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January 28, 1972

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Dear Arthur:
After the meeting of the Quadriad I have some random con­
clusions that I would like to pass on to you for your eyes
First, it is crystal clear that you have done everything in your
power to increase the money supply to meet the objectives
that we have for a strong economy in 1972. On the other
hand, as you pointed out, as far as the Mj figure, which you
spoke to me about with great intensity in early 1960 is
concerned, you think the record in the 4th quarter was
I realize that this is not your fault. You can be sure that I
will do everything possible to see that we get another member
of the Board who will follow your leadership and still maintain
the independence that we all agree is essential. I have per­
sonally asked Bill Rogers to see what he can do about the
Brimmer matter.
The other point which concerns me involves the New York
Bank. As you know, I have long felt that whether because of
politics or because of his close identification with the banking
community, Hayes is just not going to follow your leadership,
particularly when it runs contrary to the interests of the banks
or even of our political interests. I was talking just yesterday
to a member of the New York banking community who must
remain nameless. He may be wrong or unfair, but he says
that Hayes will definitely not follow your leadership and that
when the chips are down he will opt for the interests of the
bankers and if those interests happen to coincide with the
interests of our political opponents, with their interests.



-2 It is very difficult to believe that anyone in Hayes’ position
could do this* But we must face a stark fact - - much as we
respect Bill Martin as a man - - his management of the Fed
in the 1959-60 period was disastrous as far as we were con­
cerned. I know you share this view because of the conversa­
tions we had at that time. It seems to me now that it is very
possible that Martin might have had good intentions but simply
couldn’t do anything about it because of the fact that he did
not really control the Board and because of the enormous
influence the New York Bank had over his decisions.
I realize the preciseness of your argument that the problem
is not money supply but the panicky, timid attitude of bankers
who with adequate supplies of money simply will not take the
risks that would result in an expanding economy. I frankly
would go much further than you. Bankers, as a group, thrive
on high interest rates and they really don’t give a damn what
happens to the economy provided they make profits.
would just as soon see interest rates come back to a higher
level regardless of the consequences as far as the economy is
We cannot accept this kind of obstructionist attitude. When the
history of the year 1972 is written I do not want to give our
opponents any chance to say that part of the reason for the
economy not moving as fast as it should was our failure to move
the money supply - - particularly the
ingredient of it - - as
fast as we should.
You have given me an absolute assurance that the money supply
will move adequately to fuel an expanding economy in 1972.
As you know, I have absolute confidence in this pledge that you
have made. I realize that there is some -tflerit Lo your con­
tention that the problem is not just money supply but confidence
among the business and banking leaders. If, however, the
Fed does not aggressively and imaginatively move forward on '
the money supply front you can be sure that in retrospect all
these theological arguments with regard to who is at fault
will go out the window.


-3We come down to the fundamental point that if the Fed is not
able to move the money supply up vigorously and aggressively
in the first quarter of this" year, the Fed in general and you
as its leader will inevitably get a major share of the blame.
What could happen out of all of this is that a major attack on , /
the independence of the Fed will eventually develop. I do not V
want this to happen -- particularly I do not want it to happen
when the Chairman of the Fed is a man in whom I have such
enormous confidence and for whose economic advice I have
such great respect.
It will, of course, be easy for you to follow the course that ,
Bill Martin did. He always blamed the budget or the attitudes
of the business community or any other scapegoat he could
find for the failure of the economy to move while he was in
charge. But in retrospect, you and I know that he and his
colleagues on the Fed at that time have to assume a major
part of the blame.
I shall do everything on my part to see that you have the
support that you need both on the Board and otherwise to take
the aggressive leadership position in moving the money supply
which I think is essential during this year. But what I cannot
emphasize too strongly, is that if we fail to do so it will not
be helpful later for speeches to be made and long papers to
be written and for columnists to speak out to the effect that
the Fed was in no way responsible. This will not be the case -we shall all be responsible. I just want to be sure that you,
as Chairman of the Fed, are in a position where instead of having
to make speeches and write papers a year from now indicating
why you were not at fault and putting the blame on confidence
among the bankers, the business community, the international
monetary set, etc., you can say with complete credibility that
the Fed did its part all the way.

-4 What this really comes down to is that you are really going
to have to move on the New York Bank* J don’t know how
you can accomplish that but whatever you need to do you can
be sure you have my support. Just remember that all the
fashionable arguments as to who was at fault aren’t going to
make any difference at all if we fail.
Let’s just be sure that
the Fed, under your leadership, cannot be charged with the
head-in-the-sand attitude of the Martin regime.
With best wishes,

Honorable Arthur F. Burns
Board of Governors
Federal Reserve System
Federal Reserve Building
Washington, D. C. 20551

P. S. One of the most telling points that you made at the
Quadriad meeting was that bankers basically, as a lot, are
panicky, timid and utterly selfish. This does not mean that
there are not individuals who do not fit that description.
What is important is that we not allow the bankers, whether
they are American or international, to be responsible for
cooling the economy at a time that it may finally be seeing the


- 5 upturn that we all want. What we also must remember is
that the new economic policy was one that you strongly
urged - - particularly the wage-price control aspect of it.
Having done everything that we could do in those areas, we
cannot now find others on whom to place the blame in case
things don’t move as we expect them to move or want them
to move. I could not agree more that the problem of confi­
dence is a very deep and basic one. But if the Fed in general
and you in particular do not, through your aggressive and
expansionary monetary policies, display confidence to the
ultimate, you can be sure that the timid, little men who run
the great banks of this country will have even less confidence
than they presently display.




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