The sun shone brilliant and cold on John F. Kennedy’s inauguration day. The young leader set off on foot, his top hat on his head and his radiant wife Jackie on his arm, down a path through the snow that blanketed the North Lawn of the White House. Citizens bundled in scarves and sleeping bags waited by the roadside to catch a glimpse of this almost regal procession; and when Kennedy approached the podium on the Capitol, his coat bravely cast aside, his optimism thrilled the nation. “Ask not what America will do for you, but what together we can do for the freedom of man,” he declared. A tank mounted with a long-nosed ballistic missile trundled down Pennsylvania Avenue as part of the inaugural parade, a reminder that American idealism was backed by futuristic scientific weaponry. “There is a new generation in charge, with a new style and a new seriousness,” the sage Walter Lippmann wrote. “People are beginning to feel that we can do things about problems after all—that everything is possible.”1
No tribe was more optimistic than America’s economists. After fifteen years of headlong postwar growth, the declinism of Alvin Hansen had been discredited. The predicted demographic bust had been buried by a happy rush of childbearing; and new technologies, from nuclear power to air flight, had more than made up for the closing of the American frontier. By the time Kennedy promised to lead America to a New Frontier, advances in economic understanding seemed to promise growth that would be not only higher but more stable. Keynes had taught how to combat economic slowdowns by running a government budget deficit, and neo-Keynesians had grasped how slumps could be averted by the central bank as well: low interest rates, hitherto regarded principally as a means of helping the government to borrow, were now understood as a tool of economic management.2 “The supply of money, its availability to investor borrowers, and the interest cost of such borrowings can have important effects on [GNP],” Paul Samuelson instructed in the 1961 edition of his bestselling textbook, revising the dismissal of monetary policy in his 1948 edition.3 “The worst consequences of the business cycle . . . are probably a thing of the past,” Samuelson wrote confidently, and conservative economists agreed.4 At the end of 1959, Greenspan’s mentor Arthur Burns proclaimed, “The business cycle is unlikely to be as disturbing or troublesome to our children as it was to us and our fathers.”5
It was not just that economists understood how to prevent recessions. Thanks to new computer models, they believed they understood the relationships between growth, inflation, and employment so precisely that they could “fine-tune” the economy to deliver the ideal combination. In 1958, A. W. Phillips, a New Zealander at the London School of Economics, had documented the trade-off between unemployment and inflation, with the implication that technocrats could engineer permanently low unemployment if they were willing to accept modest inflation; and two years later Paul Samuelson and his MIT colleague Robert Solow, applying the Phillips curve to U.S. data, suggested that an enlightened administration might choose unemployment of 3 percent at the price of inflation of just 4.5 percent. Seizing on this happy verdict, the Kennedy administration promised “full employment,” an objective that would benefit workers, salve racial tensions, and bolster America in its apocalyptic rivalry with the Soviet Union. In order to make good on this project, the administration proposed tax cuts and low interest rates. It was time “to get the country moving again,” as Kennedy’s campaign slogan had insisted.6
The Kennedy team proceeded to implement its experiment. Where it saw signs of price pressure, it treated them as the side effect of the economy’s concentrated structure, not as evidence that all-out stimulus might stoke more inflation than intended. There was at least some truth to this claim. The giant corporations of the era had quasi-monopolistic pricing power, a fact that Greenspan swept under the carpet in his paper on antitrust; and powerful labor unions had the muscle to extract extravagant wage hikes that set inflationary benchmarks for the economy. The administration addressed this “cost-push” inflation with vigorous price and wage guidelines: the remedy for big business and big labor would be jawboning by big government. The steel industry in particular was recognized as a prime mover of cost-push inflation, so the Kennedy aides patted themselves on the back when they muscled the steel unions into agreeing to a wage increase of only 2.5 percent in 1962. When Big Steel later tried to welsh on its commitment, Kennedy was furious. “My father once told me that all steel men were sons of bitches,” he reportedly said, “and I did not realize until now how right he was.”7 Kennedy threatened antitrust action against the steel companies, and FBI agents began telephoning steel executives in the middle of the night; finally the steel men relented. But this little unpleasantness was regarded as a minor glitch in an otherwise sound plan. Inflation averaged just over 1 percent during Kennedy’s presidency, while growth barreled along at more than 6 percent per year. America was on a roll. The jawboning seemed to be working.
From his perch at his consulting firm, Greenspan was looking on in horror.
