Arthur F. Burns
Encyclopedia
Arthur Frank Burns was an American
economist
. He served as Chairman of the Federal Reserve
from 1970 to 1978.
, province of the Austrian-Hungarian Empire, Arthur Burns soon immigrated with his Austro-Hungarian Jewish parents to New Jersey. He earned his B.A.
and Ph.D (1934) from Columbia University
, studying under Wesley Clair Mitchell
. His career alternated between academia and government. He taught at Columbia and studied business cycle
s while president of the National Bureau of Economic Research
. At Columbia, he blocked the acceptance of Murray Rothbard
's thesis
on the Panic of 1819
, despite having known Rothbard since the latter was a child. Burns was the chairman of the U.S. Council of Economic Advisors from 1953 to 1956 under Dwight D. Eisenhower
's presidency. In 1953, he stated the American economy's "ultimate purpose is to produce more consumer goods." He served as the Chairman of the Federal Reserve
from 1970–1978 and as ambassador to West Germany
from 1981–1985.
s, and what economic variables rise during expansions and fall during recessions. He often collaborated with Wesley Clair Mitchell
and set the academic tradition continued by the NBER's business cycle dating committee, which is generally considered authoritative in dating recessions. Burns's detailed macroeconomic analysis influenced Milton Friedman
and Anna Schwartz
's classic work A Monetary History of the United States, 1867–1960.
)
When Vice President
Richard M. Nixon was running for President
in 1959–1960, the Fed, under the Truman
-appointed William McChesney Martin, Jr.
, was undertaking a monetary tightening policy that resulted in a recession in April 1960. In his book Six Crises
, Nixon later blamed his defeat in 1960
in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968
, Nixon named Burns to the Fed Chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.
Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed. Burns' relationship with Nixon was often rocky. Reflecting in his diary about a 1971 meeting attended by himself, Nixon, Treasury Secretary
John Connally
, the Chairman of the Council of Economic Advisors, and the Director of the Bureau of the Budget, Burns wrote:
There was significant inflation
during this period, which Nixon attempted to manage through wage and price controls
while the Fed under Burns maintained an expansive monetary policy
. Although Burns opposed Nixon's decision to close the "gold window,"
he "'assured the President that I would support his new program fully,' notwithstanding his reservations about the gold suspension." After the 1972 election, due in part to oil shocks from the 1973 oil crisis
, price controls began to fail and by 1974, the inflation rate was 12.3 percent.
Burns thought the country was not willing to accept rates of unemployment
in the range of six percent as a means of quelling inflation. From the Board of Governors meeting minutes of November 1970, Burns believed that:
During Burns' tenure, the consumer price index
rose from 6%/year in early 1970 to over 12%/year in late 1974 after the Arab Oil embargo, and eventually falling to under 7%/year from 1976 to the end of his tenure in January, 1978, with an annual average rate of consumer price inflation of approximately 9% during his term. Negative economic events included multiple oil shocks (1973
and 1979
) and heavy government deficits arising in part from the Vietnam War
and Great Society
government programs. When he was later asked by a German reporter why he pursued such unsuccessful policies, Burns said "a Fed chairman has to do what the president demands, or 'the central bank would lose its independence.'"
At the Watergate break-in of 1972, the burglars were found carrying $6300 of sequentially-numbered $100 bills. The Fed lied to reporter Bob Woodward
as to the source of the bills. Burns stonewalled Congressional investigations about them and issued a directive to all Fed offices prohibiting any discussion of the subject.
gives Burns poor marks for his tenure as Fed chairman because the inflationary forces that began in 1970 took more than a decade to resolve. "The only disagreement among economists is whether Burns fully understood the mistakes he was making, or was so wedded to incorrect Keynesian theories that he didn't realize what he was doing. The only alternative is that he was under irresistible political pressure from Nixon and had no choice. Neither explanation is very favorable to Burns. Economists now recognize the Nixon era as Exhibit A in how the adoption of bad economic policies in pursuit of short-term political gain eventually turns out to be bad politics as well."
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
. He served as Chairman of the Federal Reserve
Chairman of the Federal Reserve
The Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chairman" or "Fed Chief"...
from 1970 to 1978.
Career
Born in Stanislawow, GaliciaKingdom of Galicia and Lodomeria
The Kingdom of Galicia and Lodomeria was a crownland of the Habsburg Monarchy, the Austrian Empire, and Austria–Hungary from 1772 to 1918 .This historical region in eastern Central Europe is currently divided between Poland and Ukraine...
