Inside the Nixon Administration:

The Secret Diary of Arthur Burns, 1969-1974

 Read our article in the Cayman Financial Review Magazine, eversion 

On 15 August, 1971, President Richard Nixon unilaterally
ended the international system of rules that had governed the financing of
international trade and investment since the end of World War II.

 By renouncing the United State’s obligation under the gold
exchange standard (countries pegged their exchange rates to and settled
international payments in the US dollar while the US pledged to exchange its
currency for gold at $35 dollars an ounce), ie by closing the gold window,
Nixon destroyed the Bretton Woods system of fixed exchange rates overseen by
the International Monetary Fund since its creation in 1944. Nixon’s New
Economic Policy announced that day also included the only peacetime wage and
price controls in US history.

Arthur Burns’, Nixon’s counsellor from 1969-70 then chairman
of the board of governors (1970-78), personal diary reflections on these and
other Nixon era events are fascinating reading for those of us over 60 who
remember them and can fill in the missing historical context. Regrettably,
Robert H. Ferrell, the editor of “Inside the Nixon Administration: The Secret
Diary of Arthur Burns, 1969-1974,” provides little to none of this badly needed
context. Characters such as John Connally, Spiro Agnew and Gerald Ford, appear
and disappear in Burns’ notes without contextual explanation by Ferrell. This
is a serious deficiency of this book, which nonetheless provides disturbing and
sad insights into American government under Nixon and of Burns himself.

If the Tea Party wants evidence for why as little as
possible should be trusted to government, here is a bundle. In addition to
Nixon’s constant eye on the next election as he formulated policies, Burns
observed in his 12 February 1969 entry:

“As I watch our Cabinet in action, I
wonder more & more whether or how they differ from the LBJ people. They
push for their departments, care not about money, rely on LBJ’s people, and
talk like them. If this continues, people over the country will be asking what
promises for change we are fulfilling. Fascinating to watch cabinet officers
becoming so quickly the prisoners of the career civil servants.” (page 7)

It took Burns a long time to see Nixon for what he was, a
duplicitous, insecure man, more interested in re-election than the nation’s
well being. Nixon launched a campaign of leaked threats to curtail Federal
Reserve independence to pressure Burns, who Nixon did not trust, to ease
monetary policy (faster monetary growth and lower interest rates) well ahead of
the 1972 elections in order to reduce relatively high unemployment rates (6 per
cent). The contrast between Burn’s diary as he attempts to uncover Nixon’s true
feels and involvement in these leeks and the White House tapes, in which Nixon
plots against Burns behind his back is pathetic and shocking.

Burns correctly understood the bigger picture. Lowering
interest rates (monetary stimulus) in 1970 and 71 would worsen the
international pressure on the dollar and accelerate the drain of US gold under
the terms of the gold exchange standard. It would destroy the international
monetary system established in Bretton Woods, which was probably doomed anyway
as a result of macro policy mismanagement by the reserve currency country, the
United States.

Burns said the right things, tighter fiscal and monetary
policy, but like Nixon seemed at times to be on all sides of the issues. While
arguing with Nixon against lowering interest rates, he pushed for them at the
Fed2. In October 1971, the White House tapes recorded this telephone exchange
between Nixon and Burns: Nixon: “As a safeguard, I will ask the Congress [for
standby controls on interest rates]. Now, that doesn’t bother ya?

Burns: “No, no. Mr President, I don’t think you have much of
a choice.”

While opposing more than a temporary wage and price freeze,
Burns argued for an “incomes policy” of wage and price guidelines to combat
cost push inflation in an era of stagflation: “‘incomes policy’ – is absolutely
necessary to shorten the transition phase, in which we are now caught, of
moving from cost push inflation to economic balance.” (page 29) Herb Stein,
chairman of Nixon’s Council of Economic Advisors explained that: “The theory
was that the inflation then underway (about 4 per cent per year) was propelled
by expectations of inflation, not by underlying demand and supply conditions.
The 90-day freeze would shake those expectations, and then the economy would
subside into price stability.”

