To read William L. Silber’s engaging biography of Paul Volcker in the fall of 2012 is to be reminded of a time, not so long ago, when a cadre of public servants, respected for their knowledge, integrity and practical experience, were allowed to guide government policy even as presidents, partisans and ideological fashions swept in and out of Washington.
It’s hard to imagine what today’s partisans and ideologues make of someone like Volcker. He is a graduate of Princeton and the London School of Economics who admired the libertarian Austrian economics of Friedrich von Hayek but voted for Adlai Stevenson for president; a Democrat first recruited to Washington by the Kennedy Treasury who played the key role in Richard Nixon’s decision to break the link between dollar and gold; an inflation hawk who was appointed chairman of the Federal Reserve Board by Jimmy Carter but won reappointment and respect from Ronald Reagan after pressuring the famously anti-tax president to undo some of his tax cuts.
(Bloomsbury) - ’Volcker: The Triumph of Persistence’ by William L. Silber
To say the man has an independent streak doesn’t quite capture it.
Silber, a professor at NYU’s Stern School of Business and author of a widely used textbook on banking and finance, certainly has the academic cred to write the definitive Volcker biography. But he is also an unabashed Volcker admirer who spent more than 100 hours interviewing his subject and many more reading through personal papers that Volcker made available through government archives. Although Volcker exercised no control over the final product, Silber makes no pretense that he has brought the same critical eye to his subject as would a historian or a tough-minded journalist. What he does bring is a sophisticated and nuanced understanding of monetary policy and international finance, along with that rare ability among academics to explain it while weaving an interesting tale.
Volcker arrived on the policy scene just as the United States was making the bumpy transition out of the “golden era” of the 1950s, a time when everything seemed to be right with the American economy and the United States dominated the global scene. Suddenly, Americans were faced with the reality of ballooning trade deficits and budget deficits and inflation that gradually eroded the foundations of an international monetary system based on gold, fixed exchange rates and a strong U.S. dollar. Volcker’s legacy was to push and prod the country and the world to adopt a system that broke all ties with gold and allowed all currencies, including the dollar, to float freely on currency exchanges.
By the time he stepped down as Fed chairman in 1987, Volcker had managed to wring inflation out of the American psyche and bring the country’s trade account and the government’s budget much closer toward balance. His triumph over inflation persists to this day, even as the victory over trade and budget deficits proved short-lived.
Perhaps the most interesting chapters in Silber’s account are those concerning the Nixon years. Volcker teamed up with his boss, John Connally, the wily Texas governor turned Treasury secretary, to outmaneuver key Nixon confidantes such as Arthur Burns and Milton Friedman and to engineer the devaluation of the dollar and the end of fixed exchange rates. It was from Connally that Volcker learned the trick of standing pat and allowing problems to approach the crisis stage so that people finally agreed to the kind of fundamental changes they would otherwise resist.