• • •
In the year of Kennedy’s election, Greenspan moved his operation from the cramped offices at 39 Broadway to a more modern building on the east side of the stock exchange. The new Townsend-Greenspan premises at 80 Pine Street afforded double the space of the old one, and Greenspan installed himself in a large corner office with a spectacular view of the Brooklyn Bridge. Like one of Ayn Rand’s heroes, he loved being high up in that building, gazing out over the cityscape that capitalism had made; his physical rise mirrored his financial one. “All of a sudden this poor kid was making a lot of money,” Greenspan said later. “I could marvel at what I had done. . . . My self-esteem [improved] significantly.”8
The new confidence was showing. Greenspan traded his Buick for an even more splendid blue Cadillac Eldorado convertible, and soon bought the license plate TG-1—both AG and TG were taken. Roaring back and forth to his new office, he regularly got speeding tickets on the East Side Highway; he could afford to pay them without noticing. To satisfy his musical tastes, he collected the highest of high-fidelity Harman Kardon equipment, which he installed at his apartment on Thirty-fifth Street, a block or so from Ayn Rand’s building.9 He played golf at the Quaker Ridge club, an emerald oasis where, according to club legend, George Washington himself had slept under a great oak and narrowly escaped detection by the British. As his range of business contacts expanded, Greenspan moved in ever grander circles. Sometimes, when Ayn Rand heard about a rarefied social gathering that Greenspan was attending, she would seem momentarily piqued. “Do you think Alan might basically be a social climber?” she once asked her lover, Nathaniel Branden.10
Townsend-Greenspan’s business still revolved around heavy industry. But thanks to his financial writings, Greenspan was now drawing the attention of a new set, including at least one West Coast banker. In 1962, Louis J. Galen, the founder and CEO of a savings and loan named Trans-World Financial, offered Greenspan his first seat on the board of a public company. Ensconced in booming Southern California, Trans-World was a cash machine.11 The population of the Golden State had more than doubled in the previous two decades, and home prices had shot up equivalently; blessed with such heady growth, mortgage lenders like Trans-World could scarcely fail to prosper.12 Perhaps not surprisingly, the gusher of easy money was attracting promoters and hucksters. Some savings and loans in California hired pretty women to hand out gifts to new depositors, causing Greenspan’s old collaborators at Fortune to tut-tut that such marketing gimmicks violated the “image of banker-like stability.”13 Bart Lytton, head of the eponymous Lytton Financial, was emblematic of the go-go atmosphere: during lawn parties at his Los Angeles home, he would parade about with a microphone hooked to his jacket so that guests who tired of lesser conversations could hang upon his words as they boomed out of surrounding speakers.14 (“The only -ism for me is narcissism,” Lytton once said cheerfully.)15 The prospect of associating himself with this racy industry did not dismay the thirty-six-year-old Greenspan. He accepted Galen’s offer.
Greenspan began to fly out to Los Angeles once a month for board meetings. He could see why so many people wanted to live there. In New York, there was nowhere to build but up. In Beverly Hills, where Trans-World was headquartered, mansions with exotic vegetation sprawled in the Mediterranean climate.16 Greenspan took to staying at the Beverly Hilton and making time for golf. He shelled out several thousand dollars to join the legendary Hillcrest Country Club, known as “the leading Jewish country club in Southern California.”17 It was perhaps odd for a man who had almost refused to be bar mitzvahed to join a club that was described that way; but Greenspan did not seem to mind. The club was frequented by a who’s who of Hollywood comedians who congregated at the so-called Round Table in a corner of the main dining room. Even Groucho Marx could be seen there, despite his famous quip that he wouldn’t belong to any club that accepted him as a member.
At the end of 1961, Greenspan presented another paper at the annual meeting of the American Statistical Association, a sort of sequel to his groundbreaking 1959 article. Having dug deeper into the relationship between stock prices and business investment, he reported that the linkage was even tighter than suspected. High stock prices anticipated surges in investment not only for the economy as a whole, but also within industries; moreover, the time between stock price rises and jumps in capital expenditure was short, reflecting the power of the association that Greenspan had identified. If price signals from financial markets could drive shifts in the real economy so rapidly despite extensive regulation of finance, it followed that financial deregulation could make the transmission even slicker, so that capital would flow to the corners of the economy that would use it most productively.18 After Greenspan completed his presentation, the research chief at the Wall Street brokerage Van Alstyne, Noel pronounced himself impressed. He asked Greenspan to stay in touch. Perhaps they could have lunch together?
What with Greenspan’s travels, it took a little while for the two men to get together. But one day in late September 1962, Greenspan found himself seated at the top of the towering Equitable Building, in the same plush dining room in which Bill Townsend had offered him a partnership—naturally, the Bankers Club was another institution of which Greenspan was now a member. As the discussion wound on, Greenspan fielded questions about his view of the economy, and a few about his philosophical beliefs: Could a tree crashing in a forest be said to make a sound if there was no witness to hear it? The economist from Van Alstyne had brought along his research assistant, a slim, pretty brunette named Kathryn Eickhoff, who appeared baffled, understandably, by the talk of trees and forests. But Greenspan was more focused on other aspects of Eickhoff’s appearance. When he got back to his office, he lost no time in calling her and inviting her to dinner that same evening.