, province of the Austrian-Hungarian Empire, Arthur Burns soon immigrated with his Austro-Hungarian Jewish parents to New Jersey. He earned his B.A.
Bachelor of Arts
A Bachelor of Arts , from the Latin artium baccalaureus, is a bachelor's degree awarded for an undergraduate course or program in either the liberal arts, the sciences, or both...
and Ph.D (1934) from Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...
, studying under Wesley Clair Mitchell
Wesley Clair Mitchell
Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades....
. His career alternated between academia and government. He taught at Columbia and studied business cycle
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...
s while president of the National Bureau of Economic Research
National Bureau of Economic Research
The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...
. At Columbia, he blocked the acceptance of Murray Rothbard
Murray Rothbard
Murray Newton Rothbard was an American author and economist of the Austrian School who helped define capitalist libertarianism and popularized a form of free-market anarchism he termed "anarcho-capitalism." Rothbard wrote over twenty books and is considered a centrally important figure in the...
's thesis
Thesis
A dissertation or thesis is a document submitted in support of candidature for an academic degree or professional qualification presenting the author's research and findings...
on the Panic of 1819
Panic of 1819
The Panic of 1819 was the first major financial crisis in the United States, and had occurred during the political calm of the Era of Good Feelings. The new nation previously had faced a depression following the war of independence in the late 1780s and led directly to the establishment of the...
, despite having known Rothbard since the latter was a child. Burns was the chairman of the U.S. Council of Economic Advisors from 1953 to 1956 under Dwight D. Eisenhower
Dwight D. Eisenhower
Dwight David "Ike" Eisenhower was the 34th President of the United States, from 1953 until 1961. He was a five-star general in the United States Army...
's presidency. In 1953, he stated the American economy's "ultimate purpose is to produce more consumer goods." He served as the Chairman of the Federal Reserve
Chairman of the Federal Reserve
The Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chairman" or "Fed Chief"...
from 1970–1978 and as ambassador to West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
from 1981–1985.
Academia
The academic part of Burns's career focused on the measurement of business cycles, including questions such as the duration of economic expansionEconomic expansion
An economic expansion is an increase in the level of economic activity, and of the goods and services available in the market place. It is a period of economic growth as measured by a rise in real GDP.The explanation of such fluctuations in aggregate economic activity is one of the primary...
s, and what economic variables rise during expansions and fall during recessions. He often collaborated with Wesley Clair Mitchell
Wesley Clair Mitchell
Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades....
and set the academic tradition continued by the NBER's business cycle dating committee, which is generally considered authoritative in dating recessions. Burns's detailed macroeconomic analysis influenced Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
and Anna Schwartz
Anna Schwartz
Anna Jacobson Schwartz is an economist at the National Bureau of Economic Research in New York City, and according to Paul Krugman "one of the world's greatest monetary scholars"...
's classic work A Monetary History of the United States, 1867–1960.
Federal Reserve Chairman
Burns served as Fed Chairman from February 1970 until the end of January 1978. He has a reputation of having been overly influenced by political pressure in his monetary policy decisions during his time as Chairman and for supporting the policy, widely accepted in political and economic circles at the time, that Fed action should try to maintain an unemployment rate of around 4 percent. (See also: Phillips curvePhillips curve
In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of inflation...
)
When Vice President
Vice President of the United States
The Vice President of the United States is the holder of a public office created by the United States Constitution. The Vice President, together with the President of the United States, is indirectly elected by the people, through the Electoral College, to a four-year term...
Richard M. Nixon was running for President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
in 1959–1960, the Fed, under the Truman
Harry S. Truman
Harry S. Truman was the 33rd President of the United States . As President Franklin D. Roosevelt's third vice president and the 34th Vice President of the United States , he succeeded to the presidency on April 12, 1945, when President Roosevelt died less than three months after beginning his...
-appointed William McChesney Martin, Jr.
William McChesney Martin, Jr.
William McChesney Martin, Jr. was the ninth and longest-serving Chairman of the United States Federal Reserve, serving from April 2, 1951 to January 31, 1970 under five Presidents...
, was undertaking a monetary tightening policy that resulted in a recession in April 1960. In his book Six Crises
Six Crises
Six Crises is the first book written by Richard Nixon, who later became the thirty-seventh president of the United States. It was published in 1962, and it recounts his role in six major political situations.-The Alger Hiss case:...
