among much irritation at French ingratitude. In June the General visited the USSR itself, and unfolded his schemes to Brezhnev: there should be a new European security system, a nuclear France and a nuclear USSR in partnership, the Americans removed, and a French-dominated Europe balancing between the two sides. He had already made sure of Europe’s not having an American component, in that he had vetoed British membership of the Community. Now he would try to persuade Brezhnev that the time had come to get rid of East Germany, to loosen the iron bonds that kept the satellite countries tied to Moscow, and to prepare for serious change in the post-war arrangements. Brezhnev was not particularly interested, and certainly not in the disappearance of East Germany; in any case, although France was unquestionably of interest, it was West Germany that chiefly concerned Moscow, and there were constant problems over Berlin. De Gaulle was useful because, as Brezhnev said, ‘thanks to him we have made a breach, without the slightest risk, in American capitalism. De Gaulle is of course an enemy, we know, and the French Party, narrow-minded and seeing only its own interests, has been trying to work us up against him. But look at what we have achieved: the American position in Europe has been weakened, and we have not finished yet.’
Europeans, and Germans especially, had built up a trade surplus, storing their dollars as reserves; they, this time mainly British, had also invested in the USA. What would happen if their holdings of dollars were so large that they outnumbered the Americans’ own reserves? And then they sold, as de Gaulle was to do? There was a free market in gold, partly in London, and the Swiss were also not bound by the rules. What would happen if dollars were sold for gold, at a price different from the official one? It would weaken the dollar, make it unstable, and less useful as the medium for world trade, upon which the prosperity of the Western world depended. And if the producers of oil especially, but also other essential raw materials, realized that their dollars were just paper, would they not react by raising their prices? In the sixties there were moments of trouble, as dollars built up in private hands, and the dollar’s junior partner, the pound sterling, looked weaker and weaker as the British economy lagged behind the German and then the French.
However, there were still too many important interests involved in the existing system for it to be easily abandoned. In the very first place there was defence — largely American, but with a not insignificant British contribution, whether in central Europe or ‘east of Suez’, where a British presence guaranteed important areas in the Arabian peninsula and South-East Asia. The drain of dollars and pounds was partly accounted for by the military spending that went on abroad, a problem that the Germans themselves did not now have to face. One answer to the particular difficulties of the dollar might have been just to increase the value of the Mark, to take account of the Germans’ export surplus. There was resistance in Germany, where the Bundesbank and exporters feared what might happen if exports became more expensive, though with much heaving and puffing, small increases (revaluations) of the Mark were agreed in 1961 and at the end of the decade. Meanwhile, if speculators sold dollars, Germans bought them up at the fixed and increasingly artificial price. This did not address the fundamental problem, that more and more dollars were held outside the system, and the problem kept coming back. In the early 1970s, the dry and technical debates of ten, or even twenty-five, years before suddenly took on a hectic life. There always was a central problem, that the dollar was in the end just paper, and would appear to be such if the Americans produced too much of it. That was what happened. Vietnam had to be paid for, but so also did the expense of Johnson’s vast public spending programme.
Nixon, though supported, electorally, by opponents or at least critics of Johnson’s spending, carried on with and for that matter increased it: when a new chairman of the Federal Reserve System was introduced in July 1970, Nixon said he wanted ‘low interest rates and more money… I have very strong views and… hope that he will independently conclude that my views are the right ones.’ Whether he did or did not, he allowed Nixon to continue the Johnson programmes and to expand them. The result was a rising budget deficit and a rising national debt.
