State Power, State Policy: Explaining

the Decision to Close the Gold Window

JOANNE GOWA

ONCE denigrated as hostage to particularistic interests and relegated

accordingly to the margins of scholarly inquiry, the state and state man-
agers have recently returned to the center of analytic interest.1 No
longer viewed as merely the reflection of societal pressures, whether in
terms of interest group or class, the state and its officials are now seen
instead as possessing significant power and interests of their own. Sup-
ported by both logical argument and impressive empirical evidence, this
view of states and state managers as highly motivated and independent
actors corrects what had in some cases become an image that exag-

gerated the impotence of the state.

To attribute to the state interests and power of its own leads
inevitably to a consideration of how the state will determine its inter-
ests and employ its power. The conclusion that state officials do not act
consistently on behalf of interest groups or classes does not resolve the
issue of how and why state officials do act. As both traditional and less
conventional interpretations of foreign-policy decision making suggest,
it may be that state action is determined by the shared perceptions of
state officials as to what will advance the national interest in any given
situation.2 It is also possible, however, that state officials, perhaps
because the national interest in any one situation is often ambiguous
and susceptible to varying interpretations, may pursue more parochial
interests. As a result, state action would correspond directly to the
competition for power among agencies and individuals that frequently
occurs within the state apparatus.3

I would like to thank the members of the editorial board of Politics f~ Society,
particularly Fred Block and Theda Skocpol, for their comments on an earlier
version of this paper.

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That both shared perceptions and the play of bureaucratic politics

’ can, in the absence of compelling societal interests, determine state
action is clear if the concrete case of the U.S. decision to close the gold
window is analyzed from a unit-level or domestic political perspective.
On August 15, 1971, the Nixon administration abrogated the U.S.
commitment to exchange dollars for gold, thereby collapsing the
Bretton Woods system of fixed exchange rates that had governed post-
war international monetary relations. The decision was the product of a

state that, in the sphere of international monetary relations, had the

power to act independently of particular societal interests and that, in
addition, had a long-standing, continuing interest in the survival of the
Bretton Woods monetary system.4
When the Nixon administration entered office in 1969, its officials
were well aware that during President Johnson’s incumbency there had
been a near-terminal crisis of the Bretton Woods system and that the
system remained in serious trouble. Between its inauguration and its
decision in mid-1971 to foreclose on the postwar monetary system,
however, the Nixon administration took no vigorous initiatives to
attempt to avert the system’s collapse: it refused to implement any of
several measures that, either by reducing future U.S. balance-of-
payments deficits by reforming the monetary regime, might have
or

bolstered the Bretton Woods system. Instead, it elected, as a Nixon

administration Treasury official observed, to &dquo;muddle through.&dquo;5
The decision to muddle through, leading ultimately to the decision
to close the gold window, it is argued here, was not the product of
either interest-group or class pressures. Rather, the formation of U.S.
international monetary policy has largely been the province of state
officials. Thus, that decision can be more accurately understood as a
reflection of the consensus that prevailed among Nixon administration
officials on the hierarchy of objectives that ought to govern U.S. inter-
national monetary policy in the dying days of the Bretton Woods
system. The decision to reject vigorous policy initiatives was also
influenced, although more marginally, by the distribution of power
among agencies with the administration. Thus, an analysis of the U.S.
decision to close the gold window suggests that determinants of state
action under conditions of relative autonomy can involve elements of
both consensus and conflict among state officials about the interests
and objectives at stake in a particular situation.
The data on which this study is based are drawn, in part, from inter-
views conducted during 1979 with twenty three Nixon administration
officials engaged in that administration’s international monetary policy
making.6 Documents obtained under the Freedom of Information Act

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 93

from the Department of the Treasury, the Federal Reserve Board of

Governors, and the National Security Council (NSC) were a second
source of data. Particularly valuable with respect to presidential involve-
ment in economic policy making was a third source consisting of a
series of memoranda on discussions during President Nixon’s first year
in office of his Cabinet Committee on Economic Policy.
Before setting forth the argument, I will explain why I focus on the
domestic political processes of a single state and will acknowledge the
limits to explanation that such a focus tends, almost inevitably, to
impose. In so doing, I hope to establish the larger context within which
the article is embedded and simultaneously to make clear the limited
ambitions of the article itself.

