Mobilizing for the Market: Organized Business, Wage-Price Controls, and the Politics of Inflation, 1971-1974

Abstract

On Sunday evening, August 15, 1971, President Richard M. Nixon preempted the beloved television western Bonanza to announce a historic change in federal economic policy. (The show was in summer reruns, but an always-insecure Nixon still worried that his interruptive prime-time address would annoy its fans.) After a frantic weekend conferring with his economic advisers at Camp David, the president announced a multifaceted New Economic Policy (nep) to address the interrelated problems of “unemployment, inflation, and international speculation.” A crisis in international monetary policy loomed, brought on by deficits in America's balance-of-payments and balance-of-trade accounts and the consequent outflow of U.S. dollars to foreign central banks. Under the terms of the Bretton Woods agreement of 1944, the United States promised to redeem dollars for gold at a fixed rate ($35 per ounce), but the quantity of greenbacks in circulation far outstripped the nation's gold supply. To prevent a devastating run on American reserves, Nixon suspended gold convertibility. To redress the trade balance, he imposed a 10 percent surtax on imports. And to stave off recession, Nixon called on Congress to enact an economic stimulus plan that would reinstate an investment tax credit, repeal excise taxes on cars, and increase the personal exemption for individual income taxes. Those provisions all became law in December 1971.1