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"Address to the Nation Outlining a
New Economic Policy: 'The Challenge of Peace.' August 15, 1971". United
States President Richard Nixon's address to the nation announcing the
"temporary" suspension of the dollar's convertibility into gold.
While the dollar had struggled throughout most of the 1960s within the parity
established at Bretton Woods, this crisis marked the breakdown in the system.
The closing of the gold window signified the end of the Bretton Woods system.
Good evening:
I have addressed the
Nation a number of times over the past 2 years on the problems of ending
a war. Because of the progress we have made toward achieving that goal, this
Sunday evening is an appropriate time for us to turn our attention to the
challenges of peace.
America today has the
best opportunity in this century to achieve two of its greatest ideals: to
bring about a full generation of peace, and to create a new prosperity
without war.
This not only requires
bold leadership ready to take bold action – it calls forth the
greatness in a great people.
Prosperity without war
requires action on three fronts: We must create more and better jobs; we must
stop the rise in the cost of living; we must protect the dollar from the
attacks of international money speculators.
We are going to take that
action – not timidly, not half-heartedly, and not in piecemeal fashion.
We are going to move forward to the new prosperity without war as befits a
great people – all together, and along a broad front.
The time has come for a
new economic policy for the United States. Its targets are unemployment,
inflation, and international speculation. And this is how we are going to
attack those targets.
First, on the subject of
jobs. We all know why we have an unemployment problem. Two million workers
have been released from the Armed Forces and defense
plants because of our success in winding down the war in Vietnam. Putting
those people back to work is one of the challenges of peace, and we have
begun to make progress. Our unemployment rate today is below the average of
the 4 peacetime years of the 1960’s.
But we can and we must do
better than that.
The time has come for
American industry, which has produced more jobs at higher real wages than any
other industrial system in history, to embark on a bold program of new
investment in production for peace.
To give that system a
powerful new stimulus, I shall ask the Congress, when it reconvenes after its
summer recess, to consider as its first priority the enactment of the Job
Development Act of 1971.
I will propose to provide
the strongest short-term incentive in our history to invest in new machinery
and equipment that will create new jobs for Americans: a 10 percent Job
Development Credit for 1 year, effective as of today, with a
5 percent credit after August 15, 1972. This tax credit for
investment in new equipment will not only generate new jobs; it will raise
productivity; it will make our goods more competitive in the years ahead.
Second, I will propose to
repeal the 7 percent excise tax on automobiles, effective today. This
will mean a reduction in price of about $200 per car. I shall insist
that the American auto industry pass this tax reduction on to the nearly
8 million customers who are buying automobiles this year. Lower prices
will mean that more people will be able to afford new cars, and every
additional 100,000 cars sold means 25,000 new jobs.
Third, I propose to speed
up the personal income tax exemptions scheduled for January 1, 1973, to
January 1, 1972 – so that taxpayers can deduct an extra
$50 for each exemption 1 year earlier than planned. This increase
in consumer spending power will provide a strong boost to the economy in
general and to employment in particular.
The tax reductions I am
recommending, together with this broad upturn of the economy which has taken
place in the first half of this year, will move us strongly forward toward a
goal this Nation has not reached since 1956, 15 years ago: prosperity
with full employment in peacetime.
Looking to the future, I
have directed the Secretary of the Treasury to recommend to the Congress in
January new tax proposals for stimulating research and development of new
industries and new techniques to help provide the 20 million new jobs
that America needs for the young people who will be coming into the job market
in the next decade.
To offset the loss of
revenue from these tax cuts which directly stimulate new jobs, I have ordered
today a $4.7 billion cut in Federal spending.
Tax cuts to stimulate
employment must be matched by spending cuts to restrain inflation. To check
the rise in the cost of Government, I have ordered a postponement of pay
raises and a 5 percent cut in Government personnel.
I have ordered a
10 percent cut in foreign economic aid.
