Hetzel (1998) on Burns

From Arthur Burns and Inflation (PDF) by Robert L. Hetzel:

In November 1970, the minutes of the Board of Governors show Burns telling the Board (Board Minutes, 11/6/70, pp. 3115–17) that

prospects were dim for any easing of the cost-push inflation generated by union demands.

In 1970, Arthur Burns attributed inflation to union wage demands.

One page later, Hetzel presents a more tangled tale:

How did Burns view macroeconomic policy as an economist? Most generally, Burns had a credit view of monetary policy. That is, monetary policy worked through its influence on the credit market. However, monetary policy was only one factor affecting credit markets. At times, in its influence on inflation, monetary policy could be overwhelmed by other factors. More specifically, Burns had a real or nonmonetary view of inflation. That is, inflation could arise from a variety of sources other than just money. He believed that a central bank could cause inflation by monetizing government deficits but did not attribute inflation to that source in the early 1970s. Instead, he attributed it to the exercise of monopoly power by unions and large corporations.

If conventional monetary policy weapons were powerless to deal with these forces, then perhaps direct controls might work. Accordingly, President Nixon imposed wage and price controls August 15, 1971. The experience with such constraints offered a tailor-made experiment of Burns’s views. The controls worked as intended in that they held down wage growth and the price increases of large corporations (see Kosters [1975]). Nevertheless, inflation rose to double digits by the end of 1973. So Burns attributed inflation to special factors, such as increases in food prices due to poor harvests and in oil prices due to the restriction of oil production. However, special factors are by nature one-time events. In 1974, inflation should have fallen as the effect of these one-time events dissipated, but it remained at double-digit levels that year. Burns then blamed inflation on government deficits. Although those deficits were small in 1973 and 1974, Burns was able to make them look larger by adding in the lending of government-sponsored enterprises like the Federal National Mortgage Association.

Burns said inflation was caused by wage demands. Wage and price controls worked as intended but inflation rose anyway. Then Burns changed his story and blamed special factors. But the special factors passed, and time went by, and inflation did not fall. So Burns changed his story again and blamed government deficits, even padding them to make them look bigger.

That's not my story. It's Robert Hetzel's, and it isn't kind to Arthur Burns. I don't know if the story's accurate. I know that other parts of Hetzel's PDF agree with things I hold true, things I read long ago, things written in the 1970s. Such old sources seem to me less tainted by modern views, and more reliable. And Robert Hetzel's story fits well with those.


Here is what I want to say:

Burns covers all the bases, all but one. He points the finger at workers. He points the finger at acts of God. And he points the finger at government. But he does not point a finger at finance, the rising cost of finance.

Maybe I'm wrong. Maybe the cost of finance is not the cost that's killing us. But we cannot possibly know that, if we refuse to look at it.