The Ford and Carter presidencies, taken together, may be the nadir in quality of United States monetary policy.
President Gerald R. Ford took over the presidency when Richard M. Nixon resigned on August 9, 1974. Nixon, under the influence of his Treasury Secretary John Connally , had broken the final link between the dollar and gold. Less than three years later inflation rapidly was approaching 12% -- double digit territory, rates that America had not seen in over half a century.
Less than two months after taking office, October 8, 1974, President Ford delivered these prepared remarks in an address to Congress:
During the meetings on inflation, I listened carefully to many valuable suggestions. Since the summit, I have evaluated literally hundreds of ideas, day and night.
My conclusions are very simply stated. There is only one point on which all advisers have agreed: We must whip inflation right now.
None of the remedies proposed, great or small, compulsory or voluntary, stands a chance unless they are combined in a considered package, in a concerted effort, in a grand design.
I have reviewed the past and the present efforts of our Federal Government to help the economy. They are simply not good enough, nor sufficiently broad, nor do they pack the punch that will turn America's economy on.
A stable American economy cannot be sustained if the world's economy is in chaos. International cooperation is absolutely essential and vital. But while we seek agreements with other nations, let us put our own economic house in order. Today, I have identified 10 areas for our joint action, the executive and the legislative branches of our Government.
The ten areas turned out to be an ineffectual pastiche of directing farmers to plant more acreage (to raise food supply thus, in naive concept, driving down food prices); reducing oil imports by 1 million barrels a day, increasing domestic supply, promoting clean coal and nuclear power, deregulating natural gas supplies; amending the Clean Air Act; passage of surface mining legislation; regulatory reform; ominous "monitoring" of private sector wage and price increases; making corporate dividends tax deductible; liberalizing the tax treatment of capital gains; providing extra unemployment insurance benefits; provide public works jobs to beautify America; $1.6 billion in tax relief to low and middle-income Americans paid for with a supertax on oil producers; permitting home mortgages to be purchased by federal agencies; restructuring the Savings and Loan industry; trade reform; a 5% tax surcharge; a target spending limit....
My fellow Americans, 10 days ago I asked you to get things started by making a list of 10 ways to fight inflation and save energy, to exchange your list with your neighbors, and to send me a copy.
I have personally read scores of the thousands of letters received at the White House, and incidentally, I have made my economic experts read some of them, too. We all benefited, at least I did, and I thank each and every one of you for this cooperation.
Some of the good ideas from your home to mine have been cranked into the recommendations I have just made to the Congress and the steps I am taking as President to whip inflation right now. There were also firm warnings on what Government must not do, and I appreciated those, too. Your best suggestions for voluntary restraint and self-discipline showed me that a great degree of patriotic determination and unanimity already exists in this great land.
I have asked Congress for urgent specific actions it alone can take. I advised Congress of the initial steps that I am taking as President. Here is what only you can do: Unless every able American pitches in, Congress and I cannot do the job. Winning our fight against inflation and waste involves total mobilization of America's greatest resources—the brains, the skills, and the willpower of the American people.
Here is what we must do, what each and every one of you can do: To help increase food and lower prices, grow more and waste less; to help save scarce fuel in the energy crisis, drive less, heat less. Every housewife knows almost exactly how much she spent for food last week. If you cannot spare a penny from your food budget—and I know there are many—surely you can cut the food that you waste by 5 percent.
Every American motorist knows exactly how many miles he or she drives to work or to school every day and about how much mileage she or he runs up each year. If we all drive at least 5 percent fewer miles, we can save, almost unbelievably, 250,000 barrels of foreign oil per day. By the end of 1975, most of us can do better than 5 percent by carpooling, taking the bus, riding bikes, or just plain walking. We can save enough gas by self-discipline to meet our 1 million barrels per day goal.
I think there is one final thing that all Americans can do, rich or poor, and that is share with others. We can share burdens as we can share blessings. Sharing is not easy, not easy to measure like mileage and family budgets, but I am sure that 5 percent more is not nearly enough to ask, so I ask you to share everything you can and a little bit more. And it will strengthen our spirits as well as our economy.
The Ford administration solution to inflation?
As CNN observed in an obituary of President Ford:
Ford's approach to controlling inflation, according to his White House biography, was through modest tax cuts and spending restraints. He also sought to "decontrol" energy prices in order to stimulate production.
One of Ford's more memorable attempts to restrain inflation at the time was an initiative called Whip Inflation Now. In a televised speech given Oct. 8, 1974, Ford described the plan that was to enable Americans to personally remedy rising costs:
"Here is what we must do, what each and every one of you can do: To help increase food and lower prices, grow more and waste less; to help save scarce fuel in the energy crisis, drive less, heat less.
