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My Volcker anecdotes

The risk and reality of hubris

Of all my memories of Paul Volcker – I first met him in the early  1970s when we was UnderSecretary for Monetary Affairs at the US Treasury and I was editing The Banker – four are particularly persistent:


1. A remarkable passage in the introduction to a book I co-authored with the late Marjorie Deane. It comes to mind whenever I hear central bankers make exaggerated claims for their record of achievement:

‘ It is a sobering fact’, he writes, ‘ that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. By and large, if the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with “free banking.” The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.’ Deane, M., Pringle, Robert (1994). The Central Banks. London: Hamish Hamilton, page viii.

Volcker went on to say that his purpose was not to denigrate central banks . It was, however, precisely  their ‘prime importance’ that made it necessary to have informed critical discussion of their activities.


2. A personal anecdote. As executive director of the Group of 30 I found myself sitting next to him at a meeting discussing the debt crisis in Latin America (this was in the late 1980s in the turmoil following the default of many developing countries). A Latin American central bank governor was making an interminable intervention about the plans his country had to deal with the crisis – he droned on about monetary policies, exchange rate volatility, the options before them, the difficulties they faced, and so on. At one point when the speaker momentarily paused for breath, Volcker leaned over to me and muttered quietly: “Why don’t these countries just adopt the dollar and have done with it?


3. Paul once gave a lecture called “The Triumph of Central Banking?” (now seen as one of his seminal statements). I had recently launched the Central Banking journal. The editorial staff knew that I had a horror of statements ending in a question mark, as in “the sky is blue?” So when in the following issue of Central Banking we reproduced this important speech, somehow the question mark was missing.  When I met Volcker a few weeks later he said at the end of our talk “Robert, by the way,  there is a question mark after the title on the triumph of central banking…”. The matter of the question mark became famous (for example here and here). It has made its way into central bank lore, and Sir Paul Tucker refers to it in his tome Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State. Tucker also made a point of it in the speeches he gave launching his book.


But apologists for central banks typically fail to mention that Volcker did believe that in the run-up to the crisis central banks succumbed to hubris – like the rest of us.


My fourth memory is of his tremendous kindness and generosity of spirit.  When Central Banking decided that there could be no other recipient for our first Lifetime Achievement Award than the great man, we had no idea whether he would  make the effort to  come to London – at his own expense – to receive the award and be interviewed at the dinner honouring him. He not only came but was willing to talk at length in our interview. It became a magnet for central bankers – suddenly Jean-Claude Trichet turned up the reception. Alarmed by this (as we had no place ready for him at dinner), I told him as much: “Don’t worry”, said Jean-Claude, “I just had to be here”.
As I reflected on such insights, I realised that Volcker was in a deep sense a central bank sceptic.


This is the attitude that, I hope, is reflected in my writing on policy, including  The Money Trap.