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William L. Silber (2012). Volcker: The Triumph of Persistence (New York and London:
Bloomsbury Press), pp. 455, h/b, ISBN 978-1-60819-070-6
Reviewed by SHIVA KUMAR SRINIVASAN
ABSTRACT: Monetary policy first came to public consciousness in the United States when
Paul A. Volcker was appointed Chairman of the US Federal Reserve System in 1979. While most
Americans were vaguely aware that there was something called the Federal Reserve, they did not
think of it as something that they would have to come to terms with when they thought about the
different branches of the US government like the executive, the legislature, and the judiciary at
Washington DC. They thought of the Fed as more of a gigantic bureaucracy or a regulator-at-
large for the banking sector rather than as one of the four branches of government. The policy
maker who did the most to lay the foundations for the Federal Reserve to be considered as the
fourth branch of the US government is Paul Volcker. Until Volcker came along, most Fed
chairmen made news only when they were initially appointed or when the Federal Open Market
Committee (FOMC) decided to change interest rates. Volcker however was always in the news
since he began a crusade against inflation during the administration of Jimmy Carter. Volcker
went on to serve under Ronald Reagan as well; he is now recognized to be amongst the very
greatest of US policy makers. The contemporary era in Fed history basically comprises the
careers of Paul Volcker, Alan Greenspan, and Ben Bernanke. Volcker, however, is the
predecessor against whom Greenspan and Bernanke situate their own stints and policy measures
at the Fed. It is therefore imperative for both central bankers and the public at large to
understand why Volcker did what he did at the Fed and how by doing so he changed monetary
policy forever. This review concludes on an ironic note by stating that Volcker may well be
remembered by posterity for a statutory provision in the Dodd-Frank Act of 2010 that bears his
name – the Volcker Rule – as for the admirable lead that he provided at the Fed in controlling
inflation.
KEYWORDS: Employment, Fiscal Policy, FOMC, Inflation, Interest Rates, Monetary Policy,
Volcker Rule

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I. INTRODUCTION
Paul Volcker fought a number of battles at the Federal Reserve in order to ensure price
stability in the US economy. The most important thing to keep in mind however is that
Volcker fought his policy battles alone since the U.S. Treasury-Federal Reserve Accord
of 1951 had made the Federal Reserve independent of fiscal policy. That is why unlike
most central banks that work in tandem with fiscal policy, the Fed has never been too
keen on monetizing the public debt of the US government. Instead, it has tried to ensure
stability in the ‘broader-economy’ by manipulating the levers of monetary policy.
Volcker, as will become obvious to readers of this incisive biography, made an
important contribution to not only monetary policy but also to monetary theory. He did
this by demonstrating both the causal mechanisms and transmission mechanisms at
play in monetary policy in a way that nobody else had done so before by remaining
steadfast in his attempt to fight inflation. While it will strike us as rather odd that
Volcker should have been a bit of an inflation targeter avant la lettre, his policy
achievements matter not only to Americans and the American economy but to central
banks everywhere that concentrate on keeping their levels of inflation at 1-2 percent
while simultaneously guarding against the dangers of deflation (Bernanke, 2002;
Bernanke, 2004). Volcker however does not demonstrate much of a passion for what the
previous Fed Chairman Ben Bernanke used to refer to as the ‘dual mandate.’ In
Bernanke’s view, it will not suffice for the Fed to be merely a guardian of the nation’s
currency; it is equally important to ‘maximize employment.’ That is not merely because
Bernanke wishes it to be the case, but because laws passed by the US Congress such as
the Employment Act of 1946 and the Humphrey-Hawkins Act of 1978 expect the
Federal Reserve to carry forward the ‘dual mandate’ to its logical conclusion. It was also
not easy going for Volcker since in his attempts to rein in inflation, the US economy
hurtled into a recession that was widely dubbed the ‘Volcker recession’ (Hafer, 2005).
II. EMPLOYMENT AND INFLATION
What is especially ironic about Volcker’s career is that the reader might expect a
Democrat like Volcker to worry about employment and a Republican like Bernanke to
concentrate on inflation. Bernanke had indeed become well-known amongst monetary
theorists as an academic who was interested in developing theories of inflation
targeting. So central bankers might have expected him to do what Volcker in fact
wound up doing at the Fed – i.e. playing the role of the inflation hawk. But, instead, we
find that Bernanke and those who were influenced by his way of thinking at the Federal
Open Market Committee (FOMC) became inflation doves by maintaining low or zero-
bound interest rates for considerable periods of time; they have also made the term

