When Bretton Woods was established, the United States promised to provide
gold, on demand, in exchange for dollars accruing in foreign central banks.
As the country ran balance of payments deficits during the 1960s, however,
it began to deplete its gold stock. With US monetary gold falling to $10
billion (against $40 billion in liabilities), the situation became
dire—prompting Nixon to summon his leading financial officials to a meeting
at Camp David, the presidential retreat, over the weekend of August 13–15,
1971.
We meet key players—Nixon, Arthur Burns, John Connolly, Paul Volcker,
George Shultz, and others—whose backgrounds, personalities, and
preoccupations greatly influenced the outcomes at Camp David. Burns and
Volcker worried about how foreign officials would react to closing the gold
window. Connolly argued that doing so would help bludgeon the surplus
countries into revaluing their currencies. Shultz, a student of Milton
Friedman, favored floating exchange rates, which would make the whole issue
moot, while Nixon cared less about foreign central bankers and worried only
about the reaction of the American public.
Garten gives a detailed account of the discussions, chronicling how
politician Nixon transformed the dominant narrative about shuttering the
gold window: from a mea culpa that acknowledged the United States’ lax
policies and abrogation of its international responsibilities, to one that
proclaimed a triumphant fresh start for its place in the world, which went
down well with his domestic audience.
Garten describes the aftermath, the short-lived Smithsonian Agreement, and
relays an anecdote illustrating how sensitive officials were to any change
in parities. When Connolly pressed the Japanese finance minister to revalue
the yen by 17 percent, he refused, on the grounds that a 17 percent
revaluation during the interwar period had resulted in the then–finance
minister’s assassination. Connolly, who was in the car during President
John F. Kennedy’s assassination (and had himself been shot), accepted a
16.9 percent revaluation. (In fact, the Japanese prime minister had
pre-authorized up to a 20 percent revaluation.)
It would be trite to say that Garten’s book belongs on every international
economist’s bookshelf. It doesn’t. It belongs on their bedside tables as
light, but thoroughly enjoyable, reading and a useful reminder that,
whatever economic forces might be at play, it is people, personalities, and
politics that make history.