Tuesday, November 13, 2012

Attraverso Review: Volcker: The Triumph of Persistence by William Silber

By Professor Jeffery Atik

So what would a Democrat central banker look like -- if there could be one? Resembling Paul Volcker, answers William Silber. That said, it is hard to recognize much in Volcker's policies marking him as a Democrat. Nixon did not trust him -- but that alone scarcely defines a Democrat. Volcker famously endorsed Barack Obama in the 2008 election -- but then so did Republican Colin Powell.

Silber adores Volcker -- which weakens Silber's ability to answer (or even ask) tough questions. It is clear that Silber believes Volcker saved the dollar -- and that he is a swell guy to boot. Pity poor Mrs. Volcker who spends an isolated life in a series of ratty apartments while her husband chases glory (in public service, mind you) rather than wealth. Neither Volcker nor Silber seem to realize what a lousy husband he was -- and Mrs. V. was too tactful to point this out.

The Silber account establishes Volcker's self-sacrifice -- and I suppose there's some foundation for it. Volcker spends many years as an underpaid public servant while having far more lucrative opportunities in the private sector. Yet one gets the sense that Volcker is simply more comfortable in the world of the Fed than he would ever have been in a bank. Generals are willingly generals -- there is something (glory? military music?) that draws them to their role. Their renunciation of wealth and a stable home-life only prove their ambition. While we should be grateful for their service, it is not clear that the generals are sacrificing anything. And so perhaps it is with Volcker.

There's good character present -- Volcker likes cheap cigars and hates potted plants. He doesn't really care about his shoes -- and silently worships confident political stars like John Connally. His devotion is peculiarly institutional: not to the United States, but rather to the Fed and its mission, as he perceives it, protecting a sound dollar. Silber's worshipful treatment of Volcker places Volcker's character in the center. The fundamental excellence of who Paul Volcker is (an excellently common man) spills over into his professional life. The strange mixture of talent, insecurity and ambition suits him to his mission.

Silber divides the life of Volcker into phases that correspond to the grand periods of his public life. In the first, he oversees the partition of the dollar from the value of gold. Volcker enters the Nixon administration's Treasury Department and -- to trust Silber's account -- engineers the suspension of gold convertibility, the termination of the gold standard and the devaluation of the dollar against various European currencies (which, we are left to understand, was the whole point of these various chess moves). Again, according to Silber, it is Volcker who sees the intertwined problems, the potential solutions and most importantly, the proper staging of political and financial actions to pull off a truly historic change in world monetary affairs. Perhaps.

Act II continues with the Great Fight against inflation -- the defining period of Volcker's career -- and here Silber's claim of Volcker's essential contributions are more incontestably established. Volcker was -- at least in his heyday -- a monetarist. His writings and actions display a conviction that a sound dollar depends on credible restraints on increases in the money supply. And Volcker understands that money supply is more diverse (and less easily controlled) than the direct supply of credits to the banking system. It is easy money -- and not deficits -- that are the source of monetary instability, and recent experience seems to support this view.

Volcker recognizes that the quality of a nation's money results from consummately political decisions. If Volcker's is a story of triumph, it is more a story of political imagination than (as Silber's subtitle suggests) persistence. Volcker saw a policy response -- disciplined, tight money intended to wring inflation out of the public consciousness -- that was either unimagined or thought politically unworkable by political leaders.

In the final act (at least in Silber's book) Volcker re-emerges to back Barack Obama in the 2008 presidential contests and is rewarded with an initially remote position in the new administration. Silber makes ambiguous who was using whom in 2008. As the Financial Crisis deepens, a conservative project of Volcker takes root. Newly bailed out banks must be removed from the gaming table. Silber tells us that Volcker dislikes the moniker "Volcker Rule", presumably due to his celebrated modesty. But the Volcker Rule will likely remain as a central element of post-Financial Crisis bank reform: banks may not act as hedge funds, trading securities for their own accounts.
Volcker: The Triumph of Persistence was shortlisted for the 2012 Financial Times and Goldman Sachs Business Book of the Year Award.

The winner of the 2012 FT/GS Book Award is Private Empire: Exxon-Mobil and American Power by Steve Coll. See my review of Private Empire here.

See my reviews of these other shortlisted books for the 2012 FT/GS Book Award:

Daron Acemoglu and James Robinson, Why Nations Fail - The Origins of Power, Prosperity, and Poverty

John Coates, The Hour Between Dog and Wolf

Walter Isaacson, Steve Jobs

Michael J. Sandel, What Money Can't Buy - The Moral Limits of Markets

Follow me on Twitter @jefferyatik

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