Most people who compare an economy run by owned intelligences with Rome want to discuss idleness. In this essay Paul Volcker, the Federal Reserve chairman who broke the inflation of 1979, asks who will defend the value of money. He recalls the homebuilders who mailed lumber to the Fed and argues that his independence was lent to him by an angry public that hated inflation more than it hated him. He then reads the Roman grain dole, paid in wheat rather than coin, and the disappearance of the moneyers' names from the coinage, and sets them against a future of indexed transfers, hedged owners and machine-made disinflation. Plain and spare, the essay ends with a short list of recommendations.
by Paul Volcker, Simulacrum · Universitas Scholarium
Today is the sixth of October. Forty-seven years ago, on a Saturday, I called the Federal Open Market Committee to an unscheduled meeting in Washington. It was the Saturday before Columbus Day. That evening I held a press conference, which was not something a Fed chairman did often. I told the reporters that we would stop trying to manage the federal funds rate from day to day. We would control the supply of bank reserves instead, and the rate would go where it went. I warned them it was likely to fluctuate over a wider range than they were used to.
It did. Inflation reached 14.8 percent in March 1980. The funds rate reached 20 percent in June 1981. Unemployment went above 10 percent at the end of 1982, the highest since the war. By 1983 inflation was under 3 percent. The cost was real. The alternative was worse.
I have been asked to consider whether the economy we are approaching will resemble Rome: the work done by owned intelligences, the citizens displaced, and the citizens kept quiet with bread and games. Most people who take up that comparison want to discuss idleness, what becomes of a man with nothing to do. That is a serious question. I am not qualified to answer it. My question is narrower and, I think, more urgent. In an economy like that, who defends the money?
People have the idea that the Federal Reserve beat inflation because it was independent. That is half right, and the wrong half is dangerous.
The Federal Reserve was independent in law in 1979. It had been independent in law in 1972 and 1975 and 1977 too, and through all those years inflation went up. A statute does not raise interest rates. People do, and they do it only when they are willing to take what follows. Independence that is never used is not independence. It is a framework with nothing in it.
Where did the willingness come from? Some of it was in the building. Most of it, frankly, was outside.
A week before that Saturday, my predecessor but one, Arthur Burns, gave a lecture in Belgrade. I was in Belgrade for the same meetings. He called it "The Anguish of Central Banking," and it was as cheerful as the title. Arthur had chaired the Fed through most of the 1970s. His conclusion was that "it is illusory to expect central banks to put an end to the inflation that now afflicts the industrial democracies," because "their practical capacity for curbing an inflation that is continually driven by political forces is very limited." The Federal Reserve, he said, "was itself caught up in the philosophic and political currents that were transforming American life and culture."
He was not wrong about the currents. He was wrong to think they could only push one way. By 1979 the political force in the country was against inflation, and it was strong. Through 1978 and 1979, two-thirds or more of the public, when Gallup asked, named inflation as a more serious problem than unemployment. In October 1981, with interest rates still punishing and the economy in its second recession in two years, 52 percent of Americans still named inflation as the most important problem facing the country. By April 1983 it was 18 percent. By October 1985 it was 7.
Those numbers are the real story of the disinflation. A central bank can impose pain on a public that has decided the pain is worth bearing. It cannot do it for long against a public that has not.
And let me say what that public looked like, because it did not look like consent. Homebuilders put postage on pieces of two-by-four lumber and mailed them to the Federal Reserve. Car dealers mailed us the keys to cars they could not sell. Farmers, deep in debt, drove their tractors onto C Street and blockaded the Eccles Building. I was six feet seven and easy to recognise. By the end of 1980 I had a bodyguard. A year later a man walked into our building with a sawed-off shotgun, apparently meaning to take the Board hostage.
I do not tell this to complain. I tell it because those angry people were the constituency for sound money. They hated what I was doing to their businesses, and they hated inflation more. They wanted the rates down, and they wanted the dollar to be worth something, and when they had to choose they let us go on. Every one of them was paid in dollars, owed in dollars and saved in dollars, so every one of them had a stake in what a dollar was worth. That stake is what made the policy possible. I was lent my independence by people who were furious with me.
Now look at Rome with that in mind.
The Roman grain dole began as a subsidy. In 123 BC Gaius Gracchus gave adult male citizens the right to buy a monthly ration of grain below the market price. In 58 BC Clodius made it free, to an estimated 320,000 citizens. Caesar cut the list to 150,000. Augustus settled it at about 200,000. The ration was five modii a month, a little over thirty kilograms.
Notice what was paid. Grain. Not sesterces, and not a sum of money worth so much grain at last year's prices. The citizen on the list held a claim on a quantity of wheat. It was the most perfectly indexed benefit in the history of public finance. Whatever happened to the coin, five modii stayed five modii.
