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Jon Stewart: Many people are free-market capitalists, and they always talk about free-market capitalism, and that is our economic theory. So why do we have a Fed? Is the free market – wouldn’t the market take care of interest rates and all that? Why do we have someone adjusting the rates if we are a free-market society?
Alan Greenspan: You’re raising a very fundamental question. … You didn’t need central bank when we were on the gold standard, which was back in the nineteenth century. And all of the automatic things occurred because people would buy and sell gold, and the market would do what the Fed does now. But: most everybody in the world by the 1930s decided that the gold standard was strangling the economy. And universally this gold standard was abandoned. But: you need somebody to determine –or some mechanism – how much money is out there, because remember, the amount of money relates to the amount of inflation in the economy. … In any event the more money you have, relative to the amount of goods, the more inflation you have, and that’s not good. So:
Stewart: So we’re not a free market then.
Greenspan: No. No.
Stewart: There’s a visible – there’s a benevolent hand that touches us.
Greenspan: Absolutely. You’re quite correct. To the extent that there is a central bank governing the amount of money in the system, that is not a free market. Most people call it regulation.
Source: http://divisionoflabour.com/archives/004047.php
Have a Great Day!
Dave Johnson