The Burns-Carter Not-Quite Fight

Are President Carter and Federal Reserve Board Chairman Arthur Burns battling like Muhammad Ali and Joe Frazier? Well, not quite. They do have their differences, and serious ones. Two weeks ago, the White House indicated that further tightening of the money supply by the Federal Reserve might endanger the U.S. economic recovery. Last week Burns replied somewhat testily. In a speech at Gonzaga University in Spokane, Wash., he said he had no intention of "letting the money supply grow at a rate that will fuel the fires of inflation." He added that unless Government policies shift to bolster business confidence, unemployment may remain high, and the economy could soon slip into another recession.

Burns, however, may have come on unnecessarily strong; the Administration started the squabble by ineptness rather than intention. In order to reply more fully to a reporter's routine question about monetary policy, a White House aide tacked up in the pressroom excerpts from an Oct. 4 speech by Charles Schultze, chairman of the Council of Economic Advisers. In the talk, Schultze deplored high interest rates and argued that a rapid expansion of the money supply would be inflationary only if the economy were more vigorous than it is. Reporters understandably Interpreted the notice as a special White House statement attacking Burns --to the Administration's subsequent embarrassment. Says one economic aide: "In no way was this intended to be a signal."

At week's end both sides were moving to cool it. Carter at his press conference went out of his way to praise Burns as an "able, outspoken and independent man" and agree with him that business profits should be going up faster. Federal Reserve officials, on their part, stressed that an increase last week in the discount rate--the interest rate on federal loans to banks--from 5%% to 6%, was not intended to defy the White House. The increase had been decided on before the Schultze statement was posted on the pressroom wall; it was only half as large as Wall Street had expected, and it only brings the discount rate closer to other interest rates that the board had pushed up earlier. Federal Reserve Governor Henry Wallich told TIME, "Quite honestly, this talk of a dispute has been greatly overdone. Believe me, there just aren't any profound disagreements."

That may be soft-pedaling too much.

Burns, a conservative Republican, obviously wants to see higher interest rates, and a closer growth of money supply, than the White House would like, and his stand does nothing to increase the chances that Carter will reappoint him when his term as board chairman expires Jan. 31. Washington speculation on his possible successor is already narrowing to Robert V. Roosa, a partner in the investment banking house of Brown Bros. Harriman, and Paul Volcker, head of the New York Federal Reserve Bank. (Arthur Okun, a Brookings Institution economist and member of TIME'S Board of Economists, whose name also has been mentioned, says Carter would make a mistake in appointing him because the chairman should be someone with closer ties to the financial community.) On the other hand. Carter is under heavy pressure from financiers who admire Burns to keep on the 73-year-old chairman. Last week James Davant, chairman of Paine Webher Inc., a major Wall Street brokerage, sent Carter a letter backing Burns and calling the Administration's statements on money policy "misguided." The President said at his news conference that he had not decided whether to reappoint Burns.

Almost unnoticed amid all this hullabaloo, the increases in interest rates that the Federal Reserve has forced have so far failed to check the growth of the money supply. In October the nation's money stock grew at an average annual rate estimated at 12%. That pace, if continued, could indeed be inflationary--yet the White House fears still higher interest would damage the recovery. That creates a nasty dilemma that will probably persist for some time. -

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