Financial History Issue 132 (Winter 2020) | Page 23

I didn’t know what I wanted to do at
graduate school, so I applied to Arts and
Sciences at Harvard as an economist, and
Harvard and Yale law schools, just in case
I wanted to become a lawyer. I was sur-
prised when Harvard asked me why I was
applying to so many different places—I
didn’t think they would realize [laughs].
By accident, I also saw an advertisement
for Harvard’s Graduate School of Public
Administration, which gave fellowships.
I said, “Ah hah! Why don’t I go there and
get my way paid?” I had an interest in
public administration, but I mostly took
courses in economics at Harvard.
ENTERING THE POLICY WORLD
Bowmaker: What does an economist
bring to the policy world that others do
not?
Volcker: Not as much as economists think
[laughs]. The contribution of economists
to the world at large is their analytical
training: identifying cause and effect, pri-
mary causes and secondary causes, direct
effects and indirect effects, and so forth.
Those are benefits of economics education
that lawyers don’t have, for example. But
the discipline is too mixed up with differ-
ent theories and uncertainties. And so, the
thought that economists know how to run
the economy is a little overreaching.
AS UNDERSECRETARY OF THE
TREASURY FOR MONETARY AFFAIRS
Bowmaker: How did you come to be
appointed Undersecretary of the Treasury
for Monetary Affairs in 1969 after the elec-
tion of President Nixon?
Volcker: I was greatly surprised. I didn’t
know David Kennedy, the incoming Secre-
tary of the Treasury, although I did know
Charly Walker, the other Undersecretary
of the Treasury. It must have been Charly
who convinced Kennedy to offer me the
job because I don’t think Nixon had any-
thing to do with it. It took me about two
seconds to say yes even though I was a
Democrat and not a supporter of Nixon.
Bowmaker: Why were you so enthusiastic
to take up the position?
Volcker: I had the whole interesting part of
the Treasury under me: domestic finance,
international finance, debt management,
credit programs and so on. So far as I
know, it was the only position—short of
the Secretary of the Treasury—that had
clear international and domestic respon-
sibilities. And since those things shouldn’t
be separated—we shouldn’t treat, at least
organizationally, international monetary
policy as distinct from domestic monetary
policy—it was great to have the opportu-
nity to see the policy conflicts, as well as
the synergies. It’s disappointing that the
position no longer exists, for extraneous
reasons. Charly, meanwhile, dealt with
the operational side of the Treasury, and
he had the principal burden of managing
Congressional relations. So, it was a very
nice division, and the organizational chart
was wonderful—there were two lines to
the Secretary of the Treasury: Charly and
me [laughs].
When I arrived at the Treasury on my
first morning, it was Inauguration Day.
My grand office overlooked Pennsylva-
nia Avenue and I could see the parade
through the window. I hadn’t even been
confirmed at this point, but I was ready
to get to work. It’s not like today’s crazy
vetting process, which means that you end
up with a mostly unmanned government
for several months. Anyway, the presi-
dent was sworn in at 12:30 and a memo-
randum arrived on my desk from the
National Security Advisor, Henry Kiss-
inger, describing arrangements for con-
sidering international monetary policy. It
said that I was going to be the chairman of
a committee [the “Volcker Group”] that
would include Fred Bergsten—one of his
staff members—as well as representatives
from the Council of Economic Advisers
and the State Department. It also said that
I should report to Kissinger [laughs]. I am
sure that Bergsten, who had an interest in
international monetary affairs, wrote that
memo and got Kissinger to sign it. I ran
down and told Mr. Kennedy, “You better
do something about this!” I don’t think
he ever did, but de facto I reported to the
Secretary of the Treasury.
Bowmaker: You spent several years work-
ing on international monetary reform and
then resigned on Monday, April 8, 1974,
three weeks after George Shultz resigned
as Secretary of the Treasury. Is it fair to
say you waited for an outside chance of
replacing him?
Volcker: Me? No. I knew enough to
understand that being Secretary of the
Treasury is a political position. And so,
I wasn’t looking for the appointment. I
guess I would have taken it if it had been
offered to me, but that was never going
to happen with Nixon as president. We
had a distant relationship. I don’t think
he trusted me, and his political advisors
surely thought I was an outsider because
I was a Democrat. And remember I was
in the Treasury at the time of Watergate.
It was frustrating being part of an admin-
istration tarnished by that scandal when
I was in the midst of a big effort to revise
the international monetary system. There
were times when I would think to myself,
“What the hell am I doing working for this
guy? Maybe, I should resign.”
INTERACTIONS WITH PRESIDENTS AS
CHAIRMAN OF THE FEDERAL RESERVE
Bowmaker: Did you have the opportunity
to interact with President Carter when you
were Chairman of the Federal Reserve?
Volcker: Occasionally, the quadriad—the
Secretary of the Treasury, the head of the
OMB, the Chairman of the Council of
Economic Advisers and the Chairman of
the Federal Reserve—would meet with
the president. And late in his term, when
interest rates were very high, and Carter
had a budget that was severely criticized,
he insisted that I got personally involved.
He said he would do the budget again,
and so I saw him go over it in some
detail—Carter was very detail-oriented—
but I was just providing moral support;
it wasn’t my job to help him. Then he
imposed credit controls, which I think was
a mistake. He had the authority to trigger
them, but by law, since the Federal Reserve
is an independent agency, we could say
we won’t implement them [laughs]. We
decided that probably wasn’t a very wise
course of action [laughs]. And so, we made
a stab at putting the controls in place, but
tried to deliberately make it as ineffective
as possible. We made a huge psychologi-
cal impact [laughs]. People said, “Oh, my
God, we can’t borrow any money,” and the
economy went into recession. But as soon
as the controls were taken off, the economy
bounced back up. It was not a good epi-
sode. I don’t know how we could have
avoided it. I tried to persuade Carter out of
it, but I obviously didn’t try hard enough.
Bowmaker: Did you receive any pushback
from the White House after the surprise
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