Business: Burns: A Tough Act to Follow

(2 of 2)

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.