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Chairman Greenspan

Economic Fundamentalist

I confess that Alan Greenspan startles me. He is President Ford's new top economic adviser. I heard Sen. Proxmire ask him questions in an otherwise all but deserted Banking Committee room recently and my astonishment grew. So, I think, did Proxmire's. Witness testified, without notes, with an earnestness and sincerity that left no doubt of his conviction. At a big financial loss he is leaving his Wall Street consulting firm of Townsend-Greenspan & Co. (where he has been on retainer for 100 corporations among the largest in the country, including almost all of the nation's 10 biggest banks) and he is willing to serve in Washington at a time of economic crisis.

What are his views? That is what is extraordinary.  He opposes the antitrust law.  He opposes the progressive income tax.  He opposes consumer legislation as an interference with the free economy.  He subscribes to a form of laissez-faire capitalism that has been elevated into a cult called objectivism. Its leader is controversial author-philosopher Ayn Rand, with a dogma that she terms "rational selfishness" (and that sounds like economic Darwinism). Mr. Greenspan graduated summa cum laude from New York University's School of Commerce, with graduate work at the University of Chicago.

Miss Rand appears to have done more in shaping his views than did Dr. Arthur Burns, chairman of the Federal Reserve Board, a former teacher. Bespectacled Mr. Greenspan agrees that his 20-year association with Miss Rand helped to wean him from an earlier liberalism and other "mistaken policies."

"Alan is my disciple philosophically," Russian-born Miss Rand, 69, author of The Fountainhead and Atlas Shrugged, said recently. To put the thing in context consider recent developments. The world economy and banking system are under great strain. Food is everywhere short, and the oil producers have quadrupled the price with the effect of imposing a kind of excise tax of $60 or $70 billion annually on the consumers, at the same time that the producers' extraordinary new income is sloshing about the hard-pressed international exchange system.

In this crisis the United States is theoretically a balance wheel, a stabilizing force; America's GNP is almost one-third of the free world's total GMP. But America is infected with plague too, and is running the highest inflation fever in peacetime history. The housing industry is prostrate from lack of capital (which has been dried up by the anti-inflationary restrictive policies of the Fed), and the industrial average of stocks has plunged from a high of 1050 in 20 months to below 700.

For anybody who went through the '30s it causes shivers. Inflation in Germany, for example, wiped out the middle class and brought Hitler. Times have changed. In those days on the American streets the threadbare poor sold apples for a nickel; they would charge a quarter today.

And so Alan Greenspan comes to President Ford. He will help to guide and direct his economic course. He has been confirmed as chairman of the three-man Council of Economic Advisers by the Senate without a record vote and with only three senators speaking. Of the 10 men who have been CEA chairman since the Employment Act of 1946 created the council "to promote maximum employment, production and purchasing power," Greenspan is only the second without a Ph.D. (possibly a good thing) and he is far and away the most conservative. Perhaps conservative isn't the word. Under ideological relativity if you go far enough around the circle you emerge as a radical. How Mr. Greenspan squares his practical business counsel with his laissez-faire theories I don't know, but his writings and testimony make him sound like a fundamentalist mystic.

"The entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance," he wrote in 1962. "It is the product: a) of a gross misinterpretation of history, and b) of rather naive, and certainly unrealistic, economic theories."

As an example he argued that "the control by Standard Oil at the turn of the century of more than 80 percent of refining capacity made economic sense. . . ."

Why not, he asked? Competition takes care of trusts if you leave them alone; this happens by a natural process for "laissez-faire is the most efficient and productive of all possible economic systems."

Mr. Greenspan could have changed his views since then but showed no sign of it as he testified before the astonished Sen. Proxmire. I offer a few more samples of his early writing taken from the Ayn Rand periodical. The Objectivist.

"Stripped of its economic jargon," he wrote, July 1966, "the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes."

He charged that "welfare statists" were trying to demonetize gold because it was a barrier to "confiscation through inflation”: “This is the shabby secret of the welfare statists' tirades against gold . . . Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. ..."

Under the title "The Assault on Integrity," he attacked consumer protection laws, and agencies like the Securities and Exchange Commission: -"Regulation—which is based on force and fear —undermines the moral base of business dealings," he said. He called it the "hallmark of collectivists": "They confess their inability to grasp the crucial importance of the moral values which are the motive power of capitalism. Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the market place, thus demanding that men survive by means of virtues, not of vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventive law, snooping bureaucrats, and the chronic goad of fear."

Greenspan, at 48, is 11 years older than when he wrote the above, but he still seems to have the ardor of Horatio Alger. President Nixon picked him to succeed outgoing Chairman Herbert Stein in the last throes of his administration when the White House attention was on other matters and when it may have been difficult to get others to join the wreckage. The Stein resignation was effective August 31. President Ford inherited the appointee, sworn in last week and did not intervene to head him off in the Senate as he might have done gracefully enough. The inexperienced President is up against what will probably be the toughest domestic problem of his term, economic control, and he is charging right into the so-called summit conference of labor, industry, consumers and other groups, a conference where he promises to preside. It will be a TV spectacular with Vice President-designate Rockefeller perhaps helping out and the CEA chairman available.

Mr. Greenspan is now part of a monolithic group of business-oriented economic advisers that Mr. Ford inherited from his predecessor: economic counselor Kenneth Rush, former head of Union Carbide; Treasury Secretary William Simon, former partner of Salomon Brothers; Budget Director Roy Ash, former president of Litton Industries; William Eberle, director of the Council on International Economic Policy, former president of American Standard, Inc. There is also shrewd, pipe-smoking Arthur Burns, whose mild conservatism seems almost radical in this group. Dr. Burns thinks that stiffer antitrust law enforcement would help stop inflation, for example, a view rejected by chairman Greenspan, his former pupil.

President Ford has shown admirable flexibility in some directions since taking office and many hope that he will shortly shake up his economic counselors. Sen. Proxmire vainly tried to further this development.

On August 13 he sent a "Dear Colleague" letter to each member of the Senate outside of the Banking Committee, questioning the nomination. Greenspan, he reported, was a man of skill and probity —a man who also "made it emphatically clear" that he opposed vigorous enforcement of the antitrust laws; who "does not support consumer protection legislation"; who "has the almost incredible posture for an economic realist in these days—of opposing the progressive income tax," and who, when he leaves Washington, has a place waiting for him back home on Wall Street with his old firm and its business fees and loyalties.

The Senate confirmed Alan Greenspan on August 19 without a roll call.

To find somebody in high office these days who opposes the graduated income tax has a quaint nostalgia that is rather charming. Back in the Civil War there was a small income tax, but the Supreme Court called it unconstitutional, five to four, in 1894. Mr. Justice Field declared "The present assault upon capital is but the beginning. It will be but the steppingstone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich."

The 16th Amendment in 1913 legalized the tax and seemed to settle the matter. But it left some unhappy. Mr. Greenspan, meet Justice Field.

This article was originally published in the September 14, 1974 issue of the magazine.