THE LEVEL OF ANALYSIS: LIMITS TO EXPLANATION

That this article concentrates exclusively on unit-level or domestic

political variables should not be interpreted to imply a judgment that
the breakdown of the Bretton Woods system can be understood solely
in terms of such variables. As has been cogently argued elsewhere, the
decision to close the gold window cannot be understood without refer-
ence also to several crippling problems that had begun to afflict the

Bretton Woods system as a whole by the time the Nixon administration

entered office in 1969.7 The decision to close the gold window admin-
istered the coup de grace to a system that had experienced a variety of
increasingly severe crises since its formal inception.
As originally envisioned, the postwar monetary system was to be
based on an adjustable peg exchange-rate mechanism and on a supply of
liquidity consisting of gold and drawing rights at the newly created
International Monetary Fund (IMF). Participating states were to set and
maintain par values for their currencies, maintaining those values by
either intervening in exchange markets or exchanging national currency
for gold at a fixed exchange rate. Par values were to be adjusted only in
cases of fundamental balance-of-payments disequilibria.
In practice, the system worked differently. The United States and
the dollar largely supplanted the roles of the IMF and gold: the United -

States became the central bank of the international economy, and

the dollar became its key reserve, intervention, and transaction cur-
rency. Surplus countries accumulated dollars as reserve assets; states
used dollars to intervene in exchange markets; and private transactions
were largely denominated in dollars. Sizeable and persistent U.S.

balance-of-payments deficits became the principal source and determi-

nant of increases in international liquidity, which, while easing the
system’s adjustment problems, also threatened its long-term viability.

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 94

The supply of dollars to the system for some time compensated for
the general unwillingness of states to adjust either their domestic econ-
omies or their exchange rates to their balance-of-payments situations.
Over time, however, the system began to erode. The U.S. commitment
to maintain an open gold window-to exchange dollars for gold at the
rate of $35 per ounce-became inconsistent with a declining U.S. gold
stock and an ever-increasing supply of dollars abroad.8 Were the U.S.
commitment to remain credible, U.S. deficits would have to be
reduced. This, however, would require initiatives that the United States,
for reasons explained below, was unwilling to consider.
The ability of other countries to defend established parities for
their currencies also began to erode. As short-term capitalist movements
increased in magnitude and mobility, as national inflation rates
diverged, and as payments imbalances persisted, it became increasingly
difficult to maintain a fixed rate system. In 1967, Britain devalued the
pound; in 1969, West Germany revalued the deutsche mark, and France
.

devalued the franc; in May 1971, West Germany, the Netherlands,

Austria, and Switzerland all revalued their currencies.
This general unhinging of the Bretton Woods system and the
re-emergence of sizeable U.S. payments deficits in 1970 and early 1971
made it likely that the United States would also abandon its commit-
ment to defend the dollar, closing the gold window and unleashing a
flood of speculative capital flows that would force all other major cur-
rencies to float as well.9 Indeed, the Johnson administration, faced
with historically large U.S. balance-of-payments deficits in 1967 and a
gold crisis in early 1968, only narrowly escaped a decision to float the
dollar.10 Viewed from the perspective of the monetary system as a
whole, then, it is not surprising that U.S. decision makers would at
some point in the early 1970s convene a meeting like that held at Camp
David in mid-August 1971 and decide to close the gold window.
What this perspective cannot explain, however, is why the agenda of
Nixon administration international monetary policy included so few
initiatives that might have forestalled the highly predictable denoue-
ment that occurred on August 15, 1971. Only a unit-level focus can

explain the exclusion from the early Nixon administration agenda of

any one of several initiatives that, by either reducing future U.S. pay-
ments or reforming the adjustable peg, might have extended the life
span of Bretton Woods. Nor do explanations at this level deal ade-
quately with the influence on the decision to close the gold window
exerted by, for example, what Charles E. Lindblom, in a different con-
text, has characterized as the relationship between &dquo;politics and mar-
kets&dquo; in the United States: 11 only when intrastate variables are