The national debt had reached $271bn in 1946. It fell in proportion to the GNP until 1965 and then boomed. Under Johnson deficit financing became the rule, and in 1968 his Treasury Secretary, Henry Fowler, protested because of the strain for the dollar. A successor, John Connally, dismissed arguments of this sort: the dollar is our currency and it’s their problem. The Great Society programmes were greedy, and by 1975 federal spending had reached $332bn, the deficit being $53.2bn. By then, federal spending had reached almost 25 per cent of gross domestic product (in 1950, it had been 16 per cent). The dollar had a tenfold inflation after 1956. At the time the sixties economists were still confident enough of their ideas and in any case the Western world’s most prosperous elements almost had to support the dollar, and so the deficits marched on and there were regular meetings of international experts to supply funds with which to buy up the excess dollars. Wise heads shook, though they shook in the wrong direction, absurdly conjuring up a ‘liquidity crisis’, and deflation, in which they were quite wrong, because the problem was that there was a glut of money, and an inflation that rocked the entire system. At any rate, tinkering happened. A G10 group of the industrial nations was formed to defend the dollar (and a Basle one for the pound) and they could lend to the IMF, which allowed special drawing rights of immediate credit to defend a currency under threat. The IMF thereby, at last, acquired a role. NATO members were encouraged to spend dollars in the USA and to deposit cash there; American citizens were forbidden to own gold coins (1965) and the GATT round of 1958-62 even allowed countries with threatened currencies to impose an import surcharge of 10 per cent (as happened with the British in 1961 and 1964). American visas were made easier, to encourage tourism in the USA; Germany and Switzerland refused to pay interest on foreign bank holdings (though that was very difficult to arrange and anyway only encouraged countries such as Luxemburg to take them instead). It was all small beer in comparison with the two great problems — the German surplus and US government spending, with a deficit in 1971 of $10bn.
The dollar itself was badly weakened by all of this, and after making constant noises, with suggestions that a form of the old gold standard might be reintroduced, in 1966 de Gaulle stated that the French bank would henceforth want gold instead. This was not just anti — Americanism. At the time, Paris did not much count as a financial centre, so this was easier for France to do than for, say, London, where credit functioned more efficiently (the French banks had been nationalized in 1945). But the pound itself came under constant pressure in the 1960s as speculators based in Switzerland appreciated that it was overvalued, while British spending overseas (partly for military purposes) put it under strain. In the autumn of 1967 there was a threat that the Suez Canal would be closed and therefore unusable for British oil imports. At the existing rate, the British could not exchange harder currencies without seeing their reserves wiped out and the pound was at last devalued, from $2.80 to $2.40. That shifted pressure onto the dollar, and the oil producers sat up.
The Germans also had their reasons for complaint. The Bundesbank had as a primary aim the control of inflation. One cause of that would be an inflow of dollars, swapped for Marks. The exporters liked their undervalued Mark; the savers, as represented by the Bundesbank, their stable currency. The temper of international meetings as to the future became acrimonious and everyone blamed everyone else — Americans, Germans for saving too much; Germans, British and Americans for not saving enough; Swiss, the others for having crooked tax systems; the others, the Swiss, for receiving stolen goods. Japan was now emerging as a large and fast-growing economy, and she like Germany saved: there was not, as in the Anglo-Saxon countries, the sort of consumer boom that sucked in imports. In 1970 there was a brief respite, as the British and Americans balanced their budgets, but the tidal-wave overhang of paper dollars was too great, and was being added to with every breath that Americans took.
Bad news from Vietnam no doubt did not help, but in 1971 a great inflow of dollars into Switzerland, Germany and Holland occurred. The German government decided it would have to float (followed by the Dutch) in order to make Marks more expensive for the speculators. There were rumours that other governments, including even the British, would buy gold at the now giveaway price of $35 per ounce. Fort Knox would be drained dry. What would Nixon do? He retired to Camp David with his advisers and announced, on 15 August 1971, at the end of the weekend, that the dollar’s formal gold link was ended. He even imposed a 10 per cent import charge, and did not even tell the IMF what he was doing. Maybe he did not even know himself. But this was the end of the Bretton Woods system. It was also the end of much else.
One of the bases of Western prosperity after 1947 had been cheap oil. It cost a dollar a barrel in the early fifties and then crept up to two. Transport in the past had been one of the great obstacles to progress, since horses ate 26 pounds of grain every day, and were frequently sick as well as temperamental; wooden wheels needed constant maintenance (hence in all countries ‘Wheeler’, ‘Raeder’, ‘Charron’ is a common surname) and roads were maintained by convict gangs or serf (