Greenspan and Eickhoff went uptown to a small restaurant with curved booths along the edges and tables down the middle. He courted her respectfully, asking what she liked and what she believed in, and quickly discovered that this was his lucky evening. The young woman with the fine figure chose conversational territory that suited him perfectly. She proclaimed her faith in the moral correctness of free enterprise, the power of the individual to shape his world, and the responsibility of each person for his own choices.
Were these just her own ideas? Greenspan inquired pleasantly.
Eickhoff answered that she had been influenced by a Russian émigré—a novelist and philosopher named Ayn Rand. Just a few months earlier, Eickhoff had read Atlas Shrugged on a friend’s recommendation. The experience, she confided, was an epiphany. It had changed her life.
Greenspan felt like a tennis player who sees a slow lob curling toward him, right in his sweet spot.
Would Eickhoff perhaps like to have coffee with Ayn Rand? he asked casually.19
The smash landed perfectly: Eickhoff was awestruck. A few days later, Alan took Kathy to hear Rand deliver a lecture, and afterward he introduced the young admirer to the charismatic grande dame. Alan and Kathy began dating, and Kathy soon discovered that Alan was an avid ballroom dancer. Sometimes they danced at Ayn Rand’s apartment, where the Collective would roll back the carpets and put music on; once Alan took Kathy to a restaurant in Hartsdale, New York, and danced under the stars with her.20 It was always ballroom dancing—Alan had no time for rock and roll or pop—and Eickhoff learned that he saw no reason to restrict himself to dancing with the girl he arrived with.21 But if there was no music to dance to, and no meaty intellectual conversation to be had, Alan would just as easily retreat into his shell. Early in their relationship, Eickhoff had the misfortune of hosting a party at her apartment the same day that a new edition of the Statistical Abstract of the United States appeared. Greenspan commandeered the only comfy chair that Eickhoff had and read into the footnotes as the party continued around him.22
Kathy tried to get Alan to diversify beyond dinner, dancing, and conversations with Rand’s circle. She quickly discovered that if he was going to do something, it had to have a score—and not necessarily a musical one. She took him to a place in Greenwich Village that had all-you-can-eat steaks and bowling; Eickhoff christened it Bo Ling because the w in the neon sign was broken. That adventure went down well, and was often repeated; but Kathy’s attempts to get Alan to play bridge were less successful. One evening, at the home of Elayne Kalberman, Nathaniel Branden’s sister, Greenspan got as far as sitting down at the table. But before the cards were dealt, he wanted everything explained. Why was an ace high to a king? Why were clubs worth less than spades? Why use all those bidding conventions, and were they really logical? Why, why, why, the questions continued, as if from a precocious toddler. After what felt like hours, Kathy and the Kalbermans gave up without playing even one hand. “He had a pathological objection to arbitrary conventions,” Eickhoff observed later.23
Not long after they began dating, Kathy asked Alan for a job. A stock market bust in May 1962 had spoiled the atmosphere at Van Alstyne, and Kathy wanted to move on—though she assured Alan that she would stay at his firm only temporarily. Alan insisted on giving her a formal interview, and then agreed to hire her.
The firm that Eickhoff joined at the end of 1962 was in the midst of a transition. Thanks to the boss’s broadening connections, Townsend-Greenspan was booming; but it had yet to make the leap from pencils and smudged ledgers to the new age of computing. When Eickhoff signed on, she was assigned to help with a product called the Major Economic Trends report. Each week, as the Treasury and the Federal Reserve came out with numbers on interest rates, the money supply, bank deposits, prices, consumption, and so on, Townsend-Greenspan assistants entered them into an imposing three-ring ledger with green, columned pages. Once all the data had been harvested, two researchers would sit next to each other at one of the desks under the large window in the main room of the suite. Guided by a fat instruction volume, they carried out the operations needed to transform the data into the report. To crunch the numbers, they used a rotary calculator—a bulky numeric typewriter that spat out its calculations on narrow spools of paper like the receipts from a grocery checkout. The machine could add or subtract fairly easily; but multiplication or division required iterative addition or subtraction. An innocent request—for example, that the calculator multiply two three-digit numbers—would set off a noisy grinding of the gears as the machine added and carried, added and carried, ka-chunk, ka-chunk, ka-chunk. The instructions went on for pages and pages, and the researchers plugged number after number into the rebarbative calculator and copied the outputs into their ledgers—it could take hours to calculate a handful of results. When they finally finished, the two colleagues would compare notes. If their numbers matched, the researchers sighed thankfully. If they conflicted, the ka-chunk ka-chunking started up again.
