Now that legendary American moneyman Paul Volcker has receded a few paces into history, can any wisdom be drawn from his long career in finance? What did he set in motion in his role as a daring monetary pioneer? What does he finally represent? Was he, as so many seem to believe, the veritable lodestar of financial wisdom? How did he leave the United States and its Federal Reserve system positioned for the twenty-first century? The principal finding is this:
The trivialization of money is an exceedingly dangerous pursuit.
Volcker certainly had a considerable career. Before his long tenure as chairman of the Fed, he served an extremely influential tour in the U.S. Treasury. For a time, certainly, Volcker was the most powerful moneyman on earth.
Volcker has been credited widely with two fundamental achievements setting the stage for the next century: the architecture of an entirely new world monetary system and the crushing of domestic inflation in the United States and, to some degree, throughout the West. The evidence is mixed, but it can be argued with some justice that the former has proved a failure and that the latter simply is not true—just a case of the weather vane being credited with the wind.
Taking monetary systems first, Volcker is the man who, as undersecretary of the treasury for monetary affairs in 1971, severed the link between money and precious metals that was first forged in prehistory. While doing so, he also traded away the bulk of the U.S. gold reserve at throwaway prices.
In disestablishing gold and silver, Volcker substituted a breathtakingly revolutionary concept that was not entirely his own but which he did midwife—namely, that the value of any nation's paper currency be measured not by that country's reserves of precious metals but by its productive capacity.
At the time this concept was put into effect, the United States was the world's unchallenged champion of output and had vast reserves of gold as well. Neither circumstance, of course, is any longer true. The beginning of the decline in America's global power and influence, in fact, coincides surprisingly precisely in time with the introduction of this new monetary concept as set policy. Although one can't say absolutely that one event caused the other, it does make one wonder.
Other factors, to be sure, also have contributed to America's decline. They all generally reduce to variations on the anything-goes philosophy that has engrossed the national consciousness during the past quarter-century. The cavalier attitude toward money is a crucial one.
Even so, to be fair, one can erect a rationale for tying money to GNP rather than to precious metal. When, through the accidents of war and boundary lines, a single nation might control money's traditional measure, gold—as South Africa does today, for example—it seems more reasonable to peg money to an entity that also takes into account inventiveness, industrial and military might, technological precocity, entrepreneurial and laboring zeal—all those factors that spell an ascendant, dynamic society.
There is a fatal
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