Workers World, Vol. 21, No. 42
October 23 – It is now more than two weeks since Federal Reserve Chairman Volcker, along with Secretary of the Treasury Miller and President Carter, devised emergency measures which they said were calculated to bring down inflation and avoid an economic collapse. Since then the stock market has been in continual turbulence; on October 10 it virtually collapsed when more than 81 million shares were sold and the Dow Jones average dropped 26 ½ points.
Many small businesses numbering in the hundreds of thousands, and large ones as well, are today in a virtual state of panic wondering what will happen to them next in the light of growing stringency in obtaining credit and the enormous hike in interest rates which was prompted by the Federal Reserve Bank’s measures.
What political effect has this had thus far in the summits of the capitalist establishment and the Carter administration in particular?
It has resulted in a sharp shift to the right.
As we indicated in our last article, the new emergency financial and monetary measures undertaken by the U.S. government were elaborated and agreed upon by the trio of Volcker, Miller, and Carter. Both Volcker and Miller, it must be remembered, are appointees of President Carter.
On the surface the impression is cultivated by the press and the media that Volcker and Miller are carrying out the orders of the president, who has the overall power and authority over the management of the economy.
Technically and juridically that is correct. Politically, however, this no longer corresponds to the real relationships in the Carter administration. Whatever constitutional and legal power the President has over the economy has, in one of those enormous but quiet developments, passed into the hands of Volcker, the personification incarnate of the biggest bankers and industrialists in the country.
Is this an exaggeration? Is it possible that the presumed leader of the “free world,” in full view of the imperialist rivals of the U.S., could have abdicated some of his most fundamental levers of power and authority?
The Wall Street Journal of Friday, Oct. 19, in its Washington Wire column, bluntly states: “Carter loses control of economic policy, with Volcker in the driver’s seat.” That is precisely what has happened. That’s precisely what happens in a bourgeois democracy in times of crisis.
Just as the military camarilla in the Pentagon arrogates to itself more and more control from the civilian sector in times of military crisis growing out of adventures and confrontations, so during crises of an economic character the financial and industrial plutocracy becomes more and more disenchanted with their capitalist politicians and tends to take over the levers of state power from their very own “elected officials.”
The shift in power from Carter to Volcker is tantamount on a national scale to what was done in New York City with the creation of the Emergency Financial Control Board and the Municipal Assistance Corporation. But while that required the passage of legislation, the present shift has been made under the existing legislation which set up the Federal Reserve Board.
The chairman of the Federal Reserve Board can create havoc for millions upon millions of workers throughout the country, close hundreds of thousands of businesses and ultimately wipe out, in a so-called anti-inflation program, the gains made by the working class through decades of struggle. Through the Federal Reserve Board, and particularly through the unrestrained authority of a chairman such as Volcker, the fires of inflation which are raging at the present time can also be turned just as easily into a conflagration. And all this is enhanced by the fiscal authority of the Treasury secretary, with whom Volcker is working in close cooperation.
How does it happen that a capitalist democracy which prides itself on having three coordinate or coequal branches of government – the executive, the judicial, and the legislative – can find itself in a position where some of the most meaningful authority in a crisis (except for the coercive forces of repression) is concentrated in a handful of people, at the head of whom is an outlandishly reactionary representative of the most powerful industrial and financial dynasties of the U.S.?
It happens because whatever differences exist between the political representatives of American finance capital and the financiers and industrialists themselves relate merely to tactics and not to principles. It also derives from their different official positions. The Senate, for instance, is a millionaires’ club. Perhaps 99 out of 100 senators may share Volcker’s view that the “standard of living of the average American person must go down” – a view which he publicly and brutally stated right in front of the Joint Economic Congressional Committee. But few if any of the senators could dare to agree with or endorse his views, especially in an election year.
Having been appointed chairman of the Federal Reserve as a result of the extreme pressure exerted by the bankers and industrialists, he now holds the office of chairman for a tenure of 14 years. All the members of the Federal Reserve Board are bankers whose tenures are also longer than any elected official. Few of them are known to the public, yet they wield immense power. It was a slavish and docile Congress which created the Federal Reserve, granting it independence from both the executive and legislative branches of the government while making it completely dependent on the bankers.
Volcker, however, is not dependent on any electoral process. A financier in his own right and a representative of the biggest and most powerful bankers and industrialists, he is free to state his views, free to disseminate his brutal prescription for the economic ills of the country, at the expense of the mass of the people.
Of course, the Federal Reserve Board now and then reports to both Congress and the president. But it takes a very strong president to override it. And when he does, the next appointment invariably comes from the same financial and industrial milieu as the previous one. It may be McChesney Martin at one time, Arthur Burns at another, or even a liberal like Mariner Eccles during the Roosevelt era, when war-time needs shifted power and authority to the military.
For many months now, the capitalist press has been attacking Carter as a “weak” leader. Why haven’t they attacked him for his real weakness in relation to Volcker? The attacks on Carter from the bourgeois press on his “weak leadership” are really demands for tougher, harsher measures against the workers, not against the bosses and the bankers. Real weakness is shown by the shift of authority from the president to the chairman of the Federal Reserve Board, from Carter to Volcker, from an elected official to a Wall Street appointee.
Has anyone protested? Where are the protests from the loud-mouthed chairman of the Senate Banking and Finance Committee, William Proxmire, who is supposed to oversee the Federal Reserve? What a joke that really is!
And where are the Kennedys, the Javitses, the Percys, the McGoverns, or any of the other liberals? Have they said anything to even indirectly attack Volcker for his outrageously reactionary assault in demanding a cut in the living standards of the masses?
None has been heard thus far. Of course, a few are waiting to see if this strategy of manipulating the bank reserves, upon which Volcker and his cronies rely to stem the tide of inflation, will fail. Only then will they protest. But their protest will be that his policies are helping to “bring down the free enterprise system,” and not that they are aimed at the living standards of the people and may result in millions and millions of unemployed.
In this day and age, the constitutional authority of Congress to enact legislation is challenged on literally hundreds of grounds, many of them of an utterly ridiculous character. As long, however, as they serve a reactionary purpose they are lauded by the media and more frequently than not they are favorably adjudicated by a reactionary Supreme Court.
How then does it happen that it rarely if ever occurs to any of the so-called “public interest groups” to challenge the authority of Congress to enact legislation which unconstitutionally delegates the authority “to coin money and issue currency” to the bankers in the Federal Reserve?
There is hardly a plainer or more unambiguous clause in the Constitution than the one which specifically grants Congress the right “to coin money and issue currency.” It says nothing about banks or bankers. Nothing whatever. Yet since the imperialist era, this key function has passed exclusively into the hands of the bankers solidly ensconced in the Federal Reserve, which was created in 1913 by a Congress subservient to the banks.
If one were to talk about democratic rights in a bourgeois republic, some of the most elementary ones are in the economic field. Yet these are vastly curbed by an utterly undemocratic and self-perpetuating Federal Reserve Board whose tentacles reach from Wall Street into every nook and corner of life in the U.S. The power of the banks in the era of imperialist finance capital is hopelessly fused with the capitalist state. This explains why a bourgeois democracy in times of an economic crisis of a truly catastrophic character can open the door to a fascist dictatorship, unless an awakened and resolute working class intervenes in the political process on a really mass scale.
Last updated: 11 May 2026