Having served as Secretary of Labor in 1968 and head of the Office of Management and Budget in 1970, George P. Shultz was appointed Secretary of the Treasury by President Nixon in 1973. During his tenure, Shultz was concerned with two major issues: the continuing domestic administration of Nixon's "New Economic Policy," begun under Secretary John B. Connally, and a renewed dollar crisis that broke out in February 1973.
Domestically Shultz enacted the next phase of the NEP, which involved a lifting of price controls begun in 1971. This phase was a failure, resulting in high inflation, and price freezes were reestablished five months later.
Secretary Shultz reflects on the time in an interview for PBS’s Commanding Heights documentary:
“Well, I was [at Treasury under Nixon], and I opposed them. But to me it's kind of hard to explain because wage and price controls, I think you could see analytically, would get you in a lot of trouble. There was always this notion that somehow if you just had them for a little while it would get things under control and then you could go back. But it turns out it's always much easier to get into something like that than to get out of it. The immediate precipitating thing was the fact that the United States, having a set price of gold, dollar for gold, found itself in a position where people wanted to redeem their dollars for gold and you couldn't do it. And so, in the parlance of the day, we had to close the gold window. And that meant the value of the dollar would decline and that would be, in itself, an inflationary factor. And so we did have concerns about inflation, although interestingly inflation was declining and had been around 6 percent and it had gotten down below 5 percent, so it was declining. It was going well I thought. I gave a speech saying we should stay the course entitled "Steady as You Go." But at any rate, the need to close the gold window and the apparent inflationary consequence of that led the secretary of the treasury, then John Connolly, to recommend to Nixon a set of things, namely wage and price controls, to deal with the inflation and closing the gold window because we didn't want to lose the gold, and couldn't anyway sustain paying off all the debts.
And then, for good measure, Connolly added an increase in tax to protect American industry. So I was glad to see the gold window closed, but the other policies, I thought, were terrible and argued against them.”
Meanwhile Shultz's attention was increasingly diverted from the domestic economy to the international arena. He participated in an international monetary conference in Paris in 1973, which grew out of the 1971 decision to close the gold window. The conference formally abolished the fixed rate exchange system, which was eliminated in 1971, thereby causing all currencies to float. Shultz resigned shortly before Nixon to return to private life. He returned to the Cabinet in 1982 as President Ronald Reagan's Secretary of State.
Editor’s Note: This text (apart from the Shultz quote) is excerpted from the US Department of Treasury website.