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
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.
The complete transcript
of Greenspan's speech is online now.