Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971 (The New Cold War History) [Paperback]

Francis J. Gavin (Author)

Book Description

Series: The New Cold War History | Publication Date: November 1, 2007

How are we to understand the politics of international monetary relations since the end of World War II? Exploiting recently declassified documents from both the United States and Europe and employing economic analysis and international relations theory, Francis Gavin offers a compelling reassessment of the Bretton Woods system of fixed exchange rates and dollar-gold convertibility.

Gavin demonstrates that, contrary to the conventional wisdom, Bretton Woods was a highly politicized system that was prone to crisis and required constant intervention and controls to continue functioning. More important, postwar monetary relations were not a salve to political tensions, as is often contended. In fact, the politicization of the global payments system allowed nations to use monetary coercion to achieve political and security ends, causing deep conflicts within the Western Alliance. For the first time, Gavin reveals how these rifts dramatically affected U.S. political and military strategy during a dangerous period of the Cold War.

Editorial Reviews

Review

"Policymakers and academics can learn important lessons from Gold, Dollars, and Powerabout the possibilities and limits of international monetary diplomacy in a global economy."
— International Journal

Gavin's book represents a sophisticated effort to integrate international economic events, political science theories, and diplomatic history. It rests on extensive research in American and European archival sources and documents. It offers rich detail on competing bureaucratic interests in four presidential administrations. And, it responds to scholars who believe the Bretton Woods system was an instrument of a post-World War II American empire.
—The Journal of American History

About the Author

Francis J. Gavin is Tom Slick Professor of International Affairs and director of studies for the Robert S. Strauss Center for International Security and Law at the University of Texas at Austin. He is editor of The New York Times Twentieth Century in Review: The Cold War and coeditor of The Presidential Recordings: John F. Kennedy: The Great Crises, volumes 1-2.

Product Details

• Paperback: 280 pages
• Publisher: The University of North Carolina Press (November 1, 2007)
• Language: English
• ISBN-10: 0807859001
• ISBN-13: 978-0807859001
• Product Dimensions: 9.4 x 6 x 0.8 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 4.5 out of 5 stars  See all reviews (2 customer reviews)
• Amazon Best Sellers Rank: #939,020 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

5 of 6 people found the following review helpful:

5.0 out of 5 stars A Deeply Unstable and Politicized Monetary System, December 10, 2005

By 

Etienne ROLLAND-PIEGUE (Paris, France) - See all my reviews

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This review is from: Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971 (New Cold War History) (Hardcover)

Gavin's book departs in several ways from conventional wisdom. First, it has long been an article of faith that the Bretton Woods agreements were the cornerstone of an open, liberal international economic order that ensured financial stability, economic interdependence, and international cooperation. In fact, Gavin shows that Bretton Woods was an ineffective and crisis-prone monetary system. It began experiencing potentially fatal difficulties as early as the late 1950s, and was only kept alive by a series of political fixes that made little long-term, macroeconomic sense. It could never have survived the globalization of finance and the removal of capital controls that began to take place in the 1970s. Indeed, it can be argued that the system was doomed the moment that it came into existence, and that the Bretton Woods agreements contained fatal flaws that could only lead to the abandon of gold convertibility.

Second, there is a widely held view that the Bretton Woods system was designed to benefit the United States by allowing Americans to live beyond their means and by persuading central banks from Western Europe and from Japan to finance its external deficit through dollar holdings. The real story is that American policymakers had no great love for the Bretton Woods system. It was associated in their minds not with American hegemony, but with American vulnerability. The growing European balances, which, under the rules of the system, could be cashed in for gold at any time, were a kind of sword of Damocles hanging over their heads. Indeed, successive administrations toyed with the idea of abandoning the gold convertibility altogether. What prevented them from doing so was the fear that floating exchange rates would generate financial chaos and the return to the 1930s' beggar-thy-neighbor policies.

The third piece of conventional wisdom casts France in the role of the villain, trying to sabotage the system by converting its dollar reserves into gold, while it credits West Germany and the United Kingdom of more cooperative behavior. There is some truth in this story. De Gaulle certainly tried to spoil the game after 1965, when he espoused the crusade of economist Jacques Rueff and denounced the "exorbitant privilege" of the dollar. But if France was willing to call the bluff and end the dollar-exchange system, it never had the means to do much harm and was certainly unable to deliver the final blow, especially after mounting deficits and attacks on the Franc depleted its currency reserves at the end of the decade. Besides, other central banks also joined the fray and stealthily tried to convert their dollar balances into gold, sometimes as early as 1957. The relationship with West Germany was also fraught with political tensions, particularly regarding the offset arrangement that allowed the United States to compensate some of the cost of American troops stationed in Europe. And France was not always uncooperative: Gavin unveils from the archives a surprising episode of Franco-American cooperation over monetary affairs, when young Finance Minister Valéry Giscard d'Estaing convinced President Kennedy to create a task force aimed at reforming the international monetary system.

Gavin's central argument is that economic and monetary problems cannot be considered in isolation from the strategic and diplomatic policy issues in which they were often embedded. He sees the Bretton Woods system as central to the Cold War bargain in Europe which aimed at "keeping the Russians out, the Germans down, and the Americans in." He shows that strategy and finance were inextricably meshed and that U.S. officials often felt they had to sacrifice important domestic policy goals and strategic imperatives in order to maintain the dollar's value. Of particular concern were the mounting balance-of-payment deficits, which successive American presidents were willing to address by reducing America's overseas commitments and military obligations that they saw at the source of the country's economic profligacy. As incredible as it may seem, the policy alternatives were often cast as a choice between defending Europe or the dollar.

But it could be argued that it is precisely this lack of isolation of economics from the political which compounded the gold convertibility problem and prevented decision-makers to find a long-lasting solution to the conundrum of international monetary relations. One is struck by the abundance of political in-fighting, the frequency of inter-agency skirmishes and the high level of political attention that these seemingly technical, second-order issues generated. Kennedy was not the only president to be "obsessed with the balance of payments." The victim of these obsessions and confusion was, more often than not, sound economic reasoning. In fact, it took a Nixon to put monetary affairs squarely in the hands of the Treasury and to isolate them from the encroachments of other agencies and departments. Likewise, Valéry Giscard d'Estaing certainly remembered his conversation with President Kennedy when he proposed the idea of discussing economic and especially monetary problems in strictly limited meetings of heads of government, isolated from the diplomacy buffs and academic luminaries that had convinced de Gaulle to embark on his confrontational stance against the dollar's hegemony.

4 of 5 people found the following review helpful:

4.0 out of 5 stars useful but incomplete, October 25, 2007

By 

JimBee "Jim" (OR USA) - See all my reviews

This review is from: Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971 (New Cold War History) (Hardcover)

I mostly agree with the previous reviewer; the book is a useful history and debunks some of the conventional wisdom. My only complaint is that the book is very Washington-centric and somewhat biased by omission of other points of view. Japan is barely mentioned and there is little coverage of the point of view from the European side. There is very little about the negotiations between White and Keynes which perhaps has been covered elsewhere but would have added useful context. Even though US policy makers worried incessantly about the gold outflows, they never actually *did* much about it, and the reasons for that remain obscure after reading the book.

In short, there is much interesting historical context here, but none of the big "why" questions are answered. Perhaps that's too much to ask in a 200 page book, but I came away unsatisfied.