, Nixon later blamed his defeat in 1960
United States presidential election, 1960
The United States presidential election of 1960 was the 44th American presidential election, held on November 8, 1960, for the term beginning January 20, 1961, and ending January 20, 1965. The incumbent president, Republican Dwight D. Eisenhower, was not eligible to run again. The Republican Party...
in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968
United States presidential election, 1968
The United States presidential election of 1968 was the 46th quadrennial United States presidential election. Coming four years after Democrat Lyndon B. Johnson won in a historic landslide, it saw Johnson forced out of the race and Republican Richard Nixon elected...
, Nixon named Burns to the Fed Chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.
Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed. Burns' relationship with Nixon was often rocky. Reflecting in his diary about a 1971 meeting attended by himself, Nixon, Treasury Secretary
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
John Connally
John Connally
John Bowden Connally, Jr. , was an influential American politician, serving as the 39th governor of Texas, Secretary of the Navy under President John F. Kennedy, and as Secretary of the Treasury under President Richard M. Nixon. While he was Governor in 1963, Connally was a passenger in the car in...
, the Chairman of the Council of Economic Advisors, and the Director of the Bureau of the Budget, Burns wrote:
There was significant inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
during this period, which Nixon attempted to manage through wage and price controls
Incomes policy
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
while the Fed under Burns maintained an expansive monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
. Although Burns opposed Nixon's decision to close the "gold window,"
Nixon Shock
The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...
he "'assured the President that I would support his new program fully,' notwithstanding his reservations about the gold suspension." After the 1972 election, due in part to oil shocks from the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
, price controls began to fail and by 1974, the inflation rate was 12.3 percent.
Burns thought the country was not willing to accept rates of unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
in the range of six percent as a means of quelling inflation. From the Board of Governors meeting minutes of November 1970, Burns believed that:
- ...prospects were dim for any easing of the cost-push inflation generated by union demands. However, the Federal Reserve could not do anything about those influences except to impose monetary restraint, and he did not believe the country was willing to accept for any long period an unemployment rate in the area of 6 percent. Therefore, he believed that the Federal Reserve should not take on the responsibility for attempting to accomplish by itself, under its existing powers, a reduction in the rate of inflation to, say, 2 percent... he did not believe that the Federal Reserve should be expected to cope with inflation single-handedly. The only effective answer, in his opinion, lay in some form of incomes policyIncomes policyIncomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
.
During Burns' tenure, the consumer price index
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
rose from 6%/year in early 1970 to over 12%/year in late 1974 after the Arab Oil embargo, and eventually falling to under 7%/year from 1976 to the end of his tenure in January, 1978, with an annual average rate of consumer price inflation of approximately 9% during his term. Negative economic events included multiple oil shocks (1973
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
and 1979
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
) and heavy government deficits arising in part from the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...
and Great Society
Great Society
The Great Society was a set of domestic programs in the United States promoted by President Lyndon B. Johnson and fellow Democrats in Congress in the 1960s. Two main goals of the Great Society social reforms were the elimination of poverty and racial injustice...
government programs. When he was later asked by a German reporter why he pursued such unsuccessful policies, Burns said "a Fed chairman has to do what the president demands, or 'the central bank would lose its independence.'"
At the Watergate break-in of 1972, the burglars were found carrying $6300 of sequentially-numbered $100 bills. The Fed lied to reporter Bob Woodward
Bob Woodward
Robert Upshur Woodward is an American investigative journalist and non-fiction author. He has worked for The Washington Post since 1971 as a reporter, and is currently an associate editor of the Post....
as to the source of the bills. Burns stonewalled Congressional investigations about them and issued a directive to all Fed offices prohibiting any discussion of the subject.
Commentary
Conservative economist Bruce BartlettBruce Bartlett
Bruce Bartlett is an American historian who turned to writing about supply-side economics. He was a domestic policy adviser to President Ronald Reagan and was a Treasury official under President George H.W. Bush....
gives Burns poor marks for his tenure as Fed chairman because the inflationary forces that began in 1970 took more than a decade to resolve. "The only disagreement among economists is whether Burns fully understood the mistakes he was making, or was so wedded to incorrect Keynesian theories that he didn't realize what he was doing. The only alternative is that he was under irresistible political pressure from Nixon and had no choice. Neither explanation is very favorable to Burns. Economists now recognize the Nixon era as Exhibit A in how the adoption of bad economic policies in pursuit of short-term political gain eventually turns out to be bad politics as well."
