Arthur Burns

Having occupied important positions in every Republican administration from the end of World War II to the mid-1980s, Arthur Burns (1904-1987) was one of the most influential economic statesmen of his times.

Born in Stanislau, Austria, Arthur Burns soon immigrated with his Austro-Hungarian Jewish parents to New Jersey. He grew up in Bayonne, where he showed particular promise in debate and languages. He attended Columbia University on a scholarship, and while a student worked as a painter, sailor, writer, and clerk. Occasionally, he published articles in New York Herald Tribune.

Burns studied under Wesley Clair Mitchell, one of the nation's leading economists who pioneered in the development of statistics. Mitchell had organized the National Bureau of Economic Research at Columbia and, after receiving his Ph.D. in economics, Burns joined him there. His first important publication, Production Trends in the United States Since 1870, was released by the National Bureau in 1934 and established him as a coming scholar in that field.

During the 1930s economic debate in America centered on the concepts of John Maynard Keynes, who held that a vigorous governmental role was needed to direct the economy. Because the United States then was mired in a deep depression, this meant large-scale government spending programs such as those sponsored by President Franklin D. Roosevelt's New Deal. While accepting some of Keynes' ideas, Burns believed the American Keynesians were far too simplistic in their approaches. Along with Mitchell, he believed economic action must be preceded by careful gatherings of facts and not based upon some abstract idea. Each industry has its own cycle, he wrote, and when several head downward at the same time, we will have a recession or depression. What is needed then is some intervention, but on a highly selective basis.

By the late 1940s, by which time he had succeeded Mitchell as director of research at the National Bureau of Economic Research, Burns had come to believe that the maintenance of employment was a prime goal of government, but that inflation was another serious problem which had to be addressed. This would be accomplished by "leaning" against the economy whenever one or the other threatened. Gentle stimulative pressures would be applied when recession threatened, and restrictive ones when inflation seemed about to rise or accelerate. This placed Burns squarely in the camp of moderate Republicans who then were supporting General Dwight D. Eisenhower for the presidency.

When Eisenhower became president in 1953 he selected Burns to head the Council of Economic Advisors. A recession developed later that year, and Eisenhower was willing to embark upon a major recovery program. Burns urged him to hold back. The economic indicators seemed to point to a milder correction than most other economists expected. He proved correct. Without major intervention the economy turned upward in 1954, leading Eisenhower to remark, "Arthur, you'd have made a fine chief of staff during the war."

Burns resigned from the administration after the 1956 election and returned to the National Bureau of Economic Research and Columbia. He advised Eisenhower from there and later took on temporary assignments from his successors, John F. Kennedy and Lyndon B. Johnson. In addition, he kept in close contact with Richard Nixon, formerly Eisenhower's vice president and then a New York attorney.

When Nixon won the 1968 election he asked Burns to return to Washington as counselor to the president, a position which would carry cabinet rank and give him wide responsibilities in domestic affairs. At the time the nation was in the midst of a crisis of confidence due to anti-Vietnam War sentiment, high inflation, and the largest budget deficit of the post-World War II period. Burns recommended a slowdown in the growth of the money supply through Federal Reserve Board policies and cutbacks in spending, which he hoped would dampen the inflation rate without causing a recession. Nixon accepted the broad outlines of the program, and at first it seemed to be working. Then the Federal Reserve tightened up sharply on the money supply, causing interest rates to rise and leading to an economic downturn while inflation was still deemed a problem. Thus was born "stagflation," a problem which would haunt the nation throughout the 1970s and cause economists to rethink many of their earlier ideas.

With the coming of stagflation Burns' position in the Nixon White House declined, and his views started to change. Now he supported wage and price "guidelines" as a means of controlling inflation and seemed to inch away from his earlier stance.

In late 1969 President Nixon named Burns to become chairman of the Federal Reserve, where he would be able to act independently. Burns expanded the currency supply, which gave the economy a boost. When the Penn Central Railroad collapsed in 1970, Burns proclaimed that the Federal Reserve would provide sufficient funds to prevent a panic, and his calm behavior in this crisis not only enhanced his reputation but made him one of the most powerful men in the country insofar as economic matters were concerned. Burns continued to support wage and price guidelines and was credited with having helped prompt President Nixon to impose them in 1971. That same year he expanded the money supply considerably, so that by Election Day 1972 the economy was growing while prices were being contained, making the economy appear quite healthy and helping Nixon win a second term. Burns was accused of having used the Federal Reserve for political purposes, which he vehemently denied.

Burns served as chairman of the Federal Reserve until the conclusion of his term in 1978, at which time he was not reappointed by Democratic President Jimmy Carter. This caused the dollar to plummet and shook the new administration. Burns left government to take a post at the American Enterprise Institute and also lectured and wrote, becoming an elder statesman of moderate economics. During that time he published Reflections of an Economic Policy Maker (1978).

In 1981 President Ronald Reagan named Burns ambassador to the Federal Republic of Germany. He took the post during a time of strong anti-American sentiment in Europe, because of U.S. deployment of cruise and Pershing missiles. Reagan proved wise in his decision to appoint Burns, who was well-respected throughout Europe for his past performance in economic matters. He was able to quell European concerns, arriving at an agreement with the West German foreign minister that significantly eased tensions within NATO. Burns served as Ambassador to Germany for four years, then returned to the American Economic Institute to pursue writing and teaching.

Arthur Burns died in Baltimore, Maryland on June 26, 1987, leaving a tremendous legacy. Not only did his economic policies dramatically influence the American and world economies, he also inspired people, such as his famous pupil, Milton Friedman. He was clearly an approachable man, being described by one reporter as "a small-town druggist circa 1910."