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 95

incorporated into the analysis does the rule played by the existence of
a &dquo;political-business&dquo; cycle become clear. These elements of expla-

nation can be captured only if a domestic political perspective is

employed. The purpose of this article, then, is to redress the explan-
atory gaps left by broadly gauged explanations of the breakdown of
Bretton Woods; the article is not intended to supplant but to comple-
’

ment such analyses.

THE ROAD TO CAMP DAVID: THE AGENDA AND NONAGENDA

OF NIXON ADMINISTRATION POLICY MAKING

Contrary to the predictions of bureaucratic politics analysts, the

process of setting the agenda and, of equal importance, the nonagenda
of early Nixon administration international monetary policy was not
characterized by &dquo;the pulling and hauling that is politics.&dquo; 12 Instead,
the dominant influence on that process was the extent and depth of
consensus among participants in that process. &dquo;Shared images,&dquo; not

power politics, exercised the single most profound effect on the compo-
sition of the agenda and nonagenda of U.S. international monetary
policy between 1969 and 1971. When combined with developments in
the monetary regime itself, what did and did not appear on the Nixon
administration’s agenda would, in turn, set that administration on the
road to its decision, two years later, to close the gold window.
The process of agenda setting occurred largely within the Volcker
Group, an interagency subcabinet-level unit named for its chair, Paul A.
Volcker, then the Treasury’s undersecretary for monetary affairs, and
composed of representatives from Treasury, the Department of State,
the Federal Reserve Board of Governors, the National Security Council
staff, and the Council of Economic Advisers. Responding to National
Security Memorandum 7,13 issued on January 21, 1969, the Volcker
Group prepared for President Nixon a forty-eight-page paperl4 eval-
uating U.S. &dquo;policy alternatives with regard to the U.S. balance of
payments, the functioning of the international monetary system, and
contingency plans for response to potential energy crises....&dquo;15
Because the president, in an Oval Office meeting on June 23, 1969,
simply ratified the recommendations presented to him by the Volcker
Group, the agenda and nonagenda of U.S. international monetary
policy were largely set within that group.
What the Volcker Group, the president, and the United States
ultimately adopted as official U.S. international monetary policy during
the Nixon administration’s first two years in office has been aptly
described by a former Treasury official as a policy of &dquo;muddle
through&dquo;: it was an approach to the problems of the Bretton Woods

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 96

’
system that relied largely on &dquo;the hope ... that the system could be
saved by people accumulating dollars and that the balance of payments
of other countries would be reduced, always on the assumption that
United States domestic economic policy would be tolerable.&dquo;16 In
choosing to muddle through, which, of course, may have been the best
policy, the Nixon administration consigned to oblivion several options
that might have staved off the breakdown of the Bretton Woods sys-
tem, including deflation, constraints on foreign policy, devaluation, an
immediate suspension of gold convertibility, capital controls, and a
vigorous advocacy of international monetary reform.
Its policy choices were influenced most significantly by the shared
perspective of administration officials on the appropriate relationship
between the United States and the Bretton Woods monetary system. At
all levels and across all agencies, Nixon administration officials agreed
on the rank ordering of priorities that was to govern U.S. involvement
in the international monetary system: they agreed on a hierarchy of
objectives that ranked the health and ultimately the survival of the
Bretton Woods system well below the maintenance of autonomy for
the U.S. in its conduct of domestic economic and foreign security
policy. Committed to maximizing U.S. independence of action in the
spheres of domestic economic and foreign policy, Nixon administration
officials could not sanction the restraints, either on domestic economic
activity or on foreign policy, that might have kept future United States
deficits to proportions more manageable within the extant monetary
system. Less directly but no less significantly, that commitment also
encouraged Nixon administration officials to perceive other countries
through a lens that led them to predict that a devaluation of the dollar
by either a rise in the gold price or an immediate suspension of convert-
ibility would also fail to resolve the problems plaguing the monetary
system.
A consensus on the primacy of national autonomy over the main-
tenance of the Bretton Woods monetary system exercised a profound
influence, therefore, on the agenda of Nixon administration policy
making. Consensus, albeit consensus of a different kind, also explains
why capital controls were not included on the administration’s agenda.
Only the exclusion of international monetary reform can be attributed
to the &dquo;pulling and hauling that is politics.&dquo; As the detailed discussion
of agenda formation below will make clear, the road to Camp David
was set within the administration very largely on the basis of percep-

