Gold, Dollars and Power: The Politics of International Monetary Relations, 1958-1971 (review)

Francis Gavin has written an interesting history of international monetary relations during the heyday of the Bretton Woods system from 1958 to 1971. As he notes, the architects of Bretton Woods in the mid–1940s were driven by a belief that the economic and political troubles of the interwar years were linked to the disorganized, market-driven international monetary system of that era. They hoped that a monetary order under the closer control of public authorities, working in a multilateral cooperative setting, would foster stability, economic interdependence, and international political cooperation in the post-1945 world.

Drawing on detailed archival research, Gavin argues that the Bretton Woods system in fact achieved none of these goals in the 1958–1971 period. The system was plagued by frequent crises; many of its member-states employed capital controls that inhibited economic interdependence; and the management of the system became a source of major political conflict among leading Western countries. Although the first two points are familiar to scholars of this period, Gavin's last point is more innovative and marks an important contribution to existing literature. Although Gavin does not draw the parallel, his argument bears out Hayek's warning in 1944 that a state-managed international financial system like Bretton Woods would inevitably become "politicized" and thereby generate international friction. Gavin argues that this friction began to emerge in the 1960s when monetary negotiations relating to liquidity and adjustment mechanisms contributed to broader strategic conflicts within the Atlantic alliance. Gavin's work is particularly interesting in highlighting the important and complex relationship between U.S. management of the Bretton Woods system after 1958 and U.S. military commitments to West Germany.

Given the problems that afflicted the Bretton Woods system, why did governments not abandon it sooner? Gavin shows that U.S. policymakers did seriously consider jettisoning the system much earlier than many scholars acknowledge. Officials in Washington were particularly concerned about the vulnerability of the United States to foreign pressure as it became the system's main deficit country. Gavin argues that despite many concerns about the Bretton Woods system, the United States and other countries stuck with it through the 1960s primarily for an ideational reason. Policymakers continued to be influenced by the Bretton Woods belief that a floating exchange rate system would be associated, as it had been in the 1930s, with monetary chaos, financial and trade disruption, and beggar-thy-neighbor policies. Although this belief turned out to be incorrect, Gavin convincingly shows that it acted as a powerful deterrent to change.

Gavin's book inevitably invites comparisons with previous analyses of the politics of international monetary relations in the 1958–1971 period, most notably Susan Strange's well-known volume on this topic, International Monetary Relations (New York: Oxford University Press, 1976). Gavin moves beyond Strange's work by drawing heavily on important archival sources that allow him to demonstrate beyond a doubt a point that Strange had earlier highlighted; namely, that international monetary relations and "high politics" were closely linked in this period. Nonetheless, the state-centric focus of Gavin's analysis also leads him to neglect some topics that Strange analyzed in considerable depth, such as the growth of the Eurodollar market and the rebirth of transnational policy networks of central bankers.

Gavin's book is also focused almost exclusively on transatlantic monetary relations. U.S.-Japanese monetary relations receive little attention, despite their importance to the Bretton Woods system during this period. Even more neglected is the role of Canada, a country that was the largest U.S. trading partner and whose monetary relations with the United States were significant for the broader system during these years. An examination of Canada's early embrace of a floating exchange rate in 1970—and the U.S. decision not to contest the move—could also have provided Gavin with an opportunity to test some of his broader theses. More generally, Gavin...