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Published by EH.NET (January 2004) 
 
Francis J. Gavin, _Gold, Dollars, and Power: The Politics of International 
Monetary Relations, 1958-1971_. Chapel Hill: University of North Carolina 
Press, 2004. xiii + 263 pp. $45 (cloth), ISBN: 0-8078-2823-8. 
 
Reviewed for EH.NET by Harold James, Department of History, Princeton 
University. 
 
Francis Gavin has written a study of U.S. administrations and their 
approach to dollar politics between 1958 and 1968, when he identifies the 
suspending of the London gold pool in March 1968 as the effective end of 
the Bretton Woods system. From then, the world was on a dollar standard, 
and there were two separate prices for gold, one for the private market and 
one for official transactions. Events up to the better known crisis of 
August 1971, when the official dollar price of $35 an ounce was also ended, 
are treated only in a summary chapter. The major emphasis of this book is 
on how dollar politics and security politics interacted in the Kennedy and 
Johnson administrations, and in particular how a continual worry about 
balance of payments deficits forced the U.S. government to think about the 
reduction of military expenditure overseas, especially in Europe. One major 
theme is American-German negotiations about the "offset," i.e. German 
spending on U.S. military products to counterbalance the cost to the United 
States of stationing troops in Germany, and pressure on the Bundesbank to 
hold dollar reserves. This, incidentally, has also been the subject of a 
fine study recently by Hubert Zimmermann: _Money and Security: Troops, 
Monetary Policy and West Germany's Relations with the United States and 
Britain, 1950-1971_, New York: Cambridge University Press, 2002. The well 
known tensions between the United States and France and de Gaulle and 
Rueff's criticism of the U.S.'s "exorbitant privilege" of forcing its 
dollars and deficits on the world are also examined in depth. Great 
Britain's sterling crises and the relationship between strains on sterling 
(at that time the other major world reserve currency) and strains on the 
dollar are handled conventionally. Japan, which became a major focus of 
U.S. concerns right at the end of the decade, and especially in 1970 and 
1971, is not treated in any depth. And Canada, which had abandoned a fixed 
exchange rate regime, is not treated at all, presumably because Gavin f! 
 ound no  
evidence that anyone ever thought of Canada's non-compliance with Bretton 
Woods as a problem. There is also little discussion of the places where 
multilateral financial diplomacy took place: the G-10, the OECD's Working 
Party Three, or the International Monetary Fund. 
 
The evidence offered by Gavin about the state of thinking about the U.S. 
deficits is interesting. There is almost universal agreement among U.S. 
officials and policy makers that something is wrong. On the other hand, all 
the figures from the Kennedy and Johnson administrations will only think 
about flexible exchange rates in order to reject the suggestion (as for 
instance W.W. Rostow did). It is surprising that Gavin does not look at 
greater length at the debates among economists at the time, and about the 
arguments for free capital mobility and flexible rates. Milton Friedman is 
mentioned only in passing, and Gottfried Haberler, who headed a taskforce 
for the transition to the Nixon administration, not at all. 
 
Gavin pitches his account as being at odds with the conventional wisdom on 
the subject. This sounds like a peculiar claim about modern economists' 
discussion of the problems of Bretton Woods, where there is an almost 
universal consensus about the problems of the fixed exchange rate system 
and simultaneous capital flows (which started to develop on a large scale 
in the course of the 1960s). So most economists will say to this book: so 
what? On the other hand, he is probably right about many historians and 
political scientists, who have treated dollar politics under Bretton Woods 
as part of the exercise of U.S. hegemony and have essentially, since David 
Calleo and Robert Gilpin's work, taken over the contemporary French 
criticism of Rueff and de Gaulle. In the context of this literature, it is 
helpful to see what U.S. policy makers were saying and thinking, and how 
worried they were by the inherent instability of their situation and the 
eventual likelihood of a dollar collapse. The exercise of linking 
discussions of security issues and economics and finance is also a welcome 
one. And the archival evidence (which provides the core of the book) is 
fascinating and well handled. There are some fascinating novelties: that at 
the end of his administration, President Eisenhower suggested replacing 
gold as the major measure of value with uranium and plutonium (p. 49). The 
idea was not taken seriously, but it does demonstrate something important 
about the gold standard of the past: that an ultimate source of value was 
the use of gold in providing a military use (to pay soldiers), and that in 
the modern world the military role was taken more and more by nuclear 
weapons. 
 
But the heavy dependence on archives makes, I think, for a greater sense of 
crisis about the whole decade than is really warranted by a comparison of 
the 1960s with other eras. Policy makers live and breathe in a world of 
continual problems and crises: that is how they carve out their influence. 
Reading this book in 2004 for this reviewer has a paradoxically reassuring 
effect: that the policy-makers and journalists can be very worried, but the 
problems are still fundamentally manageable. I believe many readers will be 
struck by the similarity of many of the historical views recorded here with 
very contemporary debates. De Gaulle's phrasing was very striking: "The 
United States is not capable of balancing its budget. It allows itself to 
have enormous debts. Since the dollar is the reference currency everywhere, 
it can cause others to suffer the effects of its poor management. This is 
not acceptable. This cannot last" (p. 121). The German government was 
perceived to be moving worryingly close to France. The U.S. government 
concluded that the Germans "can easily develop neuroses that can be 
catastrophic for all of us. They did it before and they can do it again. A 
neurotic, disaffected Germany could be like a loose ship's cannon in a high 
sea" (p. 136). As a result the discussions between President Johnson and 
Chancellor Erhard were envisaged by officials as "one of the most important 
decisions the U.S. has faced in the postwar period" (p. 148). 
 
Such language raises the important issue of whether we should take the 
crisis rhetoric at face value. There was not in the end any major clash in 
this case, at least not something that deserves to go into the textbooks. 
Erhard reached an agreement on the offset and the Bundesbank agreed not to 
convert dollars to gold. Six American divisions stayed in Germany and there 
were no troop reductions. There is also, perhaps surprisingly given the 
overall thesis of the book, no evidence that the financial worries, however 
acute they were, actually constrained U.S. geopolitical decisions. Was 
there even one fewer U.S. soldier in South East Asia as a result of 
concerns about the dollar? In the end, in that kind of debate, the security 
concerns overrode the financial debate. When modern neo-Gaullists use the 
words and thoughts of the General and say that U.S. deficits are not 
acceptable and cannot last, are they right or wrong? And over what time 
period is the appropriate calculation about "cannot last"? The major 
contribution of this book, in my opinion, is to draw attention to the 
relationship between the language of crisis in international monetary 
relations and the underlying economics which are not necessarily driven by 
political crisis. 
 
Harold James is Professor of History at Princeton University and author of 
_The End of Globalization_ (Harvard University Press, 2001) and 
_International Monetary Cooperation since Bretton Woods_ (Oxford University 
Press, 1996). 
 
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