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Greenspan at the Bundesbank

On January 13th, Alan Greenspan spoke at the Bundesbank. The first part of his address was fairly technical and discussed international financial markets. The final third of his speech included this remarkable section (transcript my own, emphasis added):

Clearly ideas shape societies and economies. Indeed I have maintained over the years that the most profoundly important debate between conflicting theories of optimum economic organization during the 20th century were settled, presumably definitively, here, more than a decade ago, in the aftermath of the dismantling of the Berlin Wall.

Aside from the Soviet Union itself, the economies of the Soviet Bloc had been in the pre-war period similar in many relevant respects to the market-based economies of the West. Over the first four decades of post-war Europe, both types of economies developed side-by-side with limited interaction.

It was as close to a controlled experiment in the viability of economic systems as could ever be implemented. The results evident with the dismantling of the Wall were unequivocally in favor of market economies. The consequences were far-reaching. The long-standing debate between the virtues of economies organized around free markets and those governed by centrally-planned socialism, one must assume, is essentially at an end.

To be sure, a few still support an old-fashioned socialism, but for the vast majority of previous adherents, it's now a highly diluted socialism, an amalgam of social equity and market efficiency, often called market socialism. The verdict on rigid central planning has been rendered and it is generally appreciated to have been unqualifiedly negative. There was no eulogy for central planning. It just ceased to be mentioned, and a large majority of developing nations quietly shifted from socialism to more market-oriented economies.

Europe has accepted market capitalism in large part as the most effective means for creating material affluence. It does so, however, with residual misgivings. The differences between the United States and continental Europe were captured most clearly for me in a soliloquy attributed to a very prominent European leader several years ago. He asked, "What is the market? It is the law of the jungle, the law of nature. And what is civilization? It is the struggle against nature."

While acknowledging the ability of competition to promote growth, many such observers nonetheless remain concerned that economic actors, to achieve that growth, are required to behave in a manner governed by the law of the jungle and are hence driven to an excess of materialism. In contrast to these skeptics, others, especially in the United States, believe the gains in material wealth resulting from market-driven outcomes facilitate the pursuit of broader values. They support a system based on voluntary choice in a free marketplace. The crux of the largely laissez-faire argument is that because unencumbered competitive markets reflect the value preferences of consumers, the resulting price signals direct a nation's savings into those capital assets that maximize the production of goods and services most valued by consumers.

Incomes earned from that production are determined for the most part by how successfully the participants in an economy contribute to the welfare of consumers, the presumed purpose of a society's economy.

This portion of his speech reminded me a great deal of the youthful Alan Greenspan who blasted the antitrust laws and fiercely supported the gold standard. Perhaps a little of that fire is still within him.

UPDATE 2004-01-18 06:53:29 UTC: The complete transcript of Greenspan's speech is online now.

Tiny Island