Sources
- Engelbourg, Saul. "The Council of Economic Advisers and the Recession of 1953–1954." Business History Review 1980 54(2): 192-214. ISSN 0007-6805 Fulltext in Jstor. Abstract: The 1953-54 recession was the first in which a Council of Economic Advisers (CEA) appointed by a Republican President, Dwight D. Eisenhower, recommended policy actions. Despite traditional Republican Party rhetoric, the CEA supported an activist contracyclical approach that helped to establish Keynesianism as a bipartisan economic policy for the nation. Especially important in formulating the CEA response to the recession - accelerating public works programs, easing credit, and reducing taxes - were Arthur F. Burns and Neil H. Jacoby.
- Leeson, Robert. "The Political Economy of the Inflation-unemployment Trade-off." History of Political Economy 1997 29(1): 117-156. ISSN 0018-2702 Fulltext in Swetswise and Ebsco. Abstract: Reviews the debate over the inflation-unemployment trade-off, which was a critical part of the 1960 presidential election campaign. At the 1959 American Economic Association Conference (AEAC), Paul Samuelson and Robert Solow, economists from the Massachusetts Institute of Technology, argued that the application of American wage and price statistical data to the Phillips curve indicated high levels of employment could be achieved with moderate levels of inflation. While this proposition supported John F. Kennedy's goal of minimizing unemployment, Richard Nixon advocated zero inflation and was supported in this policy by Arthur Burns, who delivered the 1959 AEAC presidential address. Burns was an opponent of Keynesian economicsKeynesian economicsKeynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
and personified the anti-Keynesian sentiment that prevailed in the United States in the 1950s. Keynesianism and communism were seen by many at the time to be one and the same. - Robert SobelRobert SobelRobert Sobel was an American professor of history at Hofstra University, and a well-known and prolific writer of business histories.- Biography :...
The Worldly Economists(1980). - Throckmorton, H. Bruce. "The Moral Suasion of Arthur F. Burns: 1970–1977." Essays in Economic and Business History 1991 9: 111-121. ISSN 0896-226X. Abstract: Reviews key words in Arthur F. Burns's testimony on various occasions before the Joint Economic Committee of Congress while he served as chairman of the Board of Governors of the Federal Reserve SystemFederal Reserve SystemThe Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
, 1970-78. Correlates the key words with rates of inflation and interest rates to determine if there is a relationship between key words of testimony and selected economic variables. - Wells, Wyatt C. Economist in an Uncertain World: Arthur F. Burns and the Federal Reserve, 1970-78. Columbia U. Press, 1994. 334 pp.
Primary sources
- Burns, Arthur F. Inside the Nixon Administration: The Secret Diary of Arthur Burns, 1969–1974 (University Press of Kansas, 2010); refviewed by Doug French, "Burns Diary Exposes the Myth of Fed Independence," Mises Institute.
- Burns, Arthur F. Reflections of an Economic Policy Maker: Speeches and Congressional Statements: 1969–1978 (AEI Studies no. 217; Washington: American Enterprise Inst., 1978); reviewed by Paul W. McCracken, "Reflections of an Economic Policy Maker: a Review Article" in Journal of Economic Literature 1980 18(2): 579-585. ISSN 0022-0515 Fulltext online at Jstor and Ebsco.
- Burns, Arthur F. "Progress Towards Economic Stability." American Economic Review 1960 50(1): 1-19. ISSN 0002-8282 Fulltext in Jstor and Ebsco. Abstract: Views economic growth, 1929–59; discusses corporate growth, government subsidies, increased consumer expenditures, rise in personal income, industrialization, and overall improvement in economic organization.
Selected works
- Burns, Arthur Frank; Mitchell, Wesley C., Measuring Business Cycles, National Bureau of Economic ResearchNational Bureau of Economic ResearchThe National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...
, Studies in business cycles, 1946 - Burns, Arthur Frank, Wesley Clair Mitchell: the economic scientist, New York, National Bureau of Economic Research, 1952
- Burns, Arthur Frank, The Frontiers of Economic Knowledge: essays, Princeton University Press, 1954. Reprinted from a National Bureau of Economic Research publication.
- Burns, Arthur Frank, Prosperity without inflation, Buffalo, Smith,Keynes & Marshall; distributed by Doubleday, Garden City, N.Y., 1958
- Burns, Arthur Frank; et al., The Anguish of Central Banking, Per Jacobsson FoundationPer JacobssonPer Jacobsson was managing director of the International Monetary Fund from November 21, 1956 until his death in 1963. Born in Tanum, Bohuslän, Jacobsson received degrees in law and economics from the Uppsala University....
, 1979