Eickhoff noticed that the instruction manual for the Major Economic Trends report repeated some operations pointlessly. When she alerted Greenspan, he was suspicious at first. The manual had been in service for years; how could there be a mistake in it? But Eickhoff was right, as Greenspan quickly recognized, and soon he was relying on his employee-cum-girlfriend for all manner of improvements around the office. A staffer who kept track of invoices for Townsend-Greenspan handed in her two-weeks notice, but Greenspan found her tedious so he failed to take in what she had said; when the two weeks were up and the bookkeeper said good-bye, Greenspan turned in desperation to Eickhoff, who, fortunately, had taken an accounting course in college.24 Hiring clerical assistants was not Greenspan’s strong suit, either, so Eickhoff soon took charge of interviewing processions of young women. When her romantic relationship with Greenspan petered out after a few years, she found that the boss dated many of the assistants she had recruited.25 One young hire came to work with a skirt so short that when she reached down to open a low filing cabinet she practically undressed, which Greenspan thought was fine, Eickhoff remembered. “He never overlapped girlfriends for more than the day or two it took him to notify the other one that things had changed,” Eickhoff added, noting that boss-secretary liaisons were routine in the sixties. “I don’t think anyone that Alan ever dated would say that he harassed them. They might be upset only because he quit dating them.”26
Upset or not, the staff at Townsend-Greenspan consisted entirely of women. When it came to the junior positions, this was typical of the times. In the years after World War II, women who had formed the backbone of the industrial workforce were pushed back into female-only jobs, especially in the rapidly growing service sector; as one historian put it, “Rosie the Riveter had become a file clerk.”27 But Greenspan was unusual in promoting women to positions of responsibility as well. In addition to Eickhoff, there were Bess Kaplan, an expert on government data, and Lucille Wu, who were steeped in the emerging science of economic modeling. Greenspan also recruited Judy Mackey, a former classmate from Columbia, who took over the task of compiling the firm’s savings and loan report after being repeatedly passed over for promotion at her previous job with the Life Insurance Association.28 Greenspan saw nothing problematic about advancing these women. He judged employees according to their abilities; and he could spot a bargain, too—because of widespread discrimination, talented women could be hired cheaply.29 But Greenspan was too much of a loner—and too jealous of his sense of independence and control—ever to recruit a true peer to his firm, whether male or female.
Greenspan’s headlong rise affected his connection to his parents. The more confident he felt about himself, the more his feelings hardened toward his father, Herbert. The man had abandoned his mother, disappointed him cruelly, failed to make anything of his own life, and yet still condescended to him infuriatingly. Alan permitted Herbert to visit him at the office once a year, on his father’s birthday; and Herbert would spend part of these meetings inflating his own success and belittling Alan, doubting that his son would amount to much, even though he already had.30 After an uncomfortable hour, the elder and lesser Greenspan would be shooed out of the building.
As to his mother, Rose, Alan felt a sense of filial duty, but his relationship with her was cooling. He supported Rose financially and set up a small board of directors for Townsend-Greenspan, consisting of Rose, himself, and Eickhoff. On the appointed day each month, Rose would show up at the offices on Pine Street, and the board meeting would consist of a fine lunch, usually at the nearby Fraunces Tavern.31 But Alan seldom took part in these outings. He would greet Rose warmly, and then Kathy would lead her off, sometimes accompanied by the other senior women at the company. Rose grew popular at Townsend-Greenspan for her easygoing nature and spirited musical performances at the company Christmas parties. But Eickhoff recalls that, in the early 1960s, Alan grew impatient with his mother, however fond he felt of her.32 “She would probably want to tell him what was going on with all the relatives . . . which would have been of no interest to Alan . . . here he is building a career, he’s got a lot on his mind and . . . would much rather be doing other things.”33
If Greenspan had a maternal figure in those years, it was that curious Russian novelist. Ayn Rand had grown depressed and difficult after the publication of Atlas Shrugged, but the two remained close—witness the extraordinary fervor of Greenspan’s anti-antitrust article. Greenspan would see Rand frequently at the Italianate Roosevelt Hotel, which stood in the shadow of Grand Central Terminal, the largest railroad station in the United States and a symbol of the industrial might that they both romanticized. There, Rand and Greenspan, often accompanied by Eickhoff, would listen to one of the popular lectures on objectivism delivered by Nathaniel Branden, and afterward Rand and her inner circle would meet in the lobby and head off to one of the eateries in the basement. As they descended the grand staircase of the Roosevelt Hotel, Rand would link arms with Greenspan and Branden, one young escort on each side of her, and lead them down the steps. When Eickhoff watched this procession, she imagined a mother flanked by her two sons. To navigate the world he cared about, Greenspan seemed better off with Rand than with either of the two parents life had given him.34
• • •
At the beginning of 1963, Greenspan sent two startling letters to his clients, reflecting his broad disaffection with Kennedy’s economic policies.35 His belief in the self-correcting magic of the gold standard—in boom times, a fixed supply of money guaranteed that rising interest rates would cool the economy, and vice versa—made Greenspan a natural enemy of fine-tuning. Walter Lippmann might exult that “we can do things about problems after all”; but if a laissez-faire system could rebalance itself, there was no need for such activism. The Kennedy team’s faith in economic modeling struck Greenspan as folly, too. Around 1960, Mobil Oil had asked Townsend-Greenspan to prepare a general forecast of the economy, and in the course of delivering what his client wanted, Greenspan had concluded that such macroeconomic projections were more art than science. If state-of-the-art modeling could not pinpoint when the economy was headed for a slump, it followed that policy makers could not be expected to know when to order up a stimulus—fine-tuning seemed more likely to misfire than to hit its target.36 But at the start of 1963, Greenspan focused his client letters on a narrower and more surprising claim. “The question of inflation has again arisen,” he proclaimed, seemingly oblivious to the fact that in the two months just completed, inflation had come in at precisely zero.37
Greenspan proceeded to lay out a way of understanding price pressures that was diametrically opposed to that of the Kennedy administration. Rather than blaming inflation on cost-push pressures from big labor and big business, the letters linked it to the growth of money, which, as Greenspan noted, the Kennedy team was eager to encourage. History, Greenspan continued, proved that monetary expansions ultimately yielded inflation, even if the symptoms might be temporarily suppressed by wage and price controls or special circumstances. In the middle of the century, the monetary expansion during the Depression and the war had not resulted in immediate inflation; but as soon as the end of rationing had uncorked the economy, bubbling inflation had spilled forth—in 1946, the rate had hit 18 percent. Taking direct aim at the Kennedy team’s view of inflation, Greenspan went out of his way to exonerate cost-push factors for that price surge. The postwar years were “not a period characterized by arbitrary periodic mark-ups of prices by industrial management, but rather reflected the upward financial pressures on prices resulting from the economic distortions initiated by the Government.”