Buttons with the initials 'WIN' were distributed, and people were encouraged to wear them to help raise the public's awareness of the effort.
The idea was for inflation to be contained and combated on the individual level.
WIN proved to be an ineffective step, "both from the public relations aspect and an economic one," said Daniel Mitchell, professor of management and public policy at UCLA.
President Ford, who inherited many of the nation's economic problems from the previous administration, was defeated in the following presidential election.
Jimmy Carter was sworn in as president in 1977.
Inflation remained a problem throughout the 1970s, finally peaking at an annual rate of 13.5 percent in 1980.
None of Ford’s measures addressed the real cause of the problem, the depreciation in the value of our currency deriving from flouting, and then repudiating, the gold standard. Much economic suffering was to follow.
President Jimmy Carter inherited a badly disordered monetary policy. The gold-exchange standard, conceived at Bretton Woods, was a ticking time bomb. It induced an inherently destabilizing reserve currency dollar. This, in turn, was furhter undermined by Lyndon Johnson who bullied our trading partners out of demanding their undesired dollar surpluses be exchanged for gold at the defined price as set forth in statute, $35/ounce. The gold window had then been "temporarily" closed by Richard Nixon. Nixon was followed by the underequipped Gerald R. Ford who himself was succeeded, in turn, by the decent but feckless Jimmy Carter.
In the month that Carter gave this speech inflation, which then was closing in on a 9% annualized rate on its way to more than doubling, from the 5.75% rate of 1976 and 6.5% rate of 1977 to 11.22% in 1979 and 13.58% in 1980. Carter, demonstrated by this speech, was baffled, and, although he did not grasp it, badly advised.
Inflation is obviously a serious problem. What is the solution?
I do not have all the answers. Nobody does. Perhaps there is no complete and adequate answer. But I want to let you know that fighting inflation will be a central preoccupation of mine during the months ahead, and I want to arouse the nation to join me in this effort.
There are two simplistic and familiar answers which are sometimes proposed -- simple, familiar, and too extreme. One of these answers is to impose a complicated scheme of Federal government wage and price controls on our entire free economic system. The other is a deliberate recession which would throw millions of people out of work. Both of these extreme proposals would not work, and they must be rejected.
I've spent many hours in the last few months reviewing with my own advisers and with a number of outside experts every proposal, every suggestion, every possibility in eliminating inflation. If there's one thing I have learned beyond any doubt, it is that there is no single solution for inflation.
What we have, instead, is a number of partial remedies. Some of them will help; others may not. But we have no choice but to use the best approaches we have and to maintain a constant search for additional steps which may be effective.
I want to discuss with you tonight some of the approaches we have been able to develop. They involve action by government, business, labor, and every other sector of our economy. Some of these factors are under my control as president -- especially government actions -- and I will insist that the government does its part of the job.
But whether our efforts are successful will finally depend on you as much as on me. Your decisions -- made every day at your service station or your grocery store, in your business, in your union meetings -- will determine our nation's answer to inflation as much as decisions made here at the White House or by the Congress on Capitol Hill.
I cannot guarantee that our joint effort will succeed. In fact, it is almost certain not to succeed if success means quick or dramatic changes. Every free government on Earth is wrestling with this problem of inflation, and every one of them knows that a long-term disease required long-term treatment. It's up to us to make the improvements we can, even at the risk of partial failure, rather than to ensure failure by not trying at all.
I will concentrate my efforts within the government. We know that government is not the only cause of inflation. But it is one of the causes, and government does set an example. Therefore, it must take the lead in fiscal restraint.
Carter's claims about inflation were dead wrong. There were answers. The causes were well known (although not to most of his advisors). There was a complete and adequate answer. Correctly Carter observed that neither wage and price controls nor a recession would have worked. He astutely rejected these false remedies.
But in retrospect (and to some contemporaneous figures in prospect, including financier and philanthropist Lewis E. Lehrman) obviously Carter had not reviewed "every possibility in eliminating inflation." The damage sustained by the American economy by the lack of a sound monetary policy was a major factor undermining Carter’s popularity and confidence in his judgment.
Carter’s pronouncement "that government is not the only cause of inflation" was, and remains, factually wrong. “Inflation,” as Lehrman Institute founder and chairman Lewis E. Lehrman stated in a hearing before a hearing of the House Domestic Monetary Policy subcommittee on March 17, 2011, “properly understood, is a monetary phenomenon.”
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