In addition, since the
Congress has already delayed action on two of the great initiatives of this
Administration, I will ask Congress to amend my proposals to postpone the
implementation of revenue sharing for 3 months and welfare reform for
1 year.
In this way, I am
reordering our budget priorities so as to concentrate more on achieving our
goal of full employment.
The second indispensable
element of the new prosperity is to stop the rise in the cost of living.
One of the cruelest legacies of the artificial prosperity produced
by war is inflation. Inflation robs every American, every one of you. The
20 million who are retired and living on fixed incomes – they are
particularly hard hit. Homemakers find it harder than ever to balance the
family budget. And 80 million American wage earners have been on a
treadmill. For example, in the 4 war years between 1965 and 1969, your
wage increases were completely eaten up by price increases. Your paychecks were higher, but you were no better off.
We have made progress
against the rise in the cost of living. From the high point of 6 percent
a year in 1969, the rise in consumer prices has been cut to 4 percent in
the first half of 1971. But just as is the case in our fight against
unemployment, we can and must do better than that.
The time has come for
decisive action – action that will break the vicious circle of spiraling prices and costs.
I am today ordering a
freeze on all prices and wages throughout the United States for a period of
90 days. In addition, I call upon corporations to extend the wage-price
freeze to all dividends.
I have today appointed a
Cost of Living Council within the Government. I have directed this Council to
work with leaders of labor and business to set up
the proper mechanism for achieving continued price and wage stability after
the 90-day freeze is over.
Let me emphasize two
characteristics of this action: First, it is temporary. To put the strong,
vigorous American economy into a permanent straitjacket would lock in
unfairness; it would stifle the expansion of our free enterprise system. And
second, while the wage-price freeze will be backed by Government sanctions,
if necessary, it will not be accompanied by the establishment of a huge price
control bureaucracy. I am relying on the voluntary cooperation of all Americans
– each one of you: workers, employers, consumers – to make this
freeze work.
Working together, we will
break the back of inflation, and we will do it without the mandatory wage and
price controls that crush economic and personal freedom.
The third indispensable element in
building the new prosperity is closely related to creating new jobs and
halting inflation. We must protect the position of the American dollar as a
pillar of monetary stability around the world.
In the past 7 years, there has been
an average of one international monetary crisis every year. Now who gains
from these crises? Not the workingman; not the investor; not the real
producers of wealth. The gainers are the international money speculators.
Because they thrive on crises, they help to create them.
In recent weeks, the speculators have
been waging an all-out war on the American dollar. The strength of a
nation’s currency is based on the strength of that nation’s
economy – and the American economy is by far the strongest in the world.
Accordingly, I have directed the Secretary of the Treasury to take the action
necessary to defend the dollar against the speculators.
I have directed Secretary Connally to suspend temporarily the convertibility of the
American dollar except in amounts and conditions determined to be in the
interest of monetary stability and in the best interests of the United
States.
Now, what is this action – which is
very technical – what does it mean for you?
Let me lay to rest the bugaboo of what is
called devaluation.
If you want to buy a foreign car or take
a trip abroad, market conditions may cause your dollar to buy slightly less.
But if you are among the overwhelming majority of Americans who buy
American-made products in America, your dollar will be worth just as much
tomorrow as it is today.
The effect of this action, in other
words, will be to stabilize the dollar.
Now, this action will not win us any
friends among the international money traders. But our primary concern is
with the American workers, and with fair competition around the world.
To our friends abroad, including the many
responsible members of the international banking community who are dedicated
to stability and the flow of trade, I give this assurance: The United States
has always been, and will continue to be, a forward-looking and trustworthy
trading partner. In full cooperation with the International Monetary Fund and
those who trade with us, we will press for the necessary reforms to set up an
urgently needed new international monetary system. Stability and equal
treatment is in everybody’s best interest. I am determined that the
American dollar must never again be a hostage in the hands of international
speculators.
