Last Bow for the Inflation Tamer

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He is the most revered economic leader of his era, and yet at times he stirred fire storms of public protest. He had profound impact on a $4.3 trillion economy but lived in a tiny $500-a-month apartment furnished with castoffs. He ran his agency in a notably serene and straightforward style, and still his mystique grew so potent that his every move sent global financial markets into spasmodic guessing games about what he was thinking. He towered physically above his colleagues, yet instead of lording over them and issuing orders in his basso profundo voice, he preferred to lean back in his big chair and quietly listen to other people's ideas.

There has been no shortage of irony and drama in Paul Volcker's eight-year tenure as Federal Reserve chairman. During that time, the U.S. went through one of its deepest economic slumps since the Great Depression, as well as its second longest peacetime boom in modern times. Volcker shares in the blame -- and credit -- for both those cycles, but one major accomplishment was virtually all his own. He was the valiant tamer of U.S. inflation, the tightfisted money manager who stopped one of the worst price spirals in this century and made it bearable once again for Americans to go to supermarkets and shopping malls. But that was not the only reason moneymen around the world slept more restfully knowing Volcker was in charge. He was a crisis manager extraordinaire, a five-star monetary marshal who helped save the financial system from panic when it was threatened by Mexico's debt crisis in 1982 and Continental Illinois bank's near collapse in 1984.

By most accounts, Volcker ranks as the best-known chairman in the Fed's history. His bald pate and halo of cigar smoke became a familiar sight on magazine covers and TV screens, while his name frequently cropped up in everyday household discussions of mortgage rates and car loans. Overseas, his willingness to involve his agency in other countries' economic concerns earned the U.S. large amounts of economic goodwill. Even bankers like former Citicorp Chairman Walter Wriston, who tangled with Volcker on many issues, admired the Fed chief's willingness to do the dirty work of wringing inflation out of the system. Says Wriston: "It took guts to lock the wheels of the world, and I do not know of any other way it could have been done."

The need for Volcker's brand of inflation fighting arose during the aftermath of two oil shocks, which had sent prices zooming out of control by 1979. G. William Miller, who had served only 17 months as Fed chief, was proving ineffective against the growing crisis. Suddenly one day in July, while Treasury Under Secretary Anthony Solomon was cooling off in his backyard pool, he got an urgent phone call from President Jimmy Carter, who wanted suggestions for a new Fed boss. "Paul Volcker," Solomon replied with little hesitation. "Who's that?" Carter asked, not recognizing the name of the head of the Fed's New York branch.