Greenspan at 100: The Cost of Abandoning Free-Market Roots

Alan Greenspan died at 100. Murray Rothbard, born the same year, died in 1995. Rothbard kept his principles. Greenspan did not.

Greenspan learned economics from Arthur Burns at Columbia. Burns was an empiricist who stressed data over theory. From him, Greenspan absorbed the view that financial markets drive the business cycle. Stock prices push corporate investment, and that investment fuels booms and busts. Sebastian Mallaby, in his biography The Man Who Knew, writes that Greenspan arrived at this insight before James Tobin later got the credit.

That insight led Greenspan to radical conclusions. The gold standard, he argued, would prevent credit surges that create speculative bubbles. He testified against the 1971 Lockheed bailout, telling the Senate that government-directed lending “must inevitably lead to subsidization of the least efficient firms.” He said weak companies needed to fail so capital could flow to better-run businesses. He also attacked antitrust law, arguing that the financial system would naturally discipline monopolies.

Then Greenspan got close to power. He wanted to succeed Paul Volcker as Fed chairman. That required softening his views. In 1984, he supported the rescue of Continental Illinois National Bank, the largest bank bailout in U.S. history up to that point. Mallaby summarized Greenspan’s position as “necessary and appalling.” Appalling for the free market. Necessary for his career.