Nixon was adamantly against wage and price controls almost
until he imposed them on 15 August, 1971. On 21 July, 1971 Nixon instructed
Connally to scare the public away from supporting them. “And the way you do it
is talk up 50,000 OPA [Office of Price Administration] cops, you know running
around, telling everybody, messing in your face and so forth. Everything is
fixed. You can’t change jobs, you know. Rationing! Just, just, just point it
out. What has happened abroad..… This is a socialist scheme, a scheme to
socialize America.”

Burns’ tenure as chairman of the Federal Reserve is one of
its worst. Money grew faster (the primary responsibility of the Fed) and
inflation was consequently higher than under any other eight year period after
WWII. The inflation rate, annual average rate of increase in the consumer price
index, averaged about 9 per cent over the period of his chairmanship peaking at
over 12 per cent/year in late 1974. See Figure 1.

“The only disagreement among economists is whether
Burns fully understood the mistakes he was making, or was so wedded to
incorrect Keynesian theories that he didn’t realize what he was doing. The only
alternative is that he was under irresistible political pressure from Nixon and
had no choice. Neither explanation is very favourable to Burns. Economists now
recognize the Nixon era as Exhibit A in how the adoption of bad economic
policies in pursuit of short-term political gain eventually turns out to be bad
politics as well.”

Nonetheless, Burns projected an aura of wisdom, integrity
and arrogance, which from his diary he seemed to believe himself. He observed
that “we often end up believing what we like to believe – about others and also
about ourselves.” (page 120)

Burns was born in the Ukraine 27 April, 1904 and died 27
June, 1987 in Baltimore. I was one of about 300 people who attended his
memorial service at the Adas Israel Synagogue in Washington on July 23, 1987
where he was eulogised by former Presidents Richard M. Nixon and Gerald R.
Ford, former secretary of the Treasury for Nixon and current secretary of state
for President Reagan George P. Shultz, Federal Reserve Board Chairman Paul A.
Volcker, Sen Pete V. Domenici (R-N.M.) and economist Milton Friedman. In this
Secret Diary Burns trashes almost all of them (he has little to say about
Friedman and Ford and nothing about Domenici).

On Paul Volcker, undersecretary of the Treasury and later
president of the Federal Reserve Bank of New York and the chairman of the board
of governors of the Federal Reserve, Burns wrote on 20 February, 1969 that:

“Volcker troubled me, gave a stupid reply to president’s question why the
British are interested in raising price of gold…” (Page 13) A year and a half
later he wrote: “Somehow, poor and wretched Volcker – never knowing where he
stood on any issue – had succeeded in instilling an irrational fear of gold in
his tyrannical master [Treasury Secretary John Connally], whom he tried
constantly to please by catering to his hatred of foreigners (particularly the
French)…” (Page 65)

On George Shultze, director of the Bureau of the Budget and
later the secretary of the Treasury (still later secretary of state under
Reagan), Burns, in reference to a discussion on closing the gold window, wrote
on 26 November, 1971 that “Shultz’s performance was an astounding exercise on
the part of a man who should know that he has not the slightest understanding
of international economics or finance. What a pity that this quiet, persuasive,
but woefully ignorant ideologist has such influence with the President.” (Page
66) Two months later he wrote:

“Poor Shultz! He tried so hard to be a
politician: he was entirely willing to politicize, if need be, the Budget
Bureau; he actually did so in large part; and now he found himself the author
of the most distressing budget in peacetime history.” (Page 71) A few years’
later Burn’s views of Shultz softened: “He has some fine qualities – character
and decency.” (Page 103)

Still later in the context of the Watergate scandal
Burns wrote on 9 June, 1973: “I can hardly recall a case when Shultz (in my
presence) stood up against the president. I am sure, nevertheless that Shultz
is thoroughly honest and had avoided wrongdoing. He is, unfortunately, not a
leader, and while he’s become more pragmatic, he continues to worship classical
principles of a free market (overlooking the fact that there is no free market
to much of our contemporary economy). (Page 105) On December 16, 1973 he wrote:

