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Ju n e 1, 1973
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D e a r M r. P r e s id e n t:
In view of m y d e p a rtu re on a fo re ig n t r i p to d a y , I
h a v e b een a d v ise d to sen d you a p e rs o n a l m e s s a g e b e fo re
gettin g a w a y .
L e t m e s a y , f i r s t of a l l , th a t I think it is highly
im p o rta n t th a t you a d d r e s s y o u r s e lf to d o m e s tic e c o n o m ic
is s u e s r a t h e r p ro m p tly , a s I b e lie v e you now plan to do.
T h is n atio n is e x p e rie n cin g g r e a t p r o s p e r ity , but a
s p i r i t of u n e a se and foreb od ing h a s n e v e r th e le s s g rip p ed the
m in d s of v e r y m an y of our p eo p le.
T h e in v e s to r c l a s s - - in v e s tm e n t b a n k e rs , b r o k e r s ,
m a n a g e r s of in v e stm e n t funds, m a n a g e r s of p en sion funds,
and the g r e a t body of individual in v e s to r s - - a r e in a s e r io u s ly
d e p re sse d m ood.
C o n s u m e rs a r e spending th e ir d o lla r s f r e e l y .

B ut

if s u r v e y s of c o n s u m e r opinion a r e r ig h t (and m y p e r s o n a l
o b s e rv a tio n s u g g e s ts th a t th ey a r e ) , m an y c o n s u m e rs a r e
w o r r ie d about the fu tu re .




-

2-

B u s in e s s m e n a r e in an o p tim is tic f ra m e Of m in d .
T h e ir s a le s and p ro fits h a v e been im p rov in g s h a rp ly , and
th e y a r e c l e a r l y in a m o o d to expand th e ir plant, th e ir equip­
m e n t, and th e ir in v e n to r ie s .

B u t am ong this g ro u p , to o ,

so m e sig n s of d isq u ie t about the fu tu re , s till faint and v e r y
lim ite d , a r e beginning to a p p e a r.
F o r e i g n e r s a r e show ing d im in ish ed co n fid en ce in the
d o lla r , and th e ir thinking is s h a r e d by m any A m e r ic a n s .
T h e s h a rp r i s e in the p r i c e of gold and in the d o lla r p r i c e
of fo re ig n c u r r e n c i e s is c l e a r ev id en ce on th is point.
W hat is ailin g p e o p le ?

T he dom inant f a c to r a p p e a rs

to be th e sh a rp ly a c c e l e r a t e d p a ce o f o u r in flatio n .

M o st

people - - A m e r ic a n s and f o r e i g n e r s , b u sin e ssm e n and co n ­
s u m e r s , in v e s to r s and w o rk in g m en - - have no u se fo r P h a s e
111.

T h ey s e e m to r e g a r d it a s a m is ta k e , and so m e r e g a r d it

a s a dow nright d i s a s t e r .
T he thinking and feelin g of people is n e v e r c o m p a r tm e n t­
a liz e d .

W hen th ey a r e in an an xio u s m ood , one w o r r y r e in f o r c e s

a n o th e r - - w h e th e r o r not th ey know o r u n d erstan d w h at th ey a r e
w o rr ie d about.

T h u s, m a n y p eo p le, b e sid e s being c o n c e rn e d

about in flatio n , a r e w o r r ie d about th e d ev alu ation of th e d o lla r .




-

3-

th e d e fic it in our fo re ig n tr a d e , th e d e clin e of s to c k p r i c e s , s
th e r i s e of i n t e r e s t r a t e s , fra u d on th e s to ck e x c h a n g e s ,
boom ing p r o f its , s h o r tf a lls in g o v e rn m e n ta l in te g r ity , th e
W a te r g a te a f f a i r , e t c .

Of la te , q u e stio n s h av e b een r a i s e d ,

in th e p r e s s about y o u r le a d e r s h ip , about y o u r I n te r e s t in
th e p ro b le m s th a t c o n c e r n p eo p le, about y o u r a b so rp tio n in
fo re ig n a f f a i r s , about y ou r a tte n tio n to d o m e s tic i s s u e s , and
s o on.
A ll th is is a ffectin g the s ta te of co n fid e n ce .

In f a c t ,

a s I s e e it, th is co u n try is now in d a n g e r of being buffeted by
a c r i s i s of co n fid e n ce .
& p o litic a l a p p ro a c h .
p a rt*

T h is s o r t of p ro b le m c l e a r l y r e q u ir e s
It r e q u ir e s stro n g le a d e rs h ip on yo u r

It r e q u ir e s v is ib le p ro o f to th e A m e r ic a n people th a t

you c a r e about th e ir c o n c e r n s , th a t you a r e doing so m eth in g
r e a l in th e ir i n t e r e s t , th a t you intend to continu e to do m o re
a s n eed ed , and th a t if one p o licy d o e s n 't w ork you w ill be
r e a d y to m o v e to a n o th e r in an u n ce a sin g e ffo rt to p r o te c t
and a d v a n ce th e ir w e lf a r e .
I th e r e f o r e u rg e y ou , f i r s t of a l l , to d e a l d ir e c tly w ith
th e p ro b le m of p r ic e s th a t is a g ita tin g th e m inds of p eo p le, a s
fo llo w s:







R e im p o s e m a n d a to ry co n tro ls fo r T i e r I f i r m s .
B ro a d e n the p re n o tifica tio n r u le s to c o v e r m o r e
firm s .
A nnounce th a t so m e ro llb a ck s in p r i c e s w ill soon
be o r d e r e d in th e c a s e of f ir m s th a t h a v e v io la te d
th e p ro fit g u id e lin e s.
A nnounce so m e re o rg a n iz a tio n of the C o st of
L iv in g C ou ncil (if G e o rg e is re a d y w ith a plan ).
A nnounce th a t a ll a g r ic u ltu r a l p r ic e su p p o rt e f f o r ts ,
w hich you ca n in flu en ce by a d m in is tra tio n , a r e
su sp en d ed fo r the re m a in d e r of the y e a r .
A n nounce s a le of m a t e r i a l s f ro m g o v e rn m e n ta l
s to c k p ile s (including s c ra p p a g e of o b s o le te n a v a l
and m e r c h a n t v e s s e l s ) , w ith a view to b rin g in g
down p r i c e s of ra w m a t e r i a l s (including s te e l s c r a p ) .
A nnounce th a t o b s e r v a n c e of p ro fit g u id elin es w ill
be m o n ito re d v e r y c lo s e ly and p ro m p tly f r o m th is
point on, and th a t so m e needed exp an sio n of
p e rso n n e l is being p rovided fo r th e p u rp o s e .

»5-

(8)

C a s tig a te b u sin e ss f i r m s th a t h av e g ra n te d la r g e
i n c r e a s e s in s a l a r i e s (including b o n u ses) to th e ir
top e x e c u tiv e s and o r d e r a sto p to su ch p r a c t i c e s .

(9)

A d v ise th e p u b lic, and p a r tic u la r ly the b u sin e ss
co m m u n ity , th a t th e w ag e gu id elin es p re v io u sly
p ro m u lg a te d by the P a y B o a rd a r e s till in e f fe c t.

(1 0 )

P r o p o s e to C o n g re s s th e e lim in a tio n of th e " b re a d
ta x ."

(1 1 )

R e p e a t y o u r re co m m e n d a tio n s to th e C o n g re s s to
cu t b a ck c e r t a i n t a r i f f d u ties on food im p o r ts .

(1 2 )

R e q u e st a study of the c o n tr o l of food e x p o r t s ,
to be co m p le te d in 30 d a y s , and p ro h ib it fo re ig n
o r d e r s d u ring th is p e rio d .

N e x t, I would u r g e th a t you su p p lem en t w hat you a r e doing
in th e p r ic e and w age fie ld w ith so m e f i s c a l p ro p o sa ls th a t would
b lso co n trib u te to ch eck in g in fla tio n .

I su g g e st the follow ing

m easu res:




(I )

B e s id e s re p e a tin g y o u r s te r n ap p eal to the Congress^
on spending, an n ou nce an OMB r e a p p r a i s a l of F e d e r a l
c a p ita l spending p la n s, to be co m p le te d in 30 d a y s .

-6-

(2)

R e co m m e n d to C o n g re s s a c o m p u ls o ry sa v in g s
plan f o r c o r p o r a tio n s , u n d er w h ich so m e 10 p e r
ce n t of th e ir p ro fits a f te r ta x e s would, be w ithheld,
to be lo ck ed up in th e c o f f e r s of th e F e d e r a l R e s e r v e ,
and to be re p a y a b le a f te r tw o y e a r s o r s o o n e r , depending
on th e s ta te of the e co n o m y , to g e th e r w ith in t e r e s t
a t , s a y , 4 p e r c e n t.

(3)

A sk C o n g re s s a ls o fo r a co m p u lso ry sa v in g s plan
f o r in d iv id u a ls, a t a r a t e equal to 10 p e r ce n t of
th e ir in co m e t a x , but lim ite d to fa m ilie s w ith an
in c o m e in e x c e s s of, s a y , $ 20 , 000 .

(4)

R e co m m e n d to C o n g re s s a v a ria b le in v e stm e n t
t a x c r e d i t , of w hich you h a v e h e a rd m e sp eak
o fte n , w hich (like th e co m p u lso ry sa v in g s plan)
could be q u ick ly a d ju sted to the changing s ta te
o f the e co n o m y , to be a v a ila b le f o r co o lin g off
th e c u r r e n t in v e stm e n t boom and a ls o p ro v id e
in s u ra n c e a g a in s t r e c e s s i o n l a t e r .

F in a lly , in view of the grow ing c o n c e r n of people about th e
e n e rg y p ro b le m , I would p ro p o se a p u rc h a s e ta x b a se d on th e
h o rs e p o w e r of a ll new c a r s and t r u c k s .




An e x c i s e t a x on g a s o lin e ,

-7such a s m any a re -u rg in g , h a s econom ic m e r i t ; but I would d e fe r
th is fox c o n sid e ra tio n at a la t e r date -- p e rh a p s th r e e or s ix
m onths fro m now.
What I have put down so h a s tily in th is le tte r i s d e sig n e d
to stren gth en confidence of people in their own and the co u n try 's
fu tu re.

I'm s u re that the p a ck a g e can be m uch im p ro v e d ; but no

and p sy c h o lo g ic a l t e s t s , not ju s t the c r i t e r i a of p r o f e s s io n a l econom is
L e t m e a s s u r e you, fin ally, that the F e d e r a l R e s e r v e h as
been trying h a r d to b rin g m o n e ta ry policy to b e a r on the p ro b le m
of inflation, that our e ffo rts in this d ire ctio n w ill continue, but
that we w ill a l s o try to avoid a c re d it crunch of the 1969 type.
With e v e ry good w ish
S in c e r e ly y o u rs

A rthur F . B u rn s

The H onorable R ic h a r d Nixon
The P r e s id e n t of the United S tate s
Copy to:

P . S.




G e o rg e Shultz
H erb Stein
Roy A sh

P r a c t i c a l l y e very point that I'v e c o v e re d h a s fig u r e d in
r e c e n t d i s c u s s io n s that G e o rg e or H erb c h a ire d . I'm
s o r r y that I had to get away b e fo re a c le a r c o n se n su s e m erg*

Photocopy fro Gerald R. F rd Library
m
o

pack ag e of p r o p o s a ls w ill be s a t i s f a c t o r y u n le s s it m e e t s p o litic a l

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