What I am saying is that the avenues that we have relied upon in the past may well prove insufficient for the purpose in the decades ahead when our population just in terms of human beings is going to go up a hundred million in the next 30 years, if the projections are correct. What this means in terms of an infrastructure, of course, is tens and perhaps hundreds of billions of dollars that the conventional bond market may be inadequate to provide.

Dr. BURNS. Well, you have put your finger on the problem, yes. And the question of some supplementary financial machinery is one that I think we should explore very intensively. Yes, by all means.

Mr. ASHLEY. As far as housing is concerned, can you think of any way-other than the references you have made to GNMA, FNMA, Home Loan Bank activity to seek to help try to strengthen the housing market-that the operation of monetary policy in inflation times, with of course the market operating, can produce less flagrantly unfair results than we see today, when we find the large corporations having access to Euro dollars but not smaller corporations, when we see, as the chairman said, the affluent being housed but not the moderate income or the poor or the black people?

Is there anything that we can do or that you hope to be able to do as the chief architect of monetary policy to correct the almost inherent unfairness that results?

Dr. BURNS. Well, I think a great deal has been done, Congressman Ashley, and I tried to recite some of the things that were done this past year, through our housing agencies. The record last year, as I tried to point out in my testimony, would not have been predicted by housing experts. We did vastly better than one could reasonably have anticipated in view of the very tight credit conditions that ruled. So we have made progress.

In the last paragraph of my testimony I indicated that I definitely feel, as do other members of the Board, that progress has been insuf ficient and that we at the Board will struggle with this problem in good conscience and that we hope that others will join us in this study, bceause all of us must face up to the realities. You have put the point very well for housing, but it goes beyond that. We at the Federal Reserve Board pursue a general credit policy, but the general credit policy that we pursue has a selective effect in the marketplace. And some of the selective effects are unhappy, from your viewpoint, from the viewpoint of many good citizens and also from the viewpoint of the Board.

Now, the question is one of devising sound financial machinery for ameliorating or modifying these unhappy effects, if we can not eliminate them entirely.

I think this is a problem that we at the Federal Reserve Board have to attend to, and I think this is a problem that you in the Congress have to attend to. And I only say this-and I hope you take it in the spirit in which I intend it-there has sometimes been a tendency on the part of the Congress to ask the central bank to do that which is not its proper function. Its proper function is to protect the dollar; it has been successful in that, and we want to keep it that way. There is much that the Congress can do, and which the Congress ought to do rather than ask the central bank to do it.

Mr. ASHLEY. I quite agree with that, Dr. Burns, and I am very sympathetic to the proposition that we should have had a tax increase in

1965 when Vietnam was escalated and that we should have had fiscal restraints. The fact of the matter is that in the past 2 years we have had fiscal restraint, but when you have fiscal restraint and monetary restraint combining in an effort to halt inflation you get a double impact upon these groups that we are concerned about. It is not just the operation of stringent credit policy. It is the fact that the Federal Government is cutting back in its expenditures for the cities and for the poor, for the disadvantaged and for the hungry. And so the impact is a double impact on this sector of our society. And I frankly wonder how long we can rely exclusively on monetary and fiscal policy, sympathetic as I am to the proposition that we haven't had the political courage to do that which we should have done, and, so, have put too great a burden on the Federal Reserve. But even saying that, I wonder how long we can rely exclusively on monetary and fiscal tools when others are available without there being a justifiable public outcry.

Dr. BURNS. Well, there certainly is a great deal of dissatisfaction in our country at the present time, and that of course is why you are holding these hearings. And I assure you that we will do at the Federal Reserve Board what we can. But I only plead with you to let us remain the independent central bank that we have been, so that we may continue to serve this country as we have by and large.

You and I are unhappy with the record of our country over these past 20 years, but it is better than that of any other country in the world. Sure, we worry about the pace of inflation and justifiably but our record is excellent compared to any other industrial country. The independent central bank that we have had has made, I think, a very significant contribution to that.

So that while the dollar has shrunk, it is still a pretty good dollar. Let us keep it that way.

