When asked why he robbed banks, Willie Sutton reportedly said, “Because that’s where the money is.”
That wasn’t necessarily a wisecrack, and Sutton denied having said it, though late in life he admitted, if he had been asked, that likely would be his reply. Success for some is measured by the amount of money they have, and banks are known to have lots of it. For a bank robber, it’s a matter of switching ownership of it through a threatened act of violence.
Sutton, though, was not a violent man and never killed anyone. The FBI described Sutton as being fond of expensive clothes and an immaculate dresser. He was also a master of disguises and acquired two nicknames: “The Actor” and “Slick Willie.” During robberies he carried a pistol and a Thompson submachine gun, neither loaded. In prison he befriended Mafioso Donald Frankos, a contract killer, who described Sutton as “a little bright-eyed guy, just 5’7” and always talking, chain-smoking cigarettes.”
In his “I, Willie Sutton” (1953) he said robbing banks gave him an emotional high: “I was more alive when I was inside a bank, robbing it, than at any other time in my life. . . But to me the money was the chips, that’s all.” Still, his second book was titled Where the Money Was (1976), leveraging the phrase for which he had become known.
Though he stole an estimated $2 million ($10-$20 million inflation adjusted) over his roughly 40-year criminal career (1929–1969), he did not die rich. He lived the last years of his life with his sister in Florida, and even made a TV commercial in 1970 for Connecticut’s New Britain Bank & Trust Co. For his half-day in front of the cameras he was paid $1,500.
And Greenspan?
So far, the discussion has focused on an infamous bank robber. What about the recently-deceased and former Fed chairman, Alan Greenspan? Why the lead-in about the career of a renown thief?
Greenspan was highly educated, being given a PhD in economics from New York University. Sutton dropped out of school after the eighth grade. During his career Greenspan received numerous accolades including:
Gerald R. Ford Medal for Distinguished Public Service (2003)Presidential Medal of Freedom (2005)DoD Medal for Distinguished Public Service (2006)Knight Commander of the Order of the British Empire (KBE) (2002)Commander of the Legion of Honor (France, 2000)
He was also awarded honorary degrees from the country’s most prestigious universities, including Harvard, Yale, University of Pennsylvania, and Notre Dame.
Why the honors? Because, as Fed chairman (1987–2006), he is credited with guiding the economy through a long period of stable growth and low inflation. How low? The cumulative inflation rate during his term was only 77.5 percent. In other words, an item purchased for $1.00 in 1987 would cost $1.77 in 2006.
This same period, though, was under the influence of Moore’s Law. The CPI for the period 1988 to 2006 for personal computers, peripherals and services saw massive deflation along with strong productivity growth.
While the Fed avoids deflation at all costs, the tech industry prospers with it—indeed, explodes with it. Our dollars buy more under deflation, a finding Fed economists seem to ignore.
Given that the Fed’s target of 2 percent inflation “appeared to settle behind the scenes” in 1996 before being made public and explicit in 2012, it would help if we refreshed ourselves on what inflation means.
Inflation is an increase in the money supply—it inflates the supply. More money injected into the economy puts upward pressure on prices. Prices don’t necessarily rise because they are subject to other influences. When they do rise, each dollar buys less.
Some economists believe the money supply needs to grow to accommodate productivity growth. Clearly, it hasn’t been true of the tech industry, and it wasn’t true during the country’s greatest period of growth, the latter part of the 19th century. Both episodes are characterized by high productivity and falling prices.
If we don’t need inflation to prosper, why is it a target of Fed monetary policy? Why is Greenspan’s term hailed for its low inflation? Why didn’t he take his foot off the pedal and leave the money supply alone?
Inflation doesn’t affect everyone equally. If the Fed creates $10 billion to buy a Treasury security, the government gets more money before the supply increase affects prices. Deficit spending, as it’s called, allows the government to spend more without raising taxes.
This is rudimentary economic analysis. Greenspan understood this and much more in his 1966 article, “Gold and Economic Freedom.” He argues that, under a gold standard, there exists a tangible asset behind a credit instrument. But under a fiat money system such as we have today, there is nothing tangible behind a credit instrument. Yet the new money circulates:
As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods.
Taxation is involuntary. Money leaves its owner and goes to the government under threat of fine or imprisonment. Money is valued for its purchasing power. The original owner of the money loses purchasing power in the form of taxes paid.
In a similar process, inflation takes purchasing power from the owners of money. As we see in CPI calculations a dollar from the past doesn’t buy as much today. This too is involuntary. The Fed does not get our approval first before enacting policy.
You can rob a bank and take ownership of the money you take. Or you can control a central bank and steal the money’s purchasing power from under our noses. Willie Sutton was a thief. And Alan Greenspan?
We would have been better off had he stayed with his first love, the clarinet.