Greenspan’s letters reflected the distance he had come since his days in Arthur Burns’s classroom. Far from accepting that inflation reflected excess government spending, as Burns had lectured his students, he now embraced the monetarist view—that inflation reflected excess money. This was, at least conceptually, the logical corollary of the new thinking on central banking that Greenspan had absorbed in the late 1950s. If inflation occurred when the financial system created money too freely, then the trick was to monitor the rate of expansion. But this trick would not be easy to pull off. Different parts of the financial system created purchasing power in different ways. Measuring money would not be straightforward.38
In his first letter, sent in January, Greenspan concluded that monetary growth was not fast enough to be truly worrisome; the risks of inflation would remain small “unless and until the New Frontier economic policies take on something more of the chaotic financial juggling of the New Deal.” But in his second letter, two months later, Greenspan sounded the alarm. The official monetary measures, he argued, had been rendered obsolete by changes in finance. Increasingly, banks were encouraging large customers to hold their money in time deposits, not demand deposits; and time deposits were excluded from the usual definition of the money supply. But starting in 1961, banks had issued “negotiable” time deposits that could be swapped for cash on short notice, turning them into money equivalents.39 If you counted time deposits as money, the outlook became frightening, Greenspan wrote. Over the past year, this more inclusive definition of monetary growth had outstripped the growth of the economy by a wide margin. It followed that there were more dollars chasing each unit of output—and that, sooner or later, prices would advance destructively. Undaunted by the fact that there was no immediate sign of inflation, Greenspan’s letter predicted that prices might rise at an average rate of 3.1 percent over the next five years, through the end of 1967. As it turned out, Greenspan’s outlandish forecast proved more or less correct. Inflation hit 3.5 percent in 1966, then stayed at 3 percent or above for two decades.
Greenspan’s monetarism, and his dissent from the economics of the New Frontier, owed something to Milton Friedman.40 In A Program for Monetary Stability, published in 1960, Friedman had emphasized the destabilizing power of excess money creation, recommending that the central bank should target monetary growth that roughly matched output growth—in the absence of such a rule, discretionary policy would lead to inflation.41 In 1963, the year Greenspan sent out his letters, Friedman and his coauthor, Anna Schwartz, followed up with an enduring statement in favor of laissez-faire, A Monetary History of the United States. A large section of this masterwork was devoted to arguing that the Fed had made the Depression worse than it need have been, allowing the money supply to collapse in the 1930s and so suffocating businesses. The implication was that discretionary monetary policy had failed disastrously, not once but twice—the Fed had helped to bring on the Depression by fueling the stock market bubble of 1929, as Greenspan had argued in his 1959 article; and it had also rendered the aftermath unnecessarily painful. It is likely that Greenspan’s disapproving attitude toward central-banking orthodoxy was fortified by Friedman’s thesis. The year after the Monetary History appeared, he built on his client letters with an academic version of his critique, which appeared in the Journal of Finance.42
But by late 1963, Greenspan’s mind was turning to a more ambitious project. He resolved to take his writings on asset prices, antitrust, and central banks and weave them into one grand statement of his economic philosophy.
• • •
In December 1963, an advertisement went out in the Objectivist Newsletter, a publication run by Nathaniel Branden to rally Ayn Rand’s followers. The advertisement promised a series of ten lectures on the Economics of a Free Society, to be delivered by Alan Greenspan. A few days later, on a Saturday morning, Greenspan showed up at his office on Pine Street and dictated the text of his first lecture to a secretary, who duly typed it up, producing a transcript that ran to thirty pages.43 On Monday and Tuesday, it fell to Kathryn Eickhoff to discipline the boss’s prose. “It’s not always apparent where grammar goes in Alan’s sentences,” she later said delicately.