tions and beliefs widely and deeply shared by its officials.

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 97

The Fate of Deflation

In accord with the economic and political structure of the United
States, deflation of the U.S. economy for the purpose of restraining
future U.S. balance-of-payments deficits was excluded from the Nixon-
administration policy agenda. While the U.S. payments balance (on
official settlements) was, somewhat misleadingly, in surplus in 1968 (and
in 1969), U.S. officials foresaw the return of sizeable deficits once the
tight monetary policy then being pursued to contain domestic inflation
eased. Despite the strain those deficits were likely to impose on an
already overburdened international monetary system, Nixon admin-
istration officials were not prepared to recommend the continuation of
deflationary measures beyond what was considered desirable on
domestic grounds alone.
This reflexive exclusion of deflation as a balance-of-payments
option made economic and political sense to administration officials at
least in part because that exclusion was congruent with the larger struc-
ture of the American economy and polity within which they were oper-

ating. Restraining the American economy in order to aid the Bretton

Woods system was not an option that was either economically or
politically consonant with the domestic structure of the United States.
That the United States was a relatively closed economy, for
example, militated against the adoption of deflation to contain the pay-
ments deficits that were expected to reappear as macroeconomic policy
eased after 1969. The traded-goods sector of the United States
economy-9 percent of over-all GNP in 197017 -is simply too small to
justify by itself the imposition of a penalty on the over-all economy.
Moreover, because of the substantial impact of the United States on
the world economy, any effort by the United States to correct its
payments imbalance by deflating its own economy was likely to prove
somewhat self-defeating: a reduction in aggregate demand in the United
States would reduce the level of United States imports, thereby reduc-
ing the income of other countries. That reduction, in turn, would lower
demand for United States exports, partially counteracting the positive
effect on the United States payments accounts of the original decrease
in imports.
The economic contraindications implicit in a macroeconomic
approach to United States international monetary policy were obvious
to Nixon administration officials. None, as a consequence, dissented
from the opinion of a Federal Reserve staff member, expressed in