Mr. ASHLEY. Speaking of that record of the last 20 years, other countries impose self-discipline in efforts to cope with inflation and I wonder if they don't do that in a somewhat more equitable way than we do, Dr. Burns?

Dr. BURNS. That is a fair question. I don't know enough to answer your question. But I shall reflect on it.

Mr. ASHLEY. Thank you, sir.

Thank you, Mr. Chairman.

Chairman PATMAN. Mr. Stanton.

Mr. STANTON. Thank you, Mr. Chairman.

Dr. Burns, I welcome you personally before the committee, and I think in observing the questions that you have been asked and the way that you have handled them this morning reiterates the confidence and the respect that this committee has for you personally. We wish you well in your assignment.

I think that also I would observe that some of us on the committee have been in the ball game for a few years now, and your appearance, and rightfully so, reminds me a little bit of the exhibition season for you before the regular season gets started in some of these questions.

I was wondering if it was in that light-as you well know, we have four bills pending before our committee, and of course one of them is H.R. 11, which is a bill to restructure the Federal Reserve Board,

and I wondered if you deliberately avoided referring to that bill in the light of not wanting to get mad at anybody or anybody to get mad at you, or were you just considering it not worthy of comment, or do you want to comment on it?

Dr. BURNS. Well, the simple truth of the matter is, Mr. Stanton, that I did not learn until midweek that the committee was interested in my comments on that bill and the other bills. This simply means I have been rushing around and doing far too many things, but my understanding was until midweek that I was to testify on the housing problem and not testify on any specific piece of legislation, you

see.

Well, by midweek I learned about these bills. I have done a little homework since. I did not have time to deal with these specific bills in my prepared statement. But I don't run away from questions, and if you want to throw questions at me-I am an old professor accustomed to tell his students he doesn't know the answers. So you shoot

away.

Mr. STANTON. I will take you up on that. H.R. 11, as you know, primarily involves the restructuring of the Federal Reserve System. Presumably, in its present form; the same as it has been since 1965 when first presented before our committee, it would reduce it from seven to five; it would retire seven members or all the members of the Board immediately and give them a year's salary. The first 11 sections. have to do with the member bank systems.

The first question: Do you think there is any need at all, or would you philosophically think that the Federal Reserve Board should be restructured?

Dr. BURNS. Well, we certainly should consider the question, yes. I am not ready to answer the question whether it should be restructured or not. But I think we should reexamine periodically all of our institutions, and I think H.R. 11 gives this committee and the Federal Reserve Board an opportunity to do some fresh thinking, and let us all do it.

Now, on your specific question about whether the Board should have seven members or five members, if we were starting from scratch and the Congress were writing the Federal Reserve Act for the first time I would recommend to this committee that the Federal Reserve Board consist of five members. But there is a lot of history here and before we make changes we should try to understand the implications of these changes. Therefore, I am not ready at this moment to recommend a reduction from seven to five.

Mr. STANTON. Thank you, Mr. Chairman.
Chairman PATMAN. Mr. Hanna.

Mr. HANNA. Thank you, Mr. Chairman.

Dr. Burns, I welcome you as a member of this committee and look forward to many further visits from you.

I wonder if you would provide me with short answers to the following questions and then expand on them as you read the record, if you would.

Do you believe at this time based upon your experience and knowl edge of our economy that the President's budget will develop a surplus of over $1 billion. Is that a prediction you want to

Dr. BURNS. No, I will not make that prediction, no. I have been a student of budgets for many years, and the fact that stands out in my memory is that the budgetary estimate go wrong.

Mr. HANNA. I believe you are correct and I am glad to have that candid answer.

Do you believe given the present economic policies that unemployment rates will increase or decrease in 1970?

Dr. BURNS. I would not be surprised if the unemployment increased a little in 1970.

Mr. HANNA. By little, what do you mean?

Dr. BURNS. Oh, I am so poor at numbers, Congressman Hanna. But I would not be surprised to see unemployment go up from its present level of 3.9 percent to 4.2, 4.3, maybe a little higher. But I do not anticipate any large increase in unemployment.

Mr. HANNA. I see. Would you predict that productivity of our economy will increase or decrease in 1970?