For a period stretching into February 1964, Greenspan repeated this routine each week, testing the stamina of his assistants. Eickhoff would finish her edits by Tuesday evening, and the text of the lecture would be sent over to Rand and Branden for a further round of vetting. The two high priests of objectivism could be stern critics, always insisting that everything be made intelligible to a general audience. Over dinner on Wednesday evening with Greenspan, they would flag places where the complexity of his message clashed with the Randian imperative of lucidity; one time, Greenspan struggled to explain the futures markets in sufficiently clear terms, then eventually capitulated and cut futures out entirely. At other points in Greenspan’s lectures, his explanations needed to be rescued from a narrowly technical framing. Rand demanded to know how everything connected to the broader issues of individualism and freedom. Greenspan was eager to comply, pushing his accumulated insights on economics to their logical and libertarian conclusions.
The morning after the dinner with Rand and Branden, Greenspan would return to his office armed with a newly polished statement of his philosophy. He would dictate the changes; the secretary would type; Eickhoff would take delivery of each page as it came off the typewriter. After Eickhoff had applied her last edits, the secretary would hammer out a final version; and with little time to spare, Greenspan would make his way uptown to the Roosevelt Hotel, ready to communicate the truth, an excited Eickhoff beside him. There, in one of the hotel’s ornate meeting rooms, Greenspan would deliver his lecture—a handsome, rather 1940s figure with large heavy-framed glasses and dark slicked-back hair, older and graver in manner than his thirty-seven years justified. Greenspan read out the speeches carefully, following his prepared text. Rand and Branden frowned on extemporaneous departures from the version they had vetted.
Greenspan’s purpose, he began, was to “show why a laissez-faire economy is the only moral and practical form of economic organization.”44 Attacks on the fairness of market prices should be understood for what they were: moral judgments that impugned the individuals whose free choices created those prices. It followed that the entrepreneur—or the “enterpriser,” as Greenspan called him—was a hero; he was the essential figure who matched society’s productive energy to ordinary citizens’ desires, and did so in the most efficient manner possible. The United States had eclipsed its rivals by embracing this system, but the pragmatic, business-minded side of America was in conflict with a “moral and religious view, that material pursuits are evil and immoral,” Greenspan lamented. “One has to be familiar with the destructiveness of this contradiction in American history to fully appreciate the contribution to America of Atlas Shrugged,” Greenspan reminded his audience.
Presuming heroic patience from the objectivist faithful, Greenspan launched into a lengthy description of the most basic ideas in economics: why individuals specialize, why they engage in commercial exchanges, the difference between comparative and absolute advantage. He dwelled extensively on the purpose and origins of money, and especially on gold; he celebrated the era of “free banking,” the time before the passing of the Federal Reserve Act in 1913, when banks issued private money backed by their gold reserves, with no interference from politicians. On a moral basis, Greenspan argued, this private money was superior to the government sort. “Private bank notes have value because the word of the banker is as good as gold,” he explained; in contrast, government banknotes were backed not by honor but by coercive fiat—they were accepted because the law required them to be accepted. Echoing a famous passage on money in Atlas Shrugged, Greenspan emphasized the violence implicit in such fiat currency systems: “The ultimate backing of paper currency is not the inviolate word of a private individual but the muzzle of a gun of a government bureaucrat.”
Greenspan presented his preference for privately issued money as practical as well as moral. The advantage of private money, he contended, was that its quantity was limited. Lacking the government’s ability to force the use of its banknotes, the “free” banks of the nineteenth century could only issue scrip that was credibly backed by their reserves of gold: they could not print endless amounts of it. Of course, this was in some ways a weakness, not an advantage: without the backstop of a central bank, private banks always invited the suspicion that their reserves were inadequate to support their promise to exchange scrip for gold; when these suspicions grew too strong, the banks were vulnerable to runs that forced them to cut off all lending, driving the economy into a recession. Indeed, it had been precisely such “money panics” that had spurred America’s leaders to create a central bank “to furnish an elastic currency,” in the words of the Federal Reserve Act. But Greenspan showered contempt on this logic, giving rise to what must surely be one of the most exquisite ironies of economic history.
The way Greenspan saw things, the money panics of the nineteenth century had actually been salutary.45 They had inflicted brief contractions on the economy, to be sure. But they had also been a boon, for they had disrupted the inflation of asset bubbles. Thanks to the money panics, banks were regularly reminded not to let money creation run ahead of gold reserves, which meant that they would never pump out enough cash to fuel a truly dangerous bubble. It followed that the nation’s leaders had derived exactly the wrong lesson from history. Noticing that the money panics came on when banks ran short of reserves, politicians thought that “the cure to these money panics . . . was to prevent the banking system from running out of reserves. It was as simple as that. The way to cure the patient, it was argued, was to lower his fever by putting the thermometer between two ice cubes. . . . Thus, just prior to World War I emerged one of the historic disasters in American history, the creation of the Federal Reserve System.”
