Defender of The Dollar

For Volcker, happiness is tight money and 20-c- cigars

This good gray banker is not without humor. Invited to a Halloween party in 1970, 6-ft. 7-in. Paul Volcker daubed his bald pate with green body paint, donned a pair of emerald tights and arrived as the Jolly Green Giant. Even at work, the chairman of the Federal Reserve Bank, who last week so jolted the U.S. economy, appears equally unbankerly. He is seldom without a fetid, 20-c- gold seal stogie clamped between teeth stained with nicotine. Ashes invariably litter the lapels of his rumpled, shiny suits. He likes to plop down unceremoniously in a Fed cafeteria beside a startled young staffer and grill him on economic policy during lunch.

But Paul Volcker is a maverick only in appearance and style. His reputation as a staunch defender of the dollar is as sound as the German mark, and international as well as American banking leaders were delighted when he was picked by Carter after he had been enthusiastically recommended by G. William Miller, the Federal Reserve chief who was leaving to become Secretary of the Treasury. Says Senate Banking Chairman William Proxmire: "Volcker was appointed by the President with his eyes wide open. Carter knew he was a hard-money type. That's what the market wanted. That's what the foreign business community wanted."

Since his appointment, Volcker has maintained his independence of the Administration, but did consult with both Carter and Miller before making his draconian decision. Too much was at stake not to let them know what he was planning. Said he: "No one goes into this with the happy spirit of 'right on.' But Miller and the President indicated we had their fullest support." Volcker remained confident last week about the correctness of his move despite the yaws in gold and the gyrations in the stock market. As Presidential Economic Adviser Charles Schultze put it, "It's not a question of what Volcker wants to do. What's his choice?"

Volcker's choice stems from no allegiance to one school of economic theory, monetarist or Keynesian. "His economic philosophy is purely eclectic," explains former Federal Reserve Board Member Andrew Brimmer, "although his own experience would obviously make him one who believes in the market process." Last week, after his announcement, Volcker told a convention of the American Bankers Association in New Orleans of the need for "discipline" and "stability" in handling the economy, two of his favorite words. Said he: "We can no longer blithely assume we can 'buy' prosperity with a little more inflation, because inflation itself is the greater threat to economic stability."

Son of a New Jersey city manager, Volcker hustled to a B.A. degree summa cum laude at Princeton and a master's degree in political economy from Harvard. After a few months of studying for a doctorate at the London School of Economics, Volcker quit. Says he grimly: "My lasting memory of the place is the repeated need to put shillings into a heater in a small, cold flat at night."

Shucking academe for the real thing, Volcker signed on as an economist with the New York branch of the Federal Reserve. After five years, Volcker jumped into private enterprise at the Chase Manhattan Bank. Five more years and he became chief financial analyst at the U.S. Treasury in Washington, D.C., a remarkable achievement at age 34.

The dazzling promotions continued. Volcker rose to Deputy Under Secretary for Monetary Affairs, took time out for four years as a Chase vice president, then neared the summit of global finance when President Richard Nixon brought him back to Treasury to defend the dollar against attacks from abroad. Volcker did all he could, at one point flying 31,000 miles in five days. But the pressure on the dollar was too great: twice Volcker had to preside over the humiliation of the dollar being devalued.

The experience strengthened his view that the Federal Reserve had to take strong action to fight inflation and thus defend the dollar overseas. For a year, Volcker was a senior fellow at Princeton, but in 1975 he returned to the New York Fed as its president. In the past year Volcker voted at Federal Reserve meetings for tighter money and was consistently outvoted by his colleagues. Then he got the top job and, with the economy in dire trouble, finally won unanimous support for the measures that caused last week's furor.

In his personal life as well as his public decisions, Volcker is a slow man with a buck. Instead of flying a regularly scheduled airline and getting a first-class seat so he can stretch his long legs, Volcker doggedly queues up to ride the cramped shuttle flight between Washington and New York, where his wife, who suffers from arthritis, still lives. A month ago, when the dollar was under attack, Volcker found himself marooned for six hours at New York's La Guardia Airport waiting for a place on the shuttle. Says one aide with a grin: "Perhaps he now realizes that with his current responsibilities, that's taking unpretentiousness too far."

Volcker is a baseball addict who can remember a play made by the Yankees' Phil Rizzuto in the World Series of the '40s. He is also a dedicated fisherman who tries to get away once a year to try his luck in Canada. According to a friend: "He's not a great fisherman. He thinks he is."

Previous chairmen had decidedly political leanings: Arthur Burns, appointed by Nixon, was known as a Republican, and Miller had been active in Democratic affairs as a businessman. Volcker, who is a Democrat, is resolutely nonpartisan. Observes Brimmer: "He's simply not going to tilt for or against the White House because of party affiliation. Paul's much more likely to maintain some distance."

As the anticipated recession deepens and election time rolls around, Volcker may find others, including Carter, carefully keeping a distance from him. Volcker seems willing to absorb the political lightning. There will be plenty of it as the economy reacts to the sweeping reforms announced by the towering and determined man who must test his resolve against the most punishing financial prospects in a decade.

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