Burns: A Tough Act to Follow

A bundle of contradictions through eight years

When Arthur Burns succeeded William McChesney Martin in 1970 as head of the Federal Reserve Board, he had a tough act to follow. After 19 years in the job. Martin had made his name synonymous with sound money management. When Burns himself steps down at the end of this month, his successor, G. William Miller, will find Burns' show quite as difficult to top. As chairman of the Reserve, Arthur Burns was final arbiter of the nation's money supply through eight of the most tumultuous years in economic history--years marred alternately, or sometimes simultaneously, by double-digit inflation, double-digit interest rates and deep recession. Though some of his actions helped to aggravate the economic maladies of the 70s. he became just as revered as Martin--and he was a far more complex bundle of professional and personal contradictions.

Often typecast as a doctrinaire conservative, Burns actually was a wide-ranging and surprisingly pragmatic money manager who dismayed conservatives almost as often by pumping out money rapidly as he frightened liberals by keeping credit tight. The A.F.L.-C.l.O.'s George Meany called him "a national disaster" because of his "inhuman" insensitivity to unemployment. Actually, Burns has carried a lifelong feeling for the plight of the jobless. This is partly the result of his own experience as a pre-World War I Austrian immigrant to Bayonne, N.J., where at the age of ten he knocked on doors to help his father find work. He once proposed a national jobs program that would cast the Government as the employer of last resort. If he gave first priority to fighting inflation, it was because of his heartfelt belief that inflation causes unemployment.

Personally, Burns is by turns aloof and avuncular, pompous and friendly. Few Washington officials stayed further away from the press, or at the same time had more written about them. Enveloped in clouds of pipe smoke, he was equally adept at describing the Federal Reserve's operations in maddeningly vague language to congressional committees and relishing a joke in private with a friend. He had an unexpected love of partygoing, yet on one Halloween in 1971, when a Virginia host asked guests to arrive in costume. Burns attended in his usual dark business suit. Says Charls Walker, then Under Secretary of the Treasury: "He came in costume, all right. He came dressed as Arthur Burns."

Throughout, Burns preserved his independence. In the publicity over his criticism of the Carter Administration's policies, it has frequently been forgotten that he was often at odds with the Nixon White House, too--surprisingly so. When he was appointed Federal Reserve chairman a year after Richard Nixon took office. Burns seemed just the man to keep Board actions in line with White House policy. Not only was he a longtime economic adviser to Nixon, but he had also served as Dwight Eisenhower's Chairman of the Council of Economic Advisers from 1953 to 1956. Burns was an early student of the importance of business cycles in free-market economies, giving him a curriculum vitae that had all the earmarks of a man with the business community's interests at heart.

Yet within a year Burns was being hotly, though privately, criticized by Nixon's policymakers for keeping money far too tight (actually, the Fed had been creating money steadily, but consumers had been saving rather than spending it). Also, though most of Nixon's advisers were adamantly opposed to governmental interference in the marketplace. Burns became an early and staunch advocate of some kind of "incomes policy" to restrain inflation. His arguments probably helped prepare the way for Nixon's wage-price freeze of 1971 and the price controls of Phase II in 1972--though that was not quite what Burns had in mind.

More than anything else, it was Burns' management of the nation's money supply that baffled and angered his many critics. During 1972. Burns allowed the money supply to grow sharply, leading to charges that he was trying to help his friend Nixon get re-elected by making sure that the economy was going full throttle. Whatever the motive, the move was a mistake: a year or so later, the aftereffects of the easy-money policy of 1972 combined with soaring food prices and the skyrocketing cost of oil to produce the roaring inflation of 1973-74.

Burns reacted by restricting the money supply so tightly that the prime interest rate on bank loans to business shot up to an unheard-of 12% in 1974. And during the slow recovery from the recession. Burns kept money growth moderate, angering liberal Democrats in Congress and giving no help to the upcoming campaign of Gerald Ford, who left Burns pretty much alone. Burns' explanation: "I do not believe I exaggerate in saying that the ultimate consequence of inflation could well be a significant decline of economic and political freedom for the American people."

During the past year. Burns has been unable to keep money-supply growth from exceeding his own targets, and his efforts to hold it down have pushed up interest rates to an extent that distresses liberals. A particularly galling development for Burns must be that he is the chairman under whom the Federal Reserve lost some of its cherished independence. Congress, since 1975, has compelled the board at least to disclose its goals on money supply, rather than keeping them secret as all previous chairmen had been allowed to do.

But Burns' errors can be traced largely to the appalling uncertainties of monetary policy; no one can ever know for sure what rate of money-supply growth is just right for the economy, nor produce it even if he did know. Congress and the White House face equal uncertainties in their own duties of economic management. It is an eternal temptation for them to blame whatever goes wrong on the Fed, and during Burns' tenure both did. It is Burns' finest accomplishment that he yielded to neither and leaves with the respect if not the agreement of both.

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