This “historic disaster”—the creation of the central bank that Greenspan would later lead—ushered in a brave new world of potentially unlimited reserves in the banking system.46 Banks handed their gold over to the Fed. In return, they received title to deposits held at the Fed, and these deposits became the new reserves in the banking system. Unlike gold, these new reserves could be expanded elastically, by central bank fiat. The Fed might buy government bonds from the banks, and pay by decreeing an expansion in the banks’ reserves—effectively creating money. Or it might “discount” other assets held by banks, taking in their business loans and crediting their reserve accounts with more invented money. Once such tricks became possible, banks were assured of access to funds; the economy had been inoculated from money panics. But, Greenspan continued, this clever new system had not turned out so well. “It did prevent shortages of reserves, but instead of perpetual prosperity, it created the greatest economic disaster the world has ever known—the depression of the 1930s.”
Toward the end of his lectures, Greenspan resumed his attack on the economics of the New Frontier. With their commitment to full employment, the Kennedy and Johnson advisers were stoking inflation, pushing the Federal Reserve to pump up the economy by supplying bank reserves in ever increasing quantities. This was not simply a technocratic error; it was a failure to grasp the true driver of human progress. The New Frontier enthusiasts viewed the economy as a piece of machinery, to be fine-tuned as one might tweak the brakes on a car. But, Greenspan argued, “economic development is a function not of society, the economy, the system, etc., but of men. . . . To an extent which unfortunately we are too little aware, our society lives in the afterglow of their achievements.” Lamenting that “the historical status of the great wealth producers of the past has declined with the growth of the welfare state,” Greenspan invoked the heroes of his youthful readings: “The James Hills and the J. P. Morgans are an affront to a society dedicated to the worship of mediocrity,” he insisted. Unless something drastic happened, creeping mediocrity would deaden every nerve in the nation. Borrowing a phrase from Ayn Rand’s repertoire, Greenspan gave warning that America was surrendering itself to “the primordial morality of altruism, with its consequences of slavery, brute force, stagnant terror, and sacrificial furnaces.”
How could America halt its slide into this abyss? Greenspan’s answer emphasized the role of elites—he preached a sort of libertarian Leninism. To recreate the free nation of the nineteenth century, there was no need to convert the masses to objectivism, he argued. Rather, “it is the intellectual leaders, who can doubtless be numbered in the hundreds, or at most thousands, who set the trend. They are the ones who have to be reached,” he told his audience. “Communism started with a small dedicated few,” the revolutionary instructed the band of eager brothers at the Roosevelt Hotel. And then he summoned them to arms. “Objectivism has a crucial advantage over communism and previous philosophical movements: the fact that it is right, consistent with reality, and consistent with life on this earth.”
• • •
For Greenspan and his fellow objectivists, the struggle to save the nation coalesced around the self-consciously nineteenth-century figure of Barry Goldwater, senator from Arizona and, by the time Greenspan concluded his lectures, Republican presidential candidate. Four years earlier, Goldwater had published The Conscience of a Conservative, which invoked the “ancient and tested truths that guided our Republic through its early days,” and pleaded for a very Randian vision: “that to regard man as part of an undifferentiated mass is to consign him to ultimate slavery.”47 Goldwater’s book appealed powerfully to the college crowd that devoured Rand’s novels; and the Wall Street Journal hailed it as proof that the nation’s youth were moving “away from the state-welfarist political ideas that have dominated campus arguments since FDR first tilted his cigarette holder at a rakish angle.”48 Shortly after Conscience appeared on the bestseller lists, Goldwater sent a copy to Rand; “I have enjoyed very few books in my life as much as I have yours, Atlas Shrugged,” the accompanying note confided.49 For her part, Rand celebrated the ascent of a Republican who resisted the welfare statism and “me-too-ism” of Dwight Eisenhower, for whom she had refused to vote.50 Compromisers, Rand insisted, were worse than outright enemies. “There are two sides to every issue,” she had proclaimed in Atlas Shrugged. “One side is right and the other is wrong, but the middle is always evil.”51
Goldwater announced his presidential candidacy from his home in Phoenix in January 1964, promising Americans disaffected by the New Frontier “a choice, not an echo.” The following month, Greenspan concluded his last lecture with an endorsement of the candidate. Goldwater might be an underdog, Greenspan conceded, but he or his equivalent might win in 1968; and if that happened, then an even purer candidate might emerge to his right, pushing the entire nation back toward the virtuous individualism of an earlier era. “Within one generation,” Greenspan proclaimed eagerly, “we may see a United States presidential candidate fully committed to laissez-faire.” A few days later, in the March edition of the Objectivist Newsletter, Rand herself expanded on Greenspan’s commendation, acknowledging Goldwater’s troubling Christianity but oddly forgiving it.52 She was even willing to make peace with the wackier fringes of Goldwater’s coalition, notably the secretive, borderline-racist, conspiracy-minded John Birch Society. As a committed atheist, Rand might have been expected to keep her distance from a society that required its members to believe in God; and as a committed individualist she might have been expected to bridle at the crushing of individual freedom involved in southern segregation. But when it came to the Arizona senator, the woman who painted compromise as evil turned out to be strangely open to it.53
After Rand’s Goldwater endorsement, her New York acolytes mobilized. They launched a Goldwater political club and a Goldwater magazine, seeking both to support the candidate and to warn him off his religious inclinations. The Rand brand profited mightily from the excitement that the campaign generated. The Washington State Republican Party ordered copies of Atlas Shrugged to distribute to Goldwater followers. Subscriptions to the Objectivist Newsletter tripled. Goldwater’s campaign staff featured several Rand devotees, notably Karl Hess, the speechwriter whom Goldwater called Shakespeare.54 Kathryn Eickhoff was among the faithful who plunged into the Goldwater effort, encouraging objectivists to rally to his flag and venturing into public speaking for the first time since high school. When she delivered her first address, an attack on Lyndon Johnson’s promise to create a Great Society by means of ever-growing spending plans, she felt thoroughly nervous. But Alan was there watching, and when the speech was over he asked what she would like to do to celebrate.
