Volcker’s success as the slayer of inflation came at a huge cost

He was an immense figure who almost single handedly transformed the fortunes of the economies of the western world.

He did so by shaking inflation out of the system through a mixture of rigorous thinking and political courage at a time — the late 1970s — when instability was rampant.

His actions also caused considerable short term pain for countries like Ireland which relied on overseas borrowings to maintain their existing standard of living.

In 1979, in an act of real statesmanship, President Jimmy Carter appointed Mr Volcker to the post of chairman of the Federal Reserve.

He did so at a time when inflation was out of control. Mr Volcker’s response was to rapidly tighten monetary policy in an effort to reverse the inflationary tide.

This spelled bad news indeed for countries like Ireland which had borrowed heavily in dollars to fund large public deficits.

The first consequence of Mr Volcker’s tightening was a surge in interest rates on borrowed money.

The second, which came in relatively quick time, was a surge in the value of the dollar as confidence in the management of the American economy was restored.

It took time for Mr Volcker to slay the beast. Inflation peaked at just under 15% in March 1980. Younger people do not realise just how much disruption such an ongoing rise in prices across the board entailed. True, many must deal with the reality of soaring rents. That gives you some idea.

Back in the 1960s and 1970s, elderly people on fixed incomes looked on as their living standards tanked.

In the workplace, it was the strong and the well placed — in key industries — in often militant unions who won out at the expense of the majority.

The inflationary climate resulted in a free for all which penalised the thrifty and the relatively powerless. Mr Volcker began the turning of the tide, but at a huge cost to communities reliant on old-style manufacturing.

Unemployment soared past 10%. Many towns, particularly in the north-east and mid-west of America, were wiped out. The seeds of Donald Trump’s 2016 victory were sown.

Much of that damaging shakeout was the result of the complacency of managers who underestimated the threat from places like Japan to their industries. The huge cost of the Vietnam war also undermined the US economy while a surge in demand for oil products left the West exposed when the Middle East exploded in 1973.

In Britain, Margaret Thatcher’s Tories followed Mr Volcker in jacking up the cost of money so as to squeeze inflation and unemployment there jumped to over three million.

The irony was Mr Volcker himself was as far from Thatcher ideologically as it was possible to be. The son of the manager of a middle-income municipality in New Jersey, Mr Volcker believed profoundly in the importance of public service and the community.

In a recent interview, he recalled that his father was a fanatic when it came to detailed budgeting.

This was at a time when America was just recovering from the Great Depression. This was a generation that believed in thrift, the power of communities and the agencies of government.

As Mr Volcker’s medicine took effect, America’s economy quickly rebounded, President Carter’s successor, Ronald Reagan, reappointed him to another term as chairman of the Fed.

But in 1987, he was replaced by Alan Greenspan who was regarded as a much more enthusiastic supporter of the financial deregulation that President Reagan sought.

Mr Greenspan was famously reluctant to turn off the money taps and he was happy to foster the animal spirits of those in the markets.

Mr Volcker, meanwhile, withdrew from the limelight, returning only to warn, in 2005, about the threat posed to the economy by the runaway borrowing and spending binge fuelled by savers’ funds flooding in from Asia, in particular. As he put it, presciently, “the growing imbalances, risks, are giving rise to circumstances as dangerous and intractable as I recall”.

The crash of 2008 swept Barack Obama into the White House and he soon summoned Mr Volcker back to the White House, offering him – it is said – the job of treasury secretary.

He declined the offer on age grounds being already well past 80. However, he did return as a close advisor crafting the “Volcker rule” which set out to block US banks from engaged in trading on their own account. The plan was criticised as impractical. Many came to believe that President Obama’s financial team, led by treasury secretary Tim Geithner, went far too easy on the wolves of Wall Street.

Mr Volcker turned his attention to setting up a non-profit known as The Volcker Alliance. It aimed to promote good governance. He pumped much of his personal savings into this venture.

He was keen to ensure that more top graduates were, once more, attracted to work in the government.

In an interview with the billionaire hedge fund owner, Ray Dalio in February, he talked about the need for a marriage between the universities and government, arguing that to have effective government, you need good people running it.

He lamented the current state of governance under Donald Trump when so many key posts are left unfilled and public officials are often derided.

Last Thursday, the author and commentator Martin Wolf paid this tribute:

“Volcker is the greatest man I have known. He is endowed to the highest degree with what the Romans call ‘virtus’ (virtue), moral courage, sagacity, prudence and devotion to the service of his country.”