Patrick Barron has been a consultant to the banking industry since 1985. He teaches Bank Management Simulation at the Graduate School of Banking, University of Wisconsin, Madison and Austrian Economics at the University of Iowa. He has contributed a weekly essay in the Austrian vein to The Bulletin, Philadelphia since 2006. As president of the Right Approach Group, which offers free market solutions to current economic problem, he has spoken at economic conferences at the EU Parliament offices in Brussels, Belgium and Strasbourg, France.
A friend asks why there have been no more Paul Volckers at the Fed
You ask, where is a Volcker-like Fed chairman today? The answer is that no president would appoint one and no government really wants one! Governments want easy money and will appoint only a Fed chairman who will succumb to money printing. Frankly, I believe that it is impossible to make a fiat currency sound. Here's why:
As I stated above, no government really wants sound money, because governments are the main beneficiary of easy money.
No one who works in the Federal Reserve System, as did Paul Volcker for many, many years before becoming chairman, is a true proponent of sound money. If Volcker were honest and really wanted sound money, he would not work for the Fed. Volcker was president of the NY Fed. He knew how the system worked and would have quit if he truly didn't believe in it. In other words, anyone who works for the Fed is an inflationist. It's only a matter of degree. Volcker did print money, only he didn't print as much as either his predecessors or his successors.
The political pressure to inflate is irresistible. No one can ignore it. Even if you or I were appointed Fed chairman, we would inflate. If we did not, we would be removed for some reason.
If we really wanted sound money, we would abolish the Fed and force banks to abide by normal commercial law, which would require them to back their deposits with a commodity. Once an organization is given the power to inflate the currency, inflation is exactly what will happen. In other words, "A person or entity that CAN print money WILL print money." So don't give any person or entity the power to print money! It would require an act of Congress to eliminate the Fed anyway, which is not likely to happen.
You ask why Paul Volcker didn't peg the dollar to gold at some higher level. The answer is that he had no power to do so, even if he wanted to do that. Furthermore, Volcker was not chairman in 1971, when Nixon took the US off the gold exchange standard. This act by Nixon just proves that the real power over the currency is political.
My conclusion is that only political action can restore the dollar, not administrative action. In other words, the American people must want sound money. Barring a complete collapse of the dollar, as happened to the French assignat, this is not likely to happen.