I’m reading Sebastian Mallaby’s biography of Alan Greenspan. I would have no hesitation in calling it a masterpiece. For research, detail, prose, the book compares with Charles Moore’s monumental biography of Margaret Thatcher. Greenspan makes for an entertaining subject: his humble background, his beginnings as a jazz music player, his being (and feeling very much as) an “un-keynesian” outsider in the economics discipline, the Ayn Rand connection.

Mallaby shows sympathy with his subject and gently but relentlessly points out the contradictions of the man, once a strong advocate of the gold standard turned into the maestro of money tampering. He is also very fair with issues related to finance modernisation and deregulation, which emerged to answer a need for reducing discretion and insecurity, he points out, not to boost them.

On one issue, however, Mallaby isn’t sympathetic at all with Greenspan: antitrust. Greenspan wrote a short essay on the subject, included in Capitalism. The Unknown Ideal. The essay’s first lines are brilliant and unforgettable:

The world of antitrust is reminiscent of Alice’s Wonder-land: everything seemingly is, yet apparently isn’t, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet “too much” competition is condemned as “cutthroat.” It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as “enlightened” when initiated by the government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict — after the fact.

While Mallaby concedes that “Greenspan’s skepticism about antitrust enforcement was shared by many leading intellectuals of the era” (he mentions Hayek and Friedman), he chastises Greenspan for his style and strong words. For Mallaby, Greenspan did not take into account “the dramatic shifts around him. It was one thing to defend the industrialists of the nineteenth century. By the early 1960s businesses had grown larger and more politically connected: defending them without qualification required a determination to ignore reality”.

Put in this way, it seems Mallaby is criticising Greenspan for not having taken into account that big business in the 1960s became big less for its success in giving consumers what they want than for the political help it could enlist – but elsewhere in the book, it paints the very idea that a free market may not need antitrust policing to be an appealing one.

I think Greenspan responded effectively to this challenge when he was grilled by Senator William Proxmire on his confirmation as head of the Council of Economic Advisers. Mallaby summarizes the three hour hearing beautifully. When the Senator suggested that “a clampdown on (allegedly) monopolistic practices would take the pressure off prices”, Greenspan objected that “the effect on the price level has got to be negligible”.

This answer, to which Mallaby doesn’t devote much attention (as is very well understandable in a 800 page book), is revealing. People tend to assume that advocates of deregulation deny the evils regulation is conceived to solve. Not quite. The point is that they reason that the side effect of those policies (in the case of antitrust, the side effect of the discretionary power which is required to police competition) would more than offset the benefits. To be sure, antitrust policy has changed a great deal since Greenspan’s criticisms and become far more parsimonious, for example in dealing with vertical integration. Surely the idea that antitrust enforcement has its limits became far more accepted: perhaps not in its “extreme” Greenspan version, but nonetheless it did.