Earlier this week, Alan Greenspan, former Chairman of the Federal Reserve, died at the age of 100.
The Brookings Institution wrote that “Greenspan was a fervent believer that free market capitalism, including free trade, was the best available system for promoting economic progress.” That tribute gets the man backwards. For nineteen years Greenspan set the price of money by committee, the way a Soviet planner set the price of bread.
The Federal Reserve does not let markets work. Through open market operations and quantitative easing, the buying and selling of government debt to steer the economy, it manipulates both the supply of money and its price. It buys Treasury bills to push interest rates and employment toward levels that a central committee considers ideal. Supply and demand do not set these numbers. The Fed does.
Those decisions reach everything. During the COVID “pandemic” response, the Fed cut rates to zero. Cheap money lifted asset prices and let the people who already owned stocks, homes, and land borrow against them for almost nothing to buy more assets. The price of assets climbed while the cost of acquiring them collapsed.
It’s also important to note that wages are sticky, meaning they adjust slowly, long after new money has bid up everything asset owners touch.
Current Fed Chairman Kevin Warsh once called quantitative easing “reverse Robin Hood” for exactly this reason. Zero rates did not lift everyone equally; they moved wealth upward, and the ordinary worker paid the bill in lost purchasing power.
The Fed calls this stabilization. The honest word is price-fixing, and price-fixing does the same damage whether the good is bread or credit. An interest rate is a price, what savers charge to part with their money. In a true free market, rates would float, signaling to borrowers how scarce capital really is.
Greenspan understood all of this. That is the case against him, not for him. He ran the one institution in America built to overrule the market, and he ran it so smoothly that almost no one called it what it was. He was commonly known as “the Maestro,” but in reality, he should have been named as the most powerful central planner the country ever hired.
So if you are furious that homes and stocks keep rising while your paycheck buys less of both, your anger is justified. The market did not price you out. Instead, a committee did, when it set the cost of money by vote instead of letting savers and borrowers set it themselves.
While Greenspan has passed, the Fed committee still meets, and it still prices money the way Moscow once priced bread.
