Friday, December 14, 2018

Inside The Paul Volcker Memoir

Paul Volcker
By Robert Wenzel

I consider the recently published Paul Volcker memoir, Keeping At It: The Quest for Sound Money and Good Government, must reading for market traders and active investors.

It provides remarkable insight into how government officials think and react during financial and economic crises. Understanding that will be valuable in future crises. It does not appear Volcker holds back.

He tells us, for example, of the time Nixon administration Treasury Secretary John Connally attended an important international banking conference in Munich, Germany.

Volcker  writes that when Connally was speaking before the group, he said:
I want without any arrogance or defiance to make it abundantly clear that we are not going to devalue, we are not going to change the price of gold, we are going to control inflation.
After he left the podium, Volcker asked him if he really meant it. Volcker writes:
His response remains etched in my memory: "That's my unalterable position today. I don't know what it will be this summer."
The book is packed with these type of anecdotes that provide a good lesson on what goes on behind the scenes involving top government financial and economic players. Volcker had long experience in such matters including as Federal Reserve Board chairman, New York Federal Reserve Bank president and as under Treasury Secretary for international monetary affairs, to name just a few positions that gave him a seat at the insider tables.

That said, while Volcker appears to provide a fairly transparent reporting on his long period in high level government. that transparency disappears in his telling of parts of his post-Fed career.

He just mentions in passing that he was a founding member of the Trilateral Commission, chairman of the board of trustees of the Group of Thirty and chairman of the Rockefeller-founded International House. He gives no detailed sense as to what goes on at these elitist organizations or why, time after time, he was tapped to head these and many other powerful organizations.

Early in the book, Volcker names drops the Austrian School and specifically names Ludwig von Mises and Friedrich Hayek. He tells us he is familiar with the school and these Austrian greats because he studied under the Austrian Oskar Morgenstern at Princeton.

Though, he gives no indication in his book that he is familiar with Austrian school business cycle theory.

In fact, he appears to be a gold hater and reports in the book that early on, while at Treasury, he wrote a memo that outlined how the United States should suspend gold payments:
[I] started on a long memo outlining the proposed approach: "suspension" (of gold convertibility), negotiation of new exchange values, and "reform" in that order, all intended to "reinvigorate" the Bretton Woods system.
He is also bad on trade deficits throughout the book and appears to be almost Trumpian in his anti-trade deficit  thinking.

On the plus side, he appears suspicious of econometrics and also spends a good deal of time attacking the current Fed notion of a "target" for price inflation:
More recently, a remarkable consensus has developed among central bankers that there’s a new “red line” for policy: A 2 percent rate of increase in some carefully designed consumer price index is acceptable, even desirable, and at the same time provides a limit.
I puzzle about the rationale. A 2 percent target, or limit, was not in my textbooks years ago. I know of no theoretical justification. It’s difficult to be both a target and a limit at the same time. And a 2 percent inflation rate, successfully maintained, would mean the price level doubles in little more than a generation.
As far as his period as Fed chairman goes, he did fight off price inflation. There have been many other chairs much worse. The same goes for the book, it is better than that of others that have held his power seat at the Fed.

The book is fast reading and you can be sure that within a turn of a page or two, Volcker will provide some wry tale that will make the book fun and keep it moving, but no secrets revealed about the Trilateral Commission, the Group of Thirty and other mostly Rockefeller related side gigs that have fallen into his lap. There are some stories Volcker is taking with him to that spot in hell reserved for central bankers, where one might guess he will be named chairman.

Robert Wenzel is Editor & Publisher of


  1. Love the ending comment on this. Didn't you write on another post the 2% comes from Yellen and Greenspan sitting around and saying inflation should be 0% but 2% allows for calculation error? Also, love your EPJ daily alert, it has made me money. But relatively low monetary inflation (growth in money supply in range of 2 to 3%) is a desire of Milton Friedman right? I feel like we are trapped in some sort of Chicago school experiment. But I could be remembering my readings incorrectly, not the easiest to do not working in the economics field.

  2. Freidman, following Fisher, et al., preferred "stable" over "sound" money. So the theory behind the 2 to 3% annual increase in the base money was supposed to give us no "price" inflation or close to it and the manipulated offsetting of secular deflation, which is seen as bad. Volcker probably accepts this position. It should be noted that 2% increase of the monetary base is not the same measurement of the money supply increases created within the banking system as credit money.

    1. Thank you for the response. Which measure reflects the monetary base Friedman was referring to? Is that M1?

  3. PLZ see P C Roberts, _The Supply side Revolution_. We are still playing games with what should be a more "Objective History". PCR tells of an "agreement" between the Supply Siders and the Fed (Volcker) in the early Reagan years to gradually bring down the rate of growth in the Money Supply over several years. Volcker gave the reduction in the Rate over a six month period instead of the "over several years reduction" guaranteeing a severe recession which in fact did occur.

    There are several "Schools" of Economic Thought at work here and many in the Central State slide effortlessly between them. Remember Alice Rivlin and "Core Inflation"? Volcker blew that rubber duckie out of the tub and yet you can still hear echoes of it today.

    ABCT still gets acknowledged but mostly negatively. Wanniski is being silently recycled as we move towards the Great Trade War. The Demand Schools are given incense burned in their honor but, though they claim that they can control events by Technocrats with Charts and Graphs, they deny any problems are their fault, which returns us to the History of Volcker and the 80s.

    Although Step 1 should be a repudiation of Demand Theory, the Next Best would be a Robotic Law that would demand that the Fed give up worrying about the Unemployment Rate and concentrate on a (Law demanding) Sound/Stable Money Supply.

    When they screw that up then the "Demand" should be for a Gold Standard - "You have proven that you cannot manage a Demand Schedule, even a Long Term Friedmanite Schedule. Give up your Power. Let the people buy gold from their favorite bank teller if they want. You, however, are out of business."

    There. Fixed.