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.
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