After years of adulation for the 'maestro', Alan Greenspan - the former Fed chairman once lauded by Wall Street for making America rich - there was a bit of poetic justice last week in a United States (US) Congressional hearing. House Financial Services committee chairman Barney Frank, ever the one for the New York bon mot, put it best: "If you get credit for the sun, you can't bitch when you get blamed for the rain."

Mr Greenspan has had so much blame heaped on him in recent months that he was forced into a remarkable admission before Congress. "I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders."

This is more than a mistake. Many listeners might not have picked up the comment's significance, but it amounted to an admission that a foundation of Mr Greenspan's philosophy turned out to be false.

Blamed for pumping too much money into the US economy and then refusing to monitor what banks did with it, Mr Greenspan has been found guilty of wilful neglect. Under his watch, obscure financial schemes created trillions of dollars in speculative bubbles. Now that they have all burst, everyone is paying the price.

Free rein

Mr Greenspan's defence? That he didn't anticipate just how greedy the bankers would be once given free rein.

But of course he did. Mr Greenspan is a disciple of Ayn Rand, the libertarian philosopher whose New York study-group a young Mr Greenspan joined in the early post-war years. Ms Rand refused all government intervention in the economy. As for greed, Ms Rand wrote a book called The Virtue of Selfishness, in which she argued that the most prosperous economy would be one in which everyone was allowed to pursue their greediest desires.

So, Mr Greenspan can hardly turn around and say he didn't expect bankers to behave badly. His world view was based on the premise that greed is good, and that left to run free, it would enrich everyone.

In fairness to him, he wasn't the only one saying it. By the 1990s, a political consensus, abetted by the Clinton administration, had locked America in its grip. Mr Clinton himself peddled the idea that an age of endless prosperity had been made possible by the freeing up of the economy. What more proof did they need than that America's stock market was rising by the day?

Unbridled self-interest

This philosophical principle, known as the doctrine of unintended consequences, goes back to at least the early eighteenth century. It was then that Bernard de Mandeville wrote the Fable of the Bees, a rather obscure poem, which suggested that private vice leads to public virtue. Later in the century, Adam Smith would systematise (and somewhat soften) these views. They would go on to be celebrated by the Nobel economist, Friedrich Hayek. A contemporary of Rand's, Hayek similarly celebrated the virtue of unbridled self-interest.

These philosophers rejected government regulation for its alleged excessive faith in rationality. They believed the unguided market would automatically correct itself. But what the exponents of selfishness set aside was Adam Smith's assumption that self-interest had to be enlightened, and civic-minded.

We have come a long way from that. It wasn't private vice that made America rich. It was gobs of public money, thrown at Americans by a profligate Fed. Now the bill has come due. For his part, Mr Greenspan will have to do better than say his error was to fail to anticipate greed.

For he did anticipate it. His error was to believe that, left alone, greed would create a better world.

John Rapley is president of Caribbean Policy Research Institute(CaPRI) an independent think tank affiliated to the University of the West Inides, Mona. Feedback may be sent to columns@gleanerjm.com.