“The global monetary system often goes unnoticed by an American public whose concerns about the economy typically extend only to gas prices, unemployment numbers, and whatever frightening numbers the national debt represents to moment. And yet, its mechanics are essential to the functioning of the economy. Underlying every purchase of a foreign good, every investment in a foreign company and every problem of international relations is the exchange of currencies by which international trade is conducted. The entire modern fiat system grew out of decisions made in 1971 by President Richard Nixon at Camp David that forced the world to rethink the foundations of its monetary system. Three days at Camp David, Jeffrey Garten ’68 covers not only the landmark conference, but also the decades of economic history that led to the historic decisions made during the presidential retirement.
The modern world runs on fiat currencies. These are currencies whose value can rise or fall freely against other currencies depending on how demand changes. It is important to note that they have nothing to back up their value except the word of the government issuing them. Not so long ago, however, the monetary system was based on the principle that a currency had to be backed by something. In the 20th century, this thing was gold. Garten explains how, after World War II, the Bretton-Woods Conference established a world monetary system, in which the dollar was pegged to gold at $35 an ounce and all other currencies were pegged to the dollar. Thus, for thirty years there has been a system of fixed exchange rates which has held the global trading system firmly in place. However, the cracks begin to appear quickly. Europe and Japan rebuilt themselves with generous American help, making them competitive with American manufacturing by the late 1960s. Yet they still maintained the import tariffs and quotas they had put in place to prevent American companies from dominating their economies in the 1950s. The combination of competitive products and prices made American products more expensive and less attractive to foreign consumers. As a result, the United States first ran a trade deficit in the 1960s. This outflow of dollars caused there to be too many of them in the global economy. This made the economies of foreign countries less secure and caused many, notably France, to exchange their dollars for gold. This led to a decrease in the gold reserves of the United States. In 1971, the Nixon administration realized that the United States would not have a large enough gold reserve within a year.
Often the story of the abandonment of the gold standard ends in August 1971 when Nixon lets the dollar float. Yet this decision was neither permanent nor the last step. At Camp David, August 13-15, US economists and government officials met to address the problem of dwindling reserves and growing trade imbalances. During the meeting, they came to an inevitable conclusion: that the current exchange rate of the dollar against gold and the rates at which the currencies of other nations were pegged to the dollar were unsustainable. The United States of America could not continue to satisfy other nations’ demands for gold nor endure the effects that unfavorable exchange rates had on exports and therefore on domestic manufacturing.
The main strength of the book lies in its personalization of the Camp David summit. Far from a boring insight into politics and financial negotiation, Garten succeeds in crafting a people-driven story. His characterization of President Nixon was particularly interesting. He describes Nixon as a man who cared little about monetary optimization. In fact, he despised the Ivy League-educated intellectuals who preach to the American people about the importance of monetary stability. Rather, it focused on the things that directly impacted the American consumer: prices and jobs. We often think of Nixon as a crook, and he was. But what should not be ignored is Nixon’s almost unrivaled political instinct. He understood that the American people don’t care as much about America’s international relations or the strength of the dollar as they do about the state of their own lives. Nixon, primarily concerned with his own re-election, therefore focused entirely on American jobs and the American economy, often to the detriment of our relationships with longtime allies.
Nevertheless, Nixon himself did not even attend the Camp David meeting. On the contrary, he carried out the recommendations made by men like Arthur F. Burns, chairman of the Federal Reserve; John B. Connally Jr., Secretary of the Treasury; and John D. Ehrlichmann, Advisor to the President. Garten covers their background and how each came to their respective stance on the currency. Connally, for example, was a longtime conservative Democrat and therefore supported currency manipulation as a tool to enhance economic growth. He cared much less about European and Japanese reactions to American economic policy than his more internationally oriented colleagues. Together, these senior officials reached a consensus that President Nixon signed into law, which in turn forced the developed nations of the world to come to the negotiating table. In December of the same year, representatives of the Group of 10 forged a compromise in which the dollar would be devalued against gold and the currencies of other nations would in turn be increased against the dollar. However, within a decade, another US devaluation would cause Japan and Germany to float their currencies, leading a cascade of nations to adopt fiat currencies.
Garten skillfully incorporates the state of world politics at the time into his discussion of Camp David and the gold standard. In 1971, America’s presence in the world was undergoing a fundamental change. America watched its allies grow in prosperity, and its people and leaders wondered why it still had to shoulder the lion’s share of the burden of defending the West against Soviet aggression. No longer wanting to be the sole protectors of the world, the American people increasingly began to demand that Western Europe and Japan pay for their own defense. This only increased the demand for monetary reform. In the minds of many in Washington, America’s defense burden served as yet another example of European nations taking advantage of the post-war world order to drain wealth from the United States. Garten helps the reader sympathize with this and other political tendencies that the Nixon administration had to deal with.
The book’s greatest flaw is that in making its subject matter accessible to a general audience, it glosses over some of the finer points of economics. It intentionally ignores exchange rate mechanisms and their impact on international trade. Perhaps more importantly, he spends little time on the role of the dollar as an international reserve currency. Although focusing on the personal rather than the technical makes for a more enjoyable read, there was something missing in Three days from a pedagogical point of view.
Reading this review, one might have noticed that it focuses primarily on Garten’s chronicle of the American perspective on the Camp David conference. That’s because, in a book covering one of the most critical recent shifts in the global economy, Garten focuses almost entirely on the American perspective. While this narrow focus keeps the book at a more accessible length, more time devoted to the responses of politicians from Berlin and Tokyo to Camp David would help the reader better understand the importance of a three-day meeting on currency reform. . Rather than simply chronicling reactions in a few short paragraphs, Garten should have devoted at least a chapter or two to the counterparts of US policymakers and how they reacted to the near-unilateral US decision to upend decades of policy. monetary.
In all, Three days at Camp David effectively chronicles the events that led to a fundamental shift in the global economy. He succeeds in making the book accessible to an interested audience, and does so while giving the important economic issues of the day at least adequate coverage. The book shines as an exploration of the characters of a little-known but incredibly important historical episode. I would recommend the book to anyone who wants to understand 20th century economic history and to anyone who wants to learn more about American politicians of the 1960s and 1970s without having to read a biography.
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