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‘dual mandate’ a household word in the United States (Mishkin, 2007; Jones, 2014). In
Volcker’s case there is no indication that he had any worries about the ‘dual mandate’
whatsoever despite the fact the Humphrey-Hawksley legislation came into effect a year
before he became Chairman. On the contrary, we have here an interesting instance of a
role-reversal: a Democrat becomes an ‘inflation hawk’ and a Republican becomes an
‘inflation dove.’ Contemporary Fed-watchers would have also noticed Bernanke’s
customary preoccupation with the phrase ‘the outlook for the labor markets’ in his
addresses to the financial media and in FOMC deliberations that makes the dual
mandate absolutely central to his approach to monetary policy. How are we to explain
these approaches to monetary policy that are based on a role-reversal where a Democrat
becomes a hawk and a Republican a dove?
III. HISTORICAL CONTEXTS OF MONTARY POLICY
While Volcker’s biographer raises this issue, he does not compare his approach to
Greenspan and Bernanke sufficiently since he is trying to situate Volcker in the specific
context of the Carter and Reagan presidencies. Given however the momentous events in
the wake of the near financial meltdown of 2008 and the attempts to co-ordinate fiscal
policy and monetary policy in the United States in recent years, it is important to situate
Volcker not only in the contexts of the Carter and Reagan presidencies but also within
the institutional contexts of Greenspan and Bernanke at the Fed. That approach would
have made the book of greater use to those who would like to make sense of the
relationship between monetary theory and monetary policy. It would have also made it
possible to explore the extent to which historical contexts determine the efficacy of
monetary policy tools. It is not widely known that the Dodd-Frank Act of 2010 has
made it more difficult for the Fed to use its emergency powers in the next crisis in a way
that bears a straight-forward resemblance to the crisis of 2008. So, for these reasons,
policy makers will have to - whether they like it or not – contemplate greater levels of
co-ordination between monetary policy and fiscal policy as a way of accommodating
certain crucial provisions of the Dodd-Frank Act in the years to come. So even though
the Treasury-Federal Reserve Accord of 1951 permits the Fed to take an independent
stance on monetary policy, the provisions of Dodd-Frank will force the Fed to co-
ordinate with the fiscal authorities in ways that will resemble the pre-1951 era should
there be another crisis. One way of reading biographies of central bankers then might be
to ask the following questions: In what way can thinking through important precedents
in monetary policy help stakeholders to prepare for the next financial crisis? How will
acquainting members of the financial community about the new restrictions of Dodd-
Frank help them to make sense of the Fed’s options should it be confronted with

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another meltdown? What should Janet Yellen do to ensure that the importance of the
‘dual mandate’ is not forgotten in the near future? Asking these sorts of questions will
make biographies of Fed chairmen interesting to both students of financial history and
policy makers. It will also make it possible for stakeholders to differentiate between
‘conventional’ and ‘unconventional’ approaches to monetary policy and understand the
importance of the historical contexts in which the Fed approaches the onerous task of
policy-making.
IV. INFLATION TARGETTING
If approached in these ways, Silber’s biography of Volcker will be of interest to a much
broader audience than might have otherwise been the case. What is of interest in
Silber’s approach however is that in order to be loyal to Volcker, he winds up being
much more interested in Volcker per se rather than in situating Volcker from the point
of view of monetary policy analysis. It might have been a good idea to have written a
chapter that is solely dedicated to summarizing Volcker’s achievements as a policy
maker. Silber should have also listed the important precedents in Volcker’s approach to
monetary policy so that it becomes possible for the reader to ask which of these
precedents will remain relevant going forward. Something like this is attempted in the
last few chapters – especially in a discussion on the Volcker Rule that bans proprietary
trading by banks since it differentiates between ‘market-making’ activities and
‘speculation’ as an end in itself. This approach however could have been done for
inflation targeting as well since that would be a topic of great interest to central bankers.
The impression that the reader comes away with from this book is that what started as a
theme in monetary policy (under the aegis of fighting inflation) has subsequently
become Volcker’s professional identity. That is why there is an important difference
between reading this book as a specific vindication of Volcker’s achievements as a
central banker and in coming to terms with the specific measures that he initiated to
fight inflation in the US economy (Goodfriend, 2005).
V. FEDERAL LEGISLATION
The relevant question in this context is whether it is possible to envisage the emergence
of another inflation hawk of Volcker’s stature in the near future. Or is it rather the case
that Congress has legislated away that possibility through the ‘dual mandate’? It is also
important to note the policy contradiction between what the Humphrey–Hawkins
legislation was trying to do in 1978 and what the Federal Reserve was doing during the
Carter years. While Carter and Reagan wanted dovish policies at the Fed despite their
ostensible support for Volcker’s attempts to reduce inflation, neither president seems to

