Bettmann

By Michael A . Martorelli

People who found it difficult to deal with 2020 ’ s government-imposed masking and social distancing guidelines have only the slightest concept of the hardships caused by the federal mandates Americans had to deal with in the late summer and fall of 1971 . On August 15 of that year , President Richard M . Nixon announced a 90-day freeze on all wages , salaries , prices and rents . This order was the first of its kind imposed during peacetime . The freeze was only one element of the President ’ s New Economic Policy , a set of initiatives he believed would restrain the ongoing rise in inflation and stabilize the slumping economy without exacerbating unemployment .

Another important part of the program ( and one with long-term consequences worthy of a separate article ) was the suspension of full convertibility of dollars

President Richard M . Nixon announced a 90-day freeze on all wages , salaries , prices and rents on August 15 , 1971 . into gold by foreign treasuries and central banks . Economists would spend the next several years evaluating the long-term impact of that action . Businessmen and consumers would have to cope with the more immediate and direct impact of the wage and price controls .

As he assumed the presidency in January 1969 , Richard Nixon announced that curbing inflation without causing a sharp rise in unemployment would be one of his most important domestic priorities . Consumer prices had risen by 4.7 % in 1968 , the largest increase in more than 15 years . The Federal Reserve had overseen quarterly increases in the money supply averaging 8.6 % throughout 1967 and 1968 , thus providing the economy with more than enough liquidity .

The President believed both fiscal and monetary policy should be tightened to curb the inflationary trends in wages and prices . His administration supported the extension of a 10 % income tax surcharge , produced a budget that reduced federal spending below the previous year ’ s level and approved the elimination of a 7 % investment tax credit . While the President had no control over monetary policy , he hoped the Fed would help the cause by limiting the growth of the money supply .

Throughout the first year of the Nixon presidency , administration officials kept asserting that maintaining their policy of “ gradualism ” would soon lead to a softening of both inflation itself and inflationary expectations . By the end of 1969 , it seemed that the combination of fiscal and monetary policies had led to the slowing of the economy . The inflation-adjusted Gross National Product ( GNP ) grew by only 3.1 %, versus 4.9 % in 1968 . The rate of inflation proved more stubborn and actually rose to 5.5 %, versus 4.3 % in 1968 . The unemployment rate remained steady at around 3.5 %.

By the middle of 1970 , the President was feeling the need to take some visible steps to demonstrate his firm intention of controlling what seemed like a continuing epidemic of rising prices . He created the National Commission on Productivity ( NCP ) and the Regulations and Purchasing Review Board ( RPRB ) and tasked both

28 FINANCIAL HISTORY | Summer 2021 | www . MoAF . org