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.I think you will find, as I have indicated to you before, that most effective central banks in this fiat money period tend to be successfullargely because we tend to replicate that which would probably have occurred under a commodity standard in general.I have stated in the past that I have always thought that fiat currencies by their nature are inflationary.I was taken aback by observing thefact that, from the early 1990s forward, Japan demonstrated that fact not to be a broad universal principle.And what I have begun to realize isthat, because we tend to replicate a good deal of what a commodity standard would do, we are not getting the long-term inflationaryconsequences of fiat money.I will tell you, I am surprised by that fact.But it is, as best I can judge, a fact.On February 11, 2004, I directly challenged Greenspan on his power.RON PAUL: Frederick Hayek was fond of saying that the managed economy was in danger because it was based on a pretense of knowledge,that certain things the economic planners don t know and, for instance, he would agree with me that we don t know, you don t know, theCongress doesn t know what the overnight rates ought to be, yet we reject the marketplace.But it is part of the system.And I understandthat.But doesn t it ever occur to you that maybe there is too much power in the hands of those who control monetary policy, the power tocreate the financial bubbles, the power to maybe bring the bubble about, the power to change the value of the stock market within minutes?That to me is just an ominous power and challenges the whole concept of freedom and liberty and sound money.ALAN GREENSPAN: Congressman, as I have said to you before, the problem you are alluding to is the conversion of a commodity standard to fiatmoney.We have statutorily gone onto a fiat money standard, and as a consequence of that it is inevitable that the authority, which is theproducer of the money supply, will have inordinate power.And that is one of the reasons why I have indicated because of that, and becauseof the fact that we are unelected officials, it is mandatory that we be as transparent as we conceivably can, and remember that we areaccountable to the electorate and to the Congress.And the power that we have is all granted by you.We don t have any capabilitywhatsoever to do anything without the agreement or even the acquiescence of the Congress of the United States.We recognize that andone of the reasons I am here today is to endeavor to convey why we are doing what we are doing.And I will continue to do that, and I amsure that all of my colleagues are fully aware of the responsibility that the Congress has given us, and I trust that we adhere to the principlesof the Constitution of the United States more so than one would ordinarily do. Greenspan s last appearance before the Financial Services Committee occurred on July 20, 2005.On this occasion, I pressed him hard aboutwhat kind of conditions would require him to reconsider the use of gold in the monetary system.Prefacing the question, I pointed out that centralbanks still hold gold, evidently on the belief that it does represent a monetary purpose.They hold no other commodities, and even though they havebeen selling gold over the years, there s still a lot of gold held by the International Monetary Fund and the central banks.RON PAUL: Even you, in the 1960s, described the paper system as a scheme for the confiscation of wealth&.Is it not true that the papersystem that we work with today is actually a scheme to default on our debt? And is it not true that, for this reason, that s a good argument forpeople not eventually, at some day wanting to buy Treasury bills because they will be paid back with cheaper dollars?&And aligned with this question, I would like to ask something dealing exactly with gold&.If paper money today it seems to be workingrather well but if the paper system doesn t work, when will the time come? What will the signs be that we should reconsider gold?ALAN GREENSPAN: Well, you say central banks own gold or monetary authorities own gold.The United States is a large gold holder.And youhave to ask yourself: Why do we hold gold? And the answer is essentially, implicitly, the one that you ve raised namely that, over thegenerations, when fiat monies arose and, indeed, created the type of problems which I think you correctly identify of the 1970s, althoughthe implication that it was some scheme or conspiracy gives it a much more conscious focus than actually, as I recall, it was occurring.It wasmore inadvertence that created the basic problems.But as I ve testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor theinflation was.And, indeed, since the late 70s central bankers generally have behaved as though we were on the gold standard
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