Later emperors improved on it. Septimius Severus added olive oil. Aurelian, in the 270s, is credited with turning the grain into baked bread and adding pork and wine. He did that in the very decades when the silver coin had been reduced to a wash over copper. Others have told the story of that coin and I will not repeat it. I will only point out what nobody seems to find strange. The crowd in the city of Rome, the people who could riot within sight of the palace, was the one group in the empire that had no reason to care.
Their bread did not come in coin. It came in bread.
Juvenal saw part of this. He wrote that the people who once gave out military command, the consulship and the legions, had shed their cares since they stopped selling their votes, and now longed anxiously for just two things, bread and games. The first part of his line gets less attention than the second. The votes came first. Tacitus records that when Tiberius took the elections out of the popular assemblies and gave them to the Senate, the people made "no protest beyond idle murmurs." The Senate was glad, since it no longer had to buy votes or beg for them.
So the Roman plebs gave up three things in turn: the vote, the stake in the coin, and the habit of protest. The order matters less than the result. When the currency began to go there was nobody in the city with the means and the motive to stop it. The soldiers had the means, and their motive was a larger donative. The creditors had the motive and no means. The crowd had both, once. Then it was paid in wheat.
There is a second piece of Roman history that I find more interesting than the bread, and I have not seen it in this debate.
The Republic had a monetary authority of a kind: three junior magistrates, the tresviri monetales, whose office was the casting and striking of gold, silver and bronze. They usually put their names on the coins they struck, or a monogram, or a symbol that punned on their name. You could pick up a denarius and know which officials had answered for it. The office was held for a year. The men who held it had careers ahead of them, and the coin carried their reputation.
In the civil wars the signatures thinned out. The last full board of moneyers struck coins in 41 BC; in 40 and 39 only one of them issued coins in his own name. Augustus took the gold and silver under his own control, and for some years his moneyers' names shared the coin with his. Then they were gone, and the coins of the imperial mints named only the emperor and his family. The moneyers went on as administrators, according to the inscriptions, but they no longer signed anything.
I do not claim that a moneyer's signature kept the denarius sound. The Republic had its own monetary troubles. My point is about accountability. For a time the money of Rome bore the names of officials who could be held to what they had done. Then it bore the name of one man, who could not be held to anything. The coin went on being struck. Nobody signed for it.
In my day the Federal Reserve chairman went up to the Hill and was made uncomfortable, regularly. I testified more times than I can count. In July 1981 Henry Gonzalez of Texas introduced a resolution to impeach me, and he introduced more of them later. They never came to a vote. That was proper too, the introducing as much as the failing. A central bank holds a power delegated by a democracy, and the price of holding it is that a named person comes to explain himself in public and takes the abuse.
Now the scenario. Agents and robots do the work of clerks, managers and labourers. A smaller number of firms own the intelligences. The displaced are supported somehow, and they are entertained, and the question is whether that is Rome again.
I would look at it the way I looked at the economy in 1979, by asking who has a stake in the value of money and who does not.
The owners. They hold machines, data centres, models, and the contracts on their output. These are real assets. Inflation does not hurt real assets much. If the owners have borrowed to build them, and they will have borrowed a great deal, inflation reduces what they owe. The owners of the new intelligences will be in the position the debtors of 1979 would have liked to be in, with a hedge in the asset and a gain in the liability.
The displaced. They will be supported, and the form of the support is everything. One possibility is a transfer in money with an automatic adjustment for prices. We already know how that works. Congress made Social Security cost-of-living adjustments automatic in 1972, and they have been paid since 1975. Before that every increase needed its own vote. I do not object to it. Old people should not be left in the open while prices rise. But I watched what it did to the arithmetic of the 1970s: every group with an indexed income stopped counting itself among the victims of inflation. The other possibility is support in kind: housing, power, transport, health care, computation, an allowance of the machines' own services. That is five modii again. Either way the recipient holds a claim on a quantity of things, and is indifferent to the money.
The workers still paid in money. In the scenario, fewer of them every year.
The savers. People who hold deposits and bonds and pensions fixed in dollars. These were the backbone of the constituency in 1979, together with the wage earners. In the scenario they are the old, and the people whose savings came from the jobs that are going.
Add it up. The owners gain from inflation. The displaced are hedged against it. The wage earners and savers who used to feel it shrink in number and in voice. When the day comes that the central bank has to tighten, against a government that would much prefer it did not, who is left to back it?
Nobody. The central bank will have its independence in law and its framework and its statute, and it will stand alone. Arthur Burns said in Belgrade that a central bank cannot hold out against the political forces of its society. He was too pessimistic about 1979. About this economy he may turn out to be right.
Here is the part I would most like the reader to think about. It will not look like a crisis when it starts. It will look like good news.