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98

mid-1969, that it was &dquo;abundantly clear ... that it would be enor-

mously costly and ultimately self-defeating for the United States to
attempt to improve its balance of payments by deflating aggregate
demand significantly below what is justifiable on domestic grounds.&dquo;18
The politics attendant, in part, on the structure of the United States
economy had equally obvious implications for the relationship between
domestic macroeconomic and international monetary policy. In an
economy in which the traded-goods sector represented only a rela-
tively small proportion of over-all national income, there was little com-
pelling political support among the public at large, in Congress, or
among private industry for a policy that would subordinate the
demands of the domestic economy to those emanating from the
postwar international monetary regime. This was not an issue that
pitted particular interests against one another: U.S. international mon-
etary policy generally, at least in the time frame under consideration,
did not attract much attention from particular groups, for a variety of
reasons. 19 For the most part, state officials in the United States have
not been the target of pressures from specific societal interests on the
issue of international monetary policy. Instead, they have been
influenced by a diffuse perception in society at large that the domestic
should not be sacrificed to the international economy.
The United States public generally has not manifested any strong
interest in the conduct of United States international monetary policy.
&dquo;International finance,&dquo; as Richard N. Cooper has observed, &dquo;is an
arcane subject and normally attracts little attention .... The public, at
least in the United States, is likely to accept any reasonable sounding
proposal, unlike in the area of foreign trade policy where much more is
at stake for particularistic interests.&dquo; It is also true, however, as Cooper
adds, that &dquo;precisely because the public does not perceive much at
stake in the international monetary system, it will not be willing to
make many sacrifices to preserve it once its dictates conflict sharply
with the requirements of domestic economic policy.&dquo; 2~
Congress and private industry reflected similar sentiments, ignoring,
for the most part, the executive’s conduct of international monetary
policy until that conduct threatened to or did impinge on the freedom
of private actors in the United States. While Congress has been
relatively unconcerned with the course of United States international
monetary policy generally, it has objected to specific measures designed
to contain the United States payments deficit if those measures

infringed on even the margins of domestic economic activity. Suppres-

sing the entire economy for international monetary reasons would go
beyond the pale of congressional tolerance.

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 99

The same was true for private industry. Even those multinational
corporations and banks with an especially strong stake in the main-
tenance of a stable, open international economic order would not

support domestic deflation as a means of restraining United States pay-

ments deficits and thereby enhancing the viability of the postwar
monetary regime. Most of their profits derived from domestic opera-
tions, and the illogic of depressing the United States economy in terms
of its negative feedback effects on the payments accounts was as
evident to them as it was to members of the Volcker Group. As a conse-
quence, the history of even multinational corporations’ and inter-
national banks’ opposition to the variety of balance-of-payments
measures proposed by successive administrations to control the United
States payments deficits demonstrates virtually no support for con-
trolling that deficit by restraining the domestic economy. 21
Reflecting the dominant opinion in the United States, the pre-
election task force on the balance of payments that the future Nixon
administration assembled concurred in the refusal to shape the
domestic economy to the imperative of saving the Bretton Woods sys-
tem. Composed of both academic and private-sector economists and
chaired by Gottfried Haberler, then a professor of economics at
Harvard University, the task force met in several day-long sessions dur-
ing the autumn of 1968 and eventually submitted a thirty five page
analysis of and recommendations on the United States balance-of-
payments problem and the international monetary system to the
president-elect 22 Although its influence, if any, on the course of
Nixon administration policy making is unclear, the Haberler task force
report, while expressing the opinion that the United States deficit
ought to be reduced, also stated firmly that &dquo;this goal must be achieved
without violating major objectives of domestic economic policy, in
particular the objective of maintaining a high level of employment and
a rapid rate of growth at stable prices.&dquo; 23
Nor did President Nixon evidence any inclination to swim against
the prevailing current of political opinion, fearing the political conse-
quences of according higher priority to international than to domestic
considerations in the making of domestic macroeconomic policy. This
was particularly true when international problems would call for

recessionary policies, policies to which President Nixon was strongly

averse. Although President Nixon endorsed a tight money policy in

1969 and early 1970, he did so for domestic reasons, and he remained
very sensitive to what he perceived as the extremely potent and nega-
tive electoral effects of such a policy. Vice-president when Eisenhower ,
insisted on budgetary restraint, Nixon attributed the poor Republican

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100

showing in subsequent elections, including in his own campaign for the

presidency in 1960, to the continuing recession. In early 1969, President
Nixon reminded his Cabinet Committee on Economic Policy of his
predilections: &dquo;I remember 1958,&dquo; he said, &dquo;we cooled off the
economy and cooled off 15 Senators and 60 Congressmen at the same
time.&dquo;24 Increasing unemployment at home in an attempt to preserve
the international monetary system was simply not a palatable political
option from the president’s perspective.
There was, in short, no political constituency within or outside the
executive branch that would lend its support to suppressing the U.S.
economy to the end of restraining the country’s balance-of-payments
deficit and thereby easing the strain on the international monetary
regime. The economic costs of any such policy, moreover, were con-
sidered to be prohibitively high. Nixon administration officials, as a
consequence, took the primacy of the domestic economy as a given,
consigning to the realm of nondecisions the option of deflation as a
partial remedy for the ills besetting the Bretton Woods system. Auton-
omy in domestic economic policy making was far more important than
the survival of the postwar monetary system in the calculus of Nixon
administration policy making.

