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Dear Arthur:
I was deeply concerned by a story in the New York Times
by Leonard Silk. I realize at the outset that, to put it
mildly, he is not particularly a supporter of the
Administration’s policies. But as I read the story and
absorbed it I could see clearly that he was gloating over
the fact that the money supply had not been rising (I
believe it has been four months now since the money
supply has gone up to any substantial degree), and then
he proceeded to point out that one possible reason for
this phenomenon was that I had made the mistake of
putting you in charge erf the Committee on Interest Rates.
Obviously, anyone who is concerned primarily about
keeping interest rates down is not going to be interested
in letting the money supply go up.
I am not suggesting for one moment that I buy Silk’s
analysis entirely. However, I would be less than honest
with you if I were not to say that I have been flooded with
calls since the meeting of the Quadriad from people in
Wall Street for whose judgments I have the greatest respect
with regard to the Fed’s policy of holding the money supply
down for too long a period. In fact, two of those who called
me from Wall Street - without.anypromptiag on my part- pointed out that this is exactly what happened in 1959 and
1930. whenJaZ^ailrficall. you came into the office and
crlffcized--Me€fcesnev^Martiii foFTgeeping-the lldnsn too'
tight and^jfchereby, helping tqtrigger the unemployment
increase-whiclv was probably the decisive factor in our
defeat in November ^JL960^—
I know that you are completely convinced that your policy
is not only right but is in the long term interests of the
economy and of our goal of assuring the success of this
Administration's economic policies.


However I must register with you, as strongly as I
possibly can, my concern that what really determines the
result of an election As not interest rates or rises in the
cost of living but the unemployment statistics around
election time. Many elections in this country have been
determined because of an increase in unemployment which
resulted in the voters turning out the party in power. I
cannot think of one election where inflation had any effect
whatever in determining the result.
This does not suggest that we should not be concerned
about inflation - not only for the long haul but even for the
short haul. On the other hand, there is no doubt in my
mind whatever that if the Fed continues to keep the lid on
with regard to increases in the money supply and if the
economy does not expand as you, along with most other
respected economists, have predicted in 1972 the blame
will be put squarely on the Fed for holding the lid on too
long — just as, in my opinion, it was very properly put
on the Fed in 1960.
I have studied the charts that you left with me and I have
the greatest respect for the point of view that you have
expressed on this subject. I am not sending copies of
this letter to anybody else in the Quadriad because I think
this has to be between me and you. As a matter of fact,
I am not going to discuss the subject with Connally. But
I do want you to know that there is nothing I feel stronger
on than this money supply problem and that the crescendo
of complaints that I have been receiving, not only from the
New York financial community but from other places in
the country (I received calls from Los Angeles, San
Francisco, St. Louis, Chicago and Atlanta, just to mention
a few, over the past few days expressing the same concern)
convinces me that you owe it to yourself, as well as to
our goal of getting the economy to move smartly up in the
months ahead, to re-evaluate your decision with regard to

holding the money supply down and to take some action to
move it up before we get a lot of economists writing as
Silk has and then having to move because they urged us to
rather than on our own initiatives. .

The Honorable Arthur F. Burns
Board of Governors
Federal Reserve System
Washington, D. C.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102