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have realized that he could have invoked the provisions of the Humphrey-Hawksley
legislation against inflation targeting as a way of life on the part of the Fed. Both
presidents struggled to rein in Volcker in a way that is analogous to Volcker’s own
struggles to rein in inflation. This is a good instance in policy making where neither the
executive branch nor the Federal Reserve understood that the US Congress had
fundamentally changed the rules and that it would become important to implement the
provisions of Humphrey-Hawksley going forward. I emphasize this point because this
type of intervention on the part of Congress bears an important analogue to later
legislation like the Dodd-Frank Act of 2010. Fed policy is, to put it simply, not reducible
anymore to the provisions of the Federal Reserve Act of 1913. In fact, the Volcker Rule
itself emerges in the context of the Dodd-Frank Act. This point has not escaped Volcker
since he felt that his career might become reducible to the Volcker Rule.
VI. THE VOLCKER RULE
The transition from the focus on inflation targeting to the Volcker Rule then is the
difference between Volcker I and Volcker II – i.e. the ‘early Volcker’ and the ‘later
Volcker.’ This is the main monetary policy takeaway from his career. The irony then is
that a central banker of Volcker’s stature is best known to this generation for an
innovation in the context of statutory legislation rather than for his earlier achievements
in monetary policy. This irony is related to the gradual shift in power from hawks to
doves in the FOMC under the leadership of Ben Bernanke. That is why it is not enough
to situate Volcker’s achievements only in the historical contexts of the Carter and
Reagan administrations without asking how Bernanke’s stint at the Federal Reserve will
force us to redefine what it means to be a hawk or a dove in FOMC policy deliberations
and how the record of Congressional legislation from 1913 to 2010 on these matters
provides us with the statutory contexts of monetary policy. What is required in
biographies of central bankers – especially in the United States going forward - is the
importance of understanding statutory contexts to make sense of monetary policy. It is
even possible to ask whether (given the ever growing importance of Congressional
interventions in recent years) monetary policy in the future will be what it tried to be
under Volcker – i.e. a discourse reducible to the provisions of the Federal Reserve Act of
1913. While Silber doesn’t position Volcker in the way that I have tried to in this review
at the juxtaposition of monetary theory and monetary policy, he does succeed
admirably in interesting both beginners and experts on monetary history to engage
with one of the most successful central bankers of all time. For those encountering
Volcker for the first time, it is best to start with the chapter on the Vocker Rule and the
role that Volcker played as an economic advisor in the Obama administration. That will

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help readers compare his contributions to fiscal policy with those of his earlier
contributions to monetary policy.
VII: CONCLUSION
What this biography demonstrates then is not only the need for greater co-ordination
between monetary policy and fiscal policy, but the fact that it is becoming increasingly
difficult to know or tell the difference (Kohn, 2009). That is why this book must be read
even by those who don’t think of themselves as doing monetary policy or monetary
history, but who nonetheless have a broad interest in areas like macroeconomics and
public policy. It will help them to make sense of the policy battles that will determine
what the Fed will do or will not do in the domain of monetary policy in the near future.
That then has been the determining trend in monetary policy and monetary history
from Volcker to Bernanke. It should not surprise Fed-watchers then if the provisions of
the Dodd-Frank Act become as important for Janet Yellen as the ‘dual mandate’ was for
Ben Bernanke and the Volcker Rule will become in retrospect for Paul Volcker.
Volcker’s worst nightmare may come to pass; he may be increasingly remembered for
the Volcker Rule rather than for the role that he played as an inflation targetter in the
Carter and Reagan years. Let me conclude by pointing out that being remembered for
the Volker Rule - despite the irony of it being a statutory provision in the Dodd-Frank
Act - may not be such a bad thing after all; it may even save the financial world from
having another financial crisis in the years to come.
REFERENCES
[1] B. S. Bernanke, ‘Remarks by Governor Ben S. Bernanke,’ National Economists Club,
Washington DC, November 21, 2002, available at:
http://federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
[2] B. S. Bernanke, ‘Panel discussion on inflation targeting,’ Federal Reserve Bank of St.
Louis Review, July/August 2004, 86(4), 165-168.
[3] R. W. Hafer, ‘Volcker, Paul,’ The Federal Reserve System: An encyclopedia (Westport
and London: Greenwood Press, 2005), 398-399.
[4] F. Mishkin, ‘Monetary policy and the dual mandate,’ Governor Frederic S. Mishkin
at Bridgewater College, Bridgewater, Virginia, April 10, 2007, available at:
http://www.federalreserve.gov/newsevents/speech/mishkin20070410a.thm

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[5] D. M. Jones, ‘An evaluation of contemporary Fed Chairmen,’ Understanding central
banking: The new era of activism (Armonk and London: E.M. Sharpe), 134-156
[6] M. Goodfriend, ‘The monetary policy debate since October 1979: Lessons for theory
and practice,’ Federal Reserve Bank of St. Louis Review, March/April, 2005, Part 2, 243-
262.
[7] D. L. Kohn, ‘Interactions between monetary and fiscal policy in the current
situation,’ Conference on Monetary-Fiscal Policy Interactions, Expectations, and
Dynamics in the Current Economic Crisis, Princeton University, Princeton, New Jersey,
May 23, 2009, available at:
http://www.federalreserve.gov/newsevents/speech/kohn20090523a.htm