“You know, what I’d really like is to go tell my two heroes about it.”
“And who would they be?” Alan asked her.
“Frank and Ayn,” Kathy responded, referring to Rand and her husband, Frank O’Connor.
Alan and Kathy called Rand to see if it would be all right to come over. Then they made their way to Rand’s apartment, and triumphantly presented her with a copy of Kathy’s address.55
Buoyed by a diverse conservative groundswell, Goldwater captured the Republican presidential nomination. On the evening of July 16, 1964, a jubilant conservative movement watched its hero walk down the center aisle of the Cow Palace in San Francisco, arm in arm with his wife, to the strains of a brass band playing “The Battle Hymn of the Republic.”56 When he reached the stage, Goldwater clasped hands with Richard Nixon, the party’s previous nominee, and the two men raised their arms in victory. Balloons fell from the ceiling. The crowd cheered and roared and cheered some more. Finally, Goldwater addressed the crowd in his deep, plainly accented speech. He praised limited government, private property, and freedom.
Two lines from Goldwater’s address would be remembered for years afterward. “I would remind you that extremism in the defense of liberty is no vice,” the senator declared. The crowd erupted; air horns blared. It was more than forty seconds before he could continue. “And let me remind you also that moderation in the pursuit of justice is no virtue!”
Watching on television, Greenspan wanted to applaud along with the delegates in San Francisco. The play on words was sheer genius. Extremism, in being allied to liberty, had become virtuous—what more could a revolutionary desire to hear from a presidential candidate?57 In her postconvention analysis in the Objectivist Newsletter, Rand made the same point. “Now consider the term extremism,” she wrote. “Its alleged meaning is: ‘intolerance, hatred, racism, bigotry, crackpot theories, incitement to violence.’ Its real meaning is: ‘the advocacy of capitalism.’”58
But the enthusiasm of Rand’s circle was not shared by everyone. Goldwater’s words helped his opponents to paint him as a radical. The Washington Post concluded that if he were elected, “there would be nothing left for us to do but pray.”59 Governor Edmund Brown of California declared that “the stench of fascism is in the air.”60 Even members of Goldwater’s own party were concerned. Moderate Republicans stormed out of the convention, and Eisenhower himself said he would not campaign for Goldwater.61 The candidate attempted to tack toward the center for the general election, but that merely infuriated the libertarian faithful who had won him the nomination in the first place. Having set himself up as the anticompromise candidate, Goldwater destroyed himself by compromising.
As Election Day approached, Rand grew disenchanted. She declared that Goldwater should show more confidence in his conservative convictions, and she took it upon herself to write a speech for him to deliver at one of his final campaign appearances, at New York’s Madison Square Garden. But although she sent the speech to the candidate, Goldwater ignored it; and when he faced the electorate a week or so later, his defeat was crushing. Outside the Deep South, where whites rallied to him thanks to his opposition to the Civil Rights Act, Goldwater won only his home state of Arizona, and then only just. It was the most lopsided popular vote since 1820.
Yet for Ayn Rand and Alan Greenspan, there was still much to look forward to. They blamed the setback not on conservatism but on the candidate: Goldwater had had “courage, frankness, integrity—and nothing to say,” Rand wrote afterward.62 The candidate’s lack of intellectual heft had been his main problem, she continued; Goldwater’s speeches had reminded her of newspaper headlines running above empty columns.63 It followed that the intellectual leaders of conservatism needed only to wait patiently. Soon a fresh election cycle would begin. As Greenspan had declared in his lectures, the day of laissez-faire was surely approaching.