Dr. BURNS. Well, I hesitate to make a prediction, but I will make this statement. If we do no better in 1970 than we did in 1969, this country will be in trouble. We had almost no increase in productivity, if our statistics can be trusted, in 1969. Possibly our economy was being pushed beyond capacity in many directions. A normal expectation would be that in 1970 we would have some improvement, but I am not ready to make a prediction.

Mr. HANNA. Well, I think you have pretty well defined a recession, and I don't know whether we want to give it that name or not, but I think you have pretty well indicated to me that is where we are going. I can understand your tenderness at not wanting people to throw things to the Federal Reserve they are not prepared to do, if you do feel that way, you join a very outstanding array of people. The policeman doesn't like the way the people are expecting him to take care of their social problems. The indicators don't like the way the family expects them to take care of the family problems, and I suppose you don't like the way that the Congresses and the President and the people want you to take care of the money problems. But I notice the kids are still having their problems, and I guess our money is still going to have our problems, the economy is going to have its problems and you will have to take your share of the blame, as I see it.

Do you have any recommendation along any of these lines? Do you think that they should increase taxes this year?

Dr. BURNS. I would take a very dim view of that.

Mr. HANNA. All right. Do you think we should impose credit controls this year?

Dr. BURNS. I have already answered that when Mrs. Sullivan put the question to me.

Mr. HANNA. You don't think too kindly of that?

Dr. BURNS. Beg pardon?

Mr. HANNA. You don't think too kindly of that idea?

Dr. BURNS. This is an idea that I want to pursue from day to day. On the basis of my very imperfect knowledge as of today the answer is "No." My answer tomorrow may be different depending on the evidence.

Mr. HANNA. How about a price freeze?

Dr. BURNS. I am very much opposed to a price freeze.

Mr. HANNA. I think that at one time before becoming the Chairman you said that you hoped that after the budget situation clarified and after the tax bill had been passed that the Federal authorities could reconsider their financial policies. Now that the President has submitted his budget, the tax bill has passed, what do you say about the prospects of changing your policies?

Dr. BURNS. Monetary policy is something that is constantly under review by the Federal Reserve Board, and I assure you the coming week will be no exception.

Mr. HANNA. That gives us a great deal of hope.

In the buy-offs that apparently are at work between trying to get the inflation stopped and creating thereby a drop in productivity which seems to be spreading out, do you have any concern about the strength of the dollar in a situation in which the productivity of our economy is reaching such lows? I mean I just don't understand an economic position that is so myoptically concerned with inflation that they will be prepared to take a very substantial loss in productivity when in my poor and limited understanding the soundness of the dollar is resting upon the productivity of this country every bit as much as it does upon whether or not we are entertaining inflation. In fact, probably more. Now, am I right in that?

Dr. BURNS. Well, I think I should make a factual observation at this point, Congressman Hanna. If you study the history of business cycles in this country, you find that a certain pattern occurred time and time again.

In the first or second year of the business expansion, the improvement in productivity will be very sharp. As the expansion has advanced, the gain in productivity becomes very much smaller. And after an expansion has run 3, 4, or 5 years, the improvement in productivity is either zero or there is a decline in productivity. So I think that what has occurred this past year is in keeping with the long history of economic fluctuations in this country.

Now, a major reason why productivity gains become smaller as an expansion advances is that labor becomes a little less efficient. Jobs are easy to get, you see, and, therefore, labor becomes a little careless. Managers, too, become a little less efficient. There are so many rush orders to attend to and there are slips here and there. Also, frequently, though this was not true last year, in the course of an expansion, once you are using industrial capacity pretty fully, you will tend to bring obsolete equipment back into use and that will cut down on the gains in productivity.

Now, one of the major reasons for resorting to a policy of fiscal and monetary restraint after expansion has overheated the economy is that we want to get the economy back in working order, so it will become capable of making normal gains of efficiency once again.

And, therefore, let me amend at this point my comment earlier about productivity prospects. I think we are going to do better in 1970 than in 1969, and the slowdown in productivity that has occurred I interpret as a temporary cyclical phenomenon, not as a lasting change.

Mr. HANNA. I am glad you saw that discrepancy-because I was going to point it out to you if you had not caught it very quickly