Further Reading

There is no biography of Arthur Burns. A discussion and analysis of his life and ideas may be found in Robert Sobel, The Worldly Economists (1980); William Breit and Roger Ransom, The Academic Scribblers (1971); Edward Flash, Jr., Economic Advice and Presidential Leadership (1965); and Herbert Stein, The Fiscal Revolution in America (1969). For his work during the Eisenhower administration see Sherman Adams, Firsthand Report: The Story of the Eisenhower Administration (1961), while William Safire, Before the Fall contains material on his work during the Nixon administration. Among the more accessible works by Burns himself is Reflections on an Economic Policy Maker (1978), which is a collection of his papers and speeches through the years. Also see Wyatt C. Wells, Economist in an Uncertain World: Arthur F. Burns and the Federal Reserve, 1970-78, Columbia University Press, 1994. □

BURNS, ARTHUR F. 1904-

Chairman federal reserve board

Government Technocrat

The 1960s and 1970s saw the rise of the government technocrat, who wielded great influence over the U.S. economy. Arthur Burns is a prime example of the species. Nonpartisan in the strictest sense, Burns served eight U.S. presidents—Dwight Eisenhower through Ronald Reagan—in various posts and became one of the most important influences in the post-World War II American economy.

Education

Burns was born in Stanislau, Austria, and immigrated as a child to Bayonne, New Jersey. An intellectually ambitious young man, Burns obtained a scholar-ship to Columbia University in 1921. He graduated in 1925 with both a B.A. and an M.A. in economics. He received his Ph.D. from Columbia in 1934, the same year his dissertation, Production Trends in the United States Since 1870, was published. In 1944 Burns returned to Columbia University as a professor. In 1948 he became the director of research at the National Bureau of Economic Research, becoming its president in 1957.

Eisenhower

In 1953 Burns became President Eisenhower's chief economic adviser, serving as the chairman of the Council of Economic Advisers. His views on taxes and spending were held in the highest regard, and he was given much credit for the 1955 economic miniboom. At the end of Eisenhower's first term in 1956, Burns re-signed his official position and returned to Columbia; he continued to advise Eisenhower on an unofficial basis. During the 1960 presidential campaign, Burns was part of the "Scholars," the academics advising Republican candidate, Vice-president Richard Nixon.

Kennedy and Johnson

Burns's association with Eisenhower and Nixon did not forestall his being named as an economic adviser to President John F. Kennedy. Burns took great exception to the deliberate running of budget deficits, a tendency he saw as becoming a dangerous new economic orthodoxy. He also was an advocate of reforming the tax code, which he saw as an inefficient "legacy of the Great Depression. After Kennedy's assassination in 1963, Burns became an important adviser to President Lyndon Johnson. In 1964 he proposed an annual tax cut, a move he claimed would insure economic growth and, ironically enough in light of developments during the 1980s, increase tax revenues.

Federal Reserve

In 1968 Burns again became an adviser on economics to Nixon during the presidential campaign. In January 1969, after Nixon's victory, Burns was named to be counselor to the president, a Cabinet-level post. Burns was instrumental, along with Daniel Patrick Moynihan, in developing Nixon's almost-liberal domestic policy. That position lasted only until October, when Burns was named as chairman of the Federal Reserve System. His oversight of the money supply put Burns at the very heart of the economy. Burns's philosophy as the U.S. central banker was to control the money supply to counteract the business cycle in order to forestall both high inflation and recession.

New Economic Policy

The Nixon administration was faced with increasing inflation, a product of what many economists assert was the overheating of the economy with spending for both the Vietnam War and President Johnson's Great Society social programs. In 1970 Burns suggested wage and price controls as a means to calm inflationary pressures. Nixon at first rejected Burns's prescription, but in 1971 the president instituted a phase program of controls and currency devaluation as part of his New Economic Policy. Burns advised Nixon closely on the details of the program, continuing his advisory role even while serving as an "independent" central banker.

The Problem of Timing

Burns's performance received mixed-to-negative reviews, mainly because his theory did not take into account the timing of the moves needed to keep the economy growing. As a result, Burns kept the money supply growing robustly from 1970 to 1973, only then restraining it. The recession of 1973-1974, brought on by the oil crisis, was accompanied by double-digit inflation.

Crisis Management

The turbulent economy of the 1970s gave Burns many opportunities to carry out the crisis management activities of the central banker. Two of the most important were the 1970 bankruptcy of the Penn Central Railroad and the 1975 loan default by New York City. In both cases Burns acted quickly to provide adequate liquidity to smooth the financial system through the crisis. Burns's easy manner and mainstream ideas about economic policy and nonideological approach to government enabled him to continue serving presi-dents Gerald Ford and Jimmy Carter as Federal Reserve chairman. In 1978 Burns was replaced as chairman by Paul Volcker. In 1981 he was appointed by President Ronald Reagan to be ambassador to West Germany.

Source:

William Safire, Before the Fall: An Inside View of the Pre-Watergate White House (Garden City, N.Y.: Doubleday, 1975).

Arthur Frank Burns 1904–87, American economist, b. Austria, grad. Columbia Univ. (A.B., 1925; A.M., 1925; Ph.D., 1934). He taught economics at Rutgers Univ. (1927–44), and then joined (1944) the faculty of Columbia, where he became John Bates Clark professor of economics in 1959. A member of the National Bureau of Economic Research from 1933, he was director of research (1945–53) and president (1957–67) of that organization. Under President Eisenhower, Burns was chairman (1953–56) of the Council of Economic Advisers. He returned to government service as economic counselor (1969–70) to President Nixon. As chairman (1970–78) of the board of governors of the Federal Reserve System , he advocated fiscal and monetary restraint. He later (1981–85) served as ambassador to West Germany.