“Shultz is tired, but I think he likes being secretary [of the Treasury] too
much to give it up. I may be wrong. If he goes, I’ll miss him.” (Page 116)

On Richard M Nixon, Burns wrote on 8 July, 1971: “I had long
suspected that the President lacked true self-assurance…. I was seized suddenly
with fear for the safety of our country which depends so heavily on this
insecure man….” (Page 46) And on 22 August, 1971:

“All in all, there was little
room for any doubt – taking the president’s words as he moved from one subject
to the next – that he was governed mainly, if not entirely, by a political
motive, that he had reached the decision that the kind of changes that we were
discussing – on price & wages, taxes, etc. – were essential for the
campaign of 1972.” (Page 53)

On 14 July, 1973 Burns wrote of Nixon: “The president has
many shortcomings. He has few convictions, but now and then he gets into a
euphoric mood where he wants to persuade himself that he’s a statesman. But his
sycophantic advisers cannot even recognize that. They know his prejudices and
they cater to them. What a tragedy for this fine and noble nation!” (Page 107)
In his last entry (25 July, 1974) Burns notes: “In my contacts, president has
always been articulate, and rarely swore beyond saying ‘damn.’ In other words,
he conducted himself with dignity. But, as the transcripts [of the famous White
House tapes] show, he spoke in a private jargon, sounded illiterate, and used
foul language all over the place, in his conversation with H [H. R. Haldeman],
E [John D. Ehrlichman] & [Chuck] Colson. Kissinger said his experience was
exactly same as mine, and that he could not recognize the man he thought he
knew, as he read the transcripts.”

But Burns did not judge all of those around him negatively.
On 29 February, 1972, nine months before Agnew resigned for corruption in
office, Burns wrote: “Ted Agnew is an honest man. He has plenty of guts and
good sense.” (Page 76)

Sadly this book does not come even close to the
book it could have and should have been but at times is still irresistible and
always damning. Is Nixon the only President who has cared more about holding on
to political power than for the national interest? Not likely. Are the key
advisors around every president as easily seduced by the aura of power as those
described here? Hard to say. Should we give them all the benefit of the doubt?
Definitely not.



  1. I am grateful to Burton A. Abrams and James L. Butkiewicz for providing me with their manuscript: “The Political Economy of Wage and Price Controls: Evidence from the Nixon Tapes” and the extensive quotes from the tapes provided there.
  2. Federal Open Market Committee minutes from 1970-71 indicate that Burns pressed for a more expansionary policy than did some other members of the Committee.
  3. October 7, 1971 (10-121) Nixon and Burns on the White House telephone.
  4. Stein, “Wage and Price Controls: 25 Years Later,”
  5. Nixon from the White House tapes of July 21, 1971 (541 – 2) Nixon, Haldeman, Connally, Shultz, Ehrlichman and Colson.
  6. Bruce Bartlett, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy, New York: Doubleday, 2006, p. 147
  7. Ibid. Page 133. Having read some of these transcripts myself, I had the same reaction.


Previous articleGrey Matters
Next articleWhither the Cayman Dollar?
Warren Coats
Warren Coats retired from the International Monetary Fund in 2003 where he led technical assistance missions to more than twenty countries (including Afghanistan, Bosnia, Egypt, Iraq, Kenya, Serbia, Turkey, and Zimbabwe). He was a member of the Board of the Cayman Islands Monetary Authority from 2003-10. He is currently Visiting Scholar in the Institute for Capacity Development Department of the International Monetary Fund (February 20, 2018 through April 30, 2019) and a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise. He has a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. In March 2019 Central Banking Journal awarded him for his “Outstanding Contribution for Capacity Building.” Warren CoatsT.  +1 (301) 365 0647E. [email protected]W: