Content provided in partnership with
Secrets of the Temple. - book reviews
Washington Monthly, Jan, 1988 by Alan S. Murray
Secrets of the Temple.
I was granted an audience with Paul Volcker twice during his tenure as Federal Reserve Board chairman, and both times the opening ritual was the same. My colleague and I were ushered into his office, and we stood in silence while "the chairman," shrouded in cigar smoke, continued to work without raising his head or acknowledging our presence. I can't remember how long the silence lasted--perhaps only 10 or 20 seconds-- but it was long enough to make it clear that we were sand fleas in this man's universe. It was one of his many ways of arrogating power.
- Most Popular Articles in News
- The Ten Best Laptop bags
- Tata plans cheapest-ever car for Indian market
- GLOBALIZATION AND THE DEVELOPMENT OF UNDERDEVELOPMENT OF THE THIRD WORLD
- Corn is good for you; Corn is not only a tasty treat, but also a cereal that ...
- THE 50 BEST STYLISH HANDBAGS TO CARRY
- More »
Paul Volcker has been widely praised as representing the best of "the Fed." He is a brilliant technocrat, and he is rightly credited with taming inflation at a time when few thought it could be done. But Volcker also represents what is most troubling about the Federal Reserve. Like his institution, he is aloof and disdainful of the messy ways of democratic government. He always operated in secret, and he was proud of his ability to give evasive answers that obscured the central bank's most important actions, even when those actions were sending shock waves through the lives of every American. In response to a reporter's question, Volcker once said gruffly: "We did what we did, we didn't do what we didn't do, and the result was what happened." The response typified his attitude towards an informed public.
Anyone who watched the Volcker Fed in action had to wonder: how can a government based on democratic principles allow so much power to be concentrated in the hands of such an autocratic individual? And how can the economic fate of the nation be entrusted to an institution run by unelected officials, accountable to virtually no one?
It is because of those questions that I was anxious to read Secrets of the Temple, a new book on the Fed written by William Greider, national editor of Rolling Stone magazine.* Much has been written about the central bank in the past, but for the most part, the authors have been economists or financial analysts, who are more interested in the mechanics of money than its politics. Greider promised a different view: an indepth look at how this enigmatic institution fits--or doesn't fit--into the fabric of democratic society.
* Secrets of the Temple. William Greider. Simon & Schuster, $24.95.
On one level, Greider's book fulfills the promise. As the title suggests, he reveals the "secrets" of the Fed. Central Bank officials were surprisingly candid in their discussions with him and enabled him to remove the veil of mystery surrounding monetary policy. He explains the arcane actions of the Fed in clear prose and faithfully traces the stark human consequences of those actions. He exposes the technocrats who guide Fed policy as ordinary mortals susceptible to their own errors, miscalculations, pride, and embarrassments. With admirable diligence, he delves deeply into not only the history of the Federal Reserve but also the history, psychology, and mythology of money, telling a series of fascinating stories that reveal the character of this unusual institution. Fed efforts to raise or lower interest rates, often taken in spite of strong opposition from the administration and Congress, have had the capacity to cause vast changes in economic fortunes, and immense human suffering. But as Greider shows in detail, Fed officials have seldom been called on to account for that suffering.
The most surprising revelation of the book is the story of an instance in 1984 when Volcker effectively overruled his own policy-making committee, empowered by law to set monetary policy. The chairman concluded that the Fed had raised interest rates too high earlier that year, threatening a premature end to the economic expansion. He wanted to ease policy and bring down interest rates, but the members of the policy committee --known as the Federal Open Market Committee--opposed him, fearing that lower rates might encourage inflation. Volcker instructed the New York Federal Bank to ease anyway, despite the committee's directive to the contrary.
"I knew what instructions he was giving the New York desk," Anthony Solomon, president of the New York Federal Reserve Bank at the time, told Greider. "And I thought he was not faithfully observing the instructions of the FOMC. He got his desk to take major action that went way beyond the framework of the directive. He was taking too much leeway personally."
Even Oliver North might have been shocked by that arrogant assumption of power. The laws governing the Fed required little accountability. Volcker didn't have to consult with or inform Congress or the administration when he planned to push interest rates up or let them down. He didn't have to tell any elected official that he was about to embark on a course that could result in widespread bankruptcies or unemployment. But he was required, under the law, to obey the consensus of the Open Market Committee (filled at that time with Volcker loyalists). Even that constraint proved too much for the independent-minded Volcker.