I am taking one further step to protect
the dollar, to improve our balance of payments, and to increase jobs for
Americans. As a temporary measure, I am today imposing an additional tax of
10 percent on goods imported into the United States. This is a better
solution for international trade than direct controls on the amount of
imports.
This import tax is a temporary action. It
isn’t directed against any other country. It is an action to make
certain that American products will not be at a disadvantage because of
unfair exchange rates. When the unfair treatment is ended, the import tax
will end as well.
As a result of these actions, the product
of American labor will be more competitive, and the
unfair edge that some of our foreign competition has will be removed. This is
a major reason why our trade balance has eroded over the past 15 years.
At the end of World
War II the economies of the major industrial nations of Europe and Asia
were shattered. To help them get on their feet and
to protect their freedom, the United States has provided over the past
25 years $143 billion in foreign aid. That was the right thing for
us to do.
Today, largely with our
help, they have regained their vitality. They have become our strong
competitors, and we welcome their success. But now that other nations are
economically strong, the time has come for them to bear their fair share of
the burden of defending freedom around the world. The time has come for
exchange rates to be set straight and for the major nations to compete as
equals. There is no longer any need for the United States to compete with one
hand tied beyond her back.
The range of actions I
have taken and proposed tonight – on the job front, on the inflation
front, on the monetary front – is the most comprehensive new economic
policy to be undertaken in this Nation in four decades.
We are fortunate to live
in a nation with an economic system capable of producing for its people the
highest standard of living in the world; a system flexible enough to change
its ways dramatically when circumstances call for change; and, most important,
a system resourceful enough to produce prosperity with freedom and
opportunity unmatched in the history of nations.
The purposes of the
Government actions I have announced tonight are to lay the basis for renewed
confidence, to make it possible for us to compete fairly with the rest of the
world, to open the door to new prosperity.
But government, with all
of its powers, does not hold the key to the success of a people. That key, my
fellow Americans, is in your hands.
A nation, like a person,
has to have a certain inner drive in order to succeed. In economic affairs,
that inner drive is called the competitive spirit.
Every action I have taken
tonight is designed to nurture and stimulate that competitive spirit, to help
us snap out of the self-doubt, the self-disparagement that saps our energy
and erodes our confidence in ourselves.
Whether this Nation stays
number one in the world’s economy or resigns itself to second, third,
or fourth place; whether we as a people have faith in ourselves, or lose that
faith; whether we hold fast to the strength that makes peace and freedom
possible in this world, or lose our grip – all that depends on you, on
your competitive spirit, your sense of personal destiny, your pride in your
country and in yourself.
We can be certain of
this: As the threat of war recedes, the challenge of peaceful competition in
the world will greatly increase.
We welcome competition, because America is at her greatest when she
is called on to compete.
As there always have been
in our history, there will be voices urging us to shrink from that challenge
of competition, to build a protective wall around ourselves, to crawl into a
shell as the rest of the world moves ahead.
Two hundred years ago a
man wrote in his diary these words: “Many thinking people believe
America has seen its best days.” That was written in 1775, just before
the American Revolution – the dawn of the most exciting era in the
history of man. And today we hear the echoes of those voices, preaching a gospel
of gloom and defeat, saying the same thing: “We have seen our best
days.”
I say, let Americans
reply: “Our best days lie ahead.”
As we move into a
generation of peace, as we blaze the trail toward the new prosperity, I say
to every American: Let us raise our spirits. Let us raise our sights. Let all
of us contribute all we can to this great and good country that has
contributed so much to the progress of mankind.
Let us invest in our
Nation’s future, and let us revitalize that faith in ourselves that
built a great nation in the past and that will shape the world of the future.
Thank you and good
evening.
Richard Nixon
August 15, 1971
Source
Office of the Federal Register . Richard
Nixon, containing the public messages, speeches and statements of the
president - 1971. Washington: US Government Printing Office, 1972, p.
886-890.
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