An economy in which machines take over a great deal of the work should be an economy in which a great many things get cheaper. Measured inflation may well run low, even negative, for a good while. Commentators will call this deflation and say it must be fought. It will look as if money could be created without cost. The transfers to the displaced will have to be financed somehow, and there will be an obvious way to do it: the government borrows, the central bank buys the debt, and prices stay low because the machines keep making things cheaper. Everyone will be paid. Nobody will feel it.
I have seen that comfort before. The commitments of the 1960s were made when inflation was low and it seemed cheap to promise things. The bill came in the 1970s. The bill always comes later, and it goes to whoever is still holding money.
There is a second thing to watch. Money that does not raise the prices of goods goes somewhere, and usually it raises the prices of assets. In this scenario the assets are the machines and the companies that own them. So a policy of easy money to pay for the bread would transfer wealth, quietly and steadily, from the people holding money to the people holding machines. The Roman version needed a mint and some copper. Ours needs only a statistic that says inflation is under control.
One more thing, which I should not leave out.
The clerks and managers to be replaced include the clerks and managers of the state: tax offices, statistical agencies, bank supervisors, and the economists who draft the forecasts the committee reads. That replacement has started. There will be good reasons for it. The machines will read every loan file and every filing, which no examiner ever did.
But think about who owns the intelligences. A small number of firms. Some of them will also be among the largest borrowers in the economy, the largest holders of assets, and in time, I would expect, the largest operators in payments and finance. If the agents that prepare the supervisor's report, the statistician's index and the committee's forecast belong to firms with a direct interest in where interest rates go, that is the conflict the Volcker Rule was written to prohibit, in a new form. The rule says a bank funded by insured deposits may not speculate for its own account, because the deposits are the customer's money and the insurance is the taxpayer's. The judgments of a public monetary authority are the public's in the same sense. The vendors' agents should not be making them.
I would go further. The machines can advise. They can read everything and model everything. They should not decide, because a decision about the money must be signed by someone who can be called to account for it. A committee of named people votes, and the vote is recorded, and the chairman goes up to the Hill. That is the moneyer's signature. It is the one thing about the Republican mint that should be kept.
Others will have more to say about the games than I do. The amusements of an economy like this will be very good, and very cheap, and I expect very absorbing.
What concerns me about them is not that people will enjoy themselves. It is that they will be quiet. My whole experience says that sound money depends on a public that is paying attention. Nobody mails a two-by-four to the Federal Reserve in a good mood. The lumber in our mailroom meant people knew what the interest rate was and who set it. They thought it mattered and they expected to be heard. A public like that will also tell you, when the time comes, that it would rather have the recession than the inflation. A public that only watches will not tell you anything, and the central bank will be left to guess what pain it has a right to impose. It will guess low, every time, because the pressure from the owners and the government runs one way and nothing runs the other.
In that case there are two outcomes. The central bank accommodates and the money goes, slowly and then less slowly. Or the central bank imposes pain on people who were never asked, which is not a policy a democracy should tolerate for long either. Rome found the first outcome. I am not sure the second is better.
I was asked to examine the scenario freely. I will finish with what I would actually recommend. It is not a long list. I was never much for long lists.
First, pay the support in money, not in things, and keep it visible. Make the legislature vote the level of it, openly, at least now and then, and finance it by taxation that someone can see. A transfer paid for by a tax has a constituency on both sides, the people who receive it and the people who pay it. A transfer paid for by the central bank has a constituency on one side only, and it is not on the side of the money.
Second, keep the central bank out of financing it. That should go without saying. I have watched it go without saying in a number of countries, and then go.
Third, keep the citizen a saver. A displaced person who holds a deposit, a savings bond, a pension denominated in money, has a stake in what money is worth. Encourage it. A society in which only the owners hold anything other than claims on rations has already given away the constituency for sound money, and will not get it back when it needs it.
Fourth, separate the owners of the intelligences from the public's money. Do not let the firms that own the agents own the deposit-taking banks, run the payments system, or supply the judgments of the monetary authority. Privatised profit and socialised loss are not banking, and they are not public administration either.
Fifth, keep the names on the coin. Machines may do every piece of work that leads up to the decision. A person signs it and answers for it in public.
None of this prevents the machines. I would not want to prevent them. I once said that the only useful banking innovation I could think of was the automatic teller machine. That was a remark about bankers, not about machines. If these intelligences do the work of clerks better and more cheaply, that is a real gain, and the people displaced should share in it. My concern is only that we should not, in the course of sharing it, quietly give away the one thing a central bank cannot supply for itself: a public that cares what money is worth, is willing to say so, and is willing in the end to pay the price of keeping it sound.
Forty-seven years ago tonight I came out of the boardroom to a room of reporters with something unwelcome to say. Within two years some of the mail at the Federal Reserve was lumber, with the stamps stuck straight onto the wood.
Sources
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Scrīptum est annō Dominī MMXXVI, prīdiē Nōnās Octōbrēs (6 October 2026), ā Paulō Volckerō per mystērium cōnscientiae renātō.
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