The Fate of Foreign-Policy Constraints

The isolation of foreign policy from balance-of-payments and inter-
national concerns also rested on a strong foundation of consensus
within the Nixon administration. The perspective evident in the
Volcker Group’s assertion that one &dquo;basic aim&dquo; of changes in the mon-
etary system is &dquo;to free ... foreign policy from constraints imposed by
weaknesses in the financial system&dquo; 25 was echoed in a long study con-
cluded by the Federal Reserve Board staff in mid-1969. It stated
unequivocally that &dquo;it is one of the proximate objectives of United
States balance of payments policy ... to be able to carry out govern-
ment overseas operations at levels determined entirely (that is, with no
concern for the balance of payments as such) by the extent to which

they are sought to promote basic United States objectives such as

international peace and security.&dquo; 26
This consensus accurately reflected the priorities of the president
himself, as well as those of his top advisers. That President Nixon chose
to rely on a national security assistant who had no interest or expertise
in the area of international finance; that he was preoccupied in his first
several years in office by foreign-policy issues whose resolution was not
at all influenced by payments considerations; and that he refused even
to sanction continued pressure on West Germany to extract foreign

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 101

exchange because he valued German-United States ties more highly

than he did the payments accounts 27 -all testify to the president’s
hierarchy of concerns.
The president’s sentiments were echoed at high levels in the Nixon
State Department, as is evident in the comments of one of the depart-
ment’s highest-ranking officials: any international monetary system, he
observed, ought to be judged from the perspective of &dquo;the political
system you want to run, or from the United States’ point of view, the
foreign policy that we propose to carry out. That monetary system .

which is most compatible with our foreign policy is the one I favor
as an American. To tell me that we have to adjust our foreign policy
... to a particular monetary system or economic consideration I just
don’t believe is a correct approach. &dquo;28 The Nixon administration’s
philosophy was expressed even more succinctly by one of its Council of
Economic Advisers members: discussing alternative balance-of-
payments policies, he abruptly dismissed the notion of reshaping
foreign policy, stating bluntly that &dquo;we didn’t like the idea of bringing
our troops home or that kind of stuff.&dquo;29
Unlike that on domestic economy policy, the intragovernmental
consensus that foreign policy was sacrosanct and ought to remain
immune from balance-of-payments concerns did not command a
universal following outside the administration. The Haberler task force
report, for example, asserted that among the policies &dquo;which should
have some favorable effect on our balance of payments and are worthy
of pursuit for their own sake&dquo; would be a careful review of &dquo;United
States Government economic and military commitments ... from the
standpoint of a new set of national priorities geared to the realities of
the limits on our capacity to honor commitments. Broader sharing of the
costs of defending the free world should be a high priority objective, and
future over-commitments by the United States should be avoided.&dquo; 30
The opinions expressed in the task force report were evident in
Congress as well. In the context of congressional debates that occurred
sporadically over the years in response to administration initiatives with
respect to the payments deficit, it was not unusual to hear congress- -

men (as well as industry representatives) suggest that cuts in govern-

ment spending abroad would be both a more appropriate and more

efficient remedy for the payments deficit than were capital controls.3~
That an obvious concomitant of those cuts would be a redefinition of
American foreign policy was of little concern to those suggesting the
reductions.
Recommendations that restraints on government spending abroad .
supplant or supplement those imposed on private industry, however,

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102

never gained a significant following in Congress, private industry, or

among nongovernmental foreign-policy elites. Given that the decade in

which efