The Man Who Knew: The Life and Times of Alan Greenspan — Three: THE REBIRTH OF MONEY

1. 1. Arthur Burns taught that excess government spending causes inflation, dismissing monetary policy as irrelevant.
2. 2. The Korean War triggered both a surge in military spending and consumer inflation, forcing the Fed to confront price stability.
3. 3. Most postwar economists doubted the Fed could control inflation, believing bottlenecks were the main cause.
4. 4. Paul Samuelson's 1948 textbook declared that monetary policy was not a panacea for controlling the business cycle.
5. 5. Monetary historian Robert Hetzel said that after World War II, 'monetary policy was an orphan.'
6. 6. The 1951 Fed-Treasury Accord ended the interest rate ceiling, allowing long-term rates to rise and inflation to fall.
7. 7. New Fed chairman William McChesney Martin declared price stability more important than war, calling inflation a greater threat than foreign aggression.
8. 8. Greenspan estimated military aircraft procurement by combining pre-war congressional testimony with Korean War operations data.
9. 9. In 1953, investment adviser William Wallace Townsend offered Greenspan a partnership, impressed by his writings despite his youth.
10. 10. Greenspan was aware of anti-Semitic barriers in corporate America, but consulting allowed him to bypass them.
11. 11. Greenspan built a detailed map of the steel industry by inferring production from iron ore shipments and engineering manuals.
12. 12. Greenspan's 1959 paper argued that stock prices drive corporate investment, making financial markets a cause of booms and recessions.
13. 13. Greenspan described the 'wealth effect' decades before it was widely recognized, noting that rising portfolios boost consumer spending.
14. 14. Greenspan criticized the 1920s Fed for failing to raise rates to choke the stock bubble, enabling a feedback loop of credit and speculation.
15. 15. Greenspan advocated a return to the gold standard to prevent toxic surges in purchasing power and stabilize the economy.
16. 16. Greenspan's commodity trading taught him that markets are driven by greed, fear, and body language, not just fundamentals.
17. 17. Greenspan argued that bubbles are recognizable when investors ignore the limits of what can be known about future economic relationships.