 op-ed article entitled "Can the U.S. Return to a Gold Standard?", published in The Wall Street Journal, Greenspan wrote that the prerequisite for successfully restoring a gold standard was "for the U.S. to create a fiscal and monetary environment which in effect makes the dollar as good as gold, i.e., stabilizes the general price level and by inference the dollar price of gold bullion itself." Once such financial stability was achieved, he explained, returning to a gold standard would provide a vital safeguard against future budgetary malfeasance:
Sound money advocates should take heart these days and realize that Greenspan is following a game plan laid out long ago. Now is not the time to break faith with the man who has done so much to usher in the financial and political conditions that will permit us to make the dollar as good as gold -- on a permanent basis.
... (T)he discipline of the gold standard would surely reinforce anti-inflation policies, and make it far more difficult to resume financial profligacy. The redemption of dollars for gold in response to excess federal government-induced credit creation would be a strong political signal.
Judy Shelton, an economist, is the author of 'Money Meltdown: Restoring Order to the Global Currency System' (Free Press, 1994).