THREE DAYS AT CAMP DAVID
How a Secret Meeting in 1971 Transformed the Global Economy
By Jeffrey E. Garten
On a late-summer Friday the 13th in 1971, President Richard Nixon, the Federal Reserve chair Arthur Burns, the secretary of the Treasury John Connally and several other top U.S. officials climbed aboard a helicopter on the White House lawn. They were headed to the presidential retreat at Camp David to plan what another of the helicopter passengers, the budget director George Shultz, called “the biggest step in economic policy since the end of World War II.” That step was the end of the American commitment to redeem other countries’ dollars for gold at $35 an ounce, a bedrock of the Bretton Woods system of mostly fixed exchange rates that had been in place since 1944.
Nixon’s abandonment of the gold standard has indeed gone down in history as a major economic turning point. Some decry it as the beginning of an inflationist era of fiat money. Others see in it the dawn of a neoliberal age in which democratically elected governments ceded power to crisis-prone, inequality-spawning financial markets.
To Jeffrey E. Garten, it was “the best that imperfect men could achieve operating in a caldron of political and economic change at home and abroad.” As he explains in “Three Days at Camp David,” something had to give in the rigid Bretton Woods structure. Far more dollars were in overseas hands than the United States had gold to redeem them at $35 an ounce. What’s more, fixed exchange rates failed to reflect the shifts in economic clout brought on by the rapid recovery of Japan and Western Europe. The so-called “Nixon shock” and the years of negotiations that followed brought floating currencies and more flexible international economic relations without a 1930s-style breakdown, and without entirely ceding U.S. pre-eminence.
Or something along those lines. International monetary arrangements are never easy to get one’s head around, and Garten’s attempts to simplify and dejargonize them for a lay reader manage to be no more comprehensible than the standard accounts by economists. This is not the book to read if you want to better understand the arguments for and against free-floating currencies, or the causes of inflation and depression.
It is, however, a fascinating and for the most part well-executed case study of how some important economic decisions were made. The book’s title notwithstanding, they weren’t really made at Camp David in mid-August 1971. That gathering was mainly for hammering out details, helping Nixon prepare his speech to the nation announcing the move and ensuring that the Fed chair Burns would endorse the plan. Garten devotes only a small portion of his text to the proceedings. For some readers, the main thing that may stick in their minds is that all the participants got commemorative Camp David windbreakers with their names and the weekend’s dates stitched on them.
More memorable by far is Garten’s account of how the Treasury secretary Connally and his under secretary for monetary affairs, Paul A. Volcker, devised a plan of action over the preceding months. Connally, mostly forgotten today, was a brilliant, mercurial former Senate aide to Lyndon Johnson, secretary of the Navy in the Kennedy administration and two-term Democratic governor of Texas whom Nixon appointed to Treasury in early 1971. Volcker, well remembered today for his inflation-busting tenure as Fed chair from 1979 to 1987, was a little-known monetary-policy wonk who had been appointed by David M. Kennedy, Connally’s predecessor.
Connally had no background in international finance and no strong convictions about it other than that, as he put it, “I want to screw the foreigners before they screw us.” Volcker was in constant conversation with those foreigners, and hoped to preserve the gold standard and the Bretton Woods regime. Working closely together, they set its dismantling in motion.
This was not, to be sure, their original plan. The suspension of gold convertibility in August 1971 was meant as a stopgap that, along with a 10 percent surcharge on imports, would force the other Bretton Woods participants to negotiate new monetary arrangements. This they did in the December 1971 Smithsonian Agreement, which raised the price of an ounce of gold to $38, revalued the major currencies against the dollar and allowed for somewhat more exchange-rate flexibility. But this “most significant monetary agreement in the history of the world,” as Nixon described it at the time, had unraveled by early 1973.
The unraveling was largely Nixon’s doing. Connally had left Treasury in 1972, and while his successor, George Shultz, favored floating rates, he generally restricted himself to doing the president’s bidding. As for Nixon, it wasn’t so much that he wanted to destroy Bretton Woods and the gold standard as that he couldn’t be bothered to save them. Garten offers this exchange from the White House tapes between the president and his chief of staff, H. R. Haldeman:
Haldeman: Did you get the report that the British floated the pound last night?
Nixon: No. I don’t think so, they have?
Haldeman: They did.
Nixon: That’s devaluation?
Haldeman: Yeah. [White House aide Peter] Flanigan has a report on it here. …
Nixon: I don’t care. Nothing we can do about it.
Haldeman: [Federal Reserve Chair] Burns is concerned about speculation about the lira.
Nixon: Well, I don’t give a shit about the lira.
Nixon’s main concern in 1971 had been avoiding a recession that could cost him the 1972 election. He badgered Burns into keeping rates low in the face of rising consumer prices, and saw the barrage of policy moves that together constituted the “Nixon shock” as a way to take decisive-seeming action against inflation and other economic woes without causing a slowdown. The policy that got the most attention at the time was not the gold decision but a wage-and-price freeze that was initially popular but ultimately ineffectual, giving way to a new inflationary spiral that made sticking to any managed exchange-rate regime impossible.
Garten doesn’t gloss over any of this, which makes his positive verdict at the end a little jarring. He’s not necessarily wrong, though. The attempt to stick to the gold standard in the 1930s has in recent decades been identified by economists as a major reason for the depth of the Great Depression, putting the choice to abandon it in the 1970s in a better light. And while many of the decisions that led to floating rates appear to have been myopic and half-baked, to a seasoned Washington veteran that may just be par for the course.
Garten is one such seasoned Washington veteran, having joined the Nixon White House in a junior role in 1973, then staying on at the State Department for the Ford and some of the Carter years before embarking on a Wall Street career. He returned in the early 1990s as an under secretary of commerce in the Clinton administration, leaving that job for a successful 10-year run as dean of the Yale School of Management, where he continues to teach. He is now best-known to the wider world as the recurring character “Jeffrey” on the long-running Food Network show “The Barefoot Contessa,” hosted by his wife, Ina Garten. But he remains a well-connected, well-respected emeritus member of the financial-political elite.
That point of view robs “Three Days at Camp David” of much of the bite it might have if written by a journalist or conventional academic. But it adds a perhaps useful appreciation for how hard it is to get things right in government.
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