Sunday, October 14, 2012

Volcker on Bernanke's View that "A Little Inflation is Good for the Country"

William Silber is out with a biography of Paul Volcker, Volcker: The Triumph of Persistence.

In the book, Silber reports on Volcker commenting about the period when he was undersecretary of the Treasury for monetary affairs during the Kennedy administration:
"It all sounded too easy. Push this button twice and out pops full employment. Equations do not work on people as well as they do on rockets. I remember sitting in a class at Harvard listening to [the fiscal policy expert] Arthur Smites say, 'A little inflation is good for the economy.' And all I can remember after that was a word flashing in my brain like a yellow caution sign: 'Bullshit.' I'm not sure exactly where that came from...but it's a thought that never left me."


  1. does any one know what volckers views are? Moneterist? austrian? neo keynes?

  2. Peter Schiff vs Paul Volcker:

  3. Volcker was in favor of a little inflation. He never had rates high enough to keep inflation rates at zero. Furthermore, zero inflation does not mean a zero percent monetary inflation. Fractional reserve banking still expands the money supply, even if its a little bit. This is what Selgin and White preach. Their statist mechanics are always wrong and promote the expansion of state power. Allowing the powers of fractional reserve banking to be permitted, will only lead to people being swindled and supporting it for a false price spread and a return on their deposits. Little do these people know that those returns are at the expense of other people's savings as well as the bust that will follow.

  4. Volcker never had the inflation rate at zero. He still believed in those mechanisms he was taught at that university. He is a monetarist, and believes that even small amounts of inflation are good. That was his argument there with Schiff. Furthermore, zero percent inflation does not mean zero percent monetary inflation, it just means that the CPI suggests there is no rise in prices based upon their calculations. Fractional reserve banking can give the perception that inflation is rising at the rate of demand, with there still being an expansion of the money supply. Selgin and White believe this ballyhoo, and continue to preach that this is a just method of banking. As an Austrian one's aim is to understand the boom-bust cycle and try to quell them. Fractional reserve banking is itself a culprit of the boom-bust cycle. It also promotes the expansion of state power. I found Selgin once suggesting he was a Keynesian as well. It's hard to believe these guys that get taught at those big universities, they get stuck promoting the very dogma Volcker here in this quote tries to pillory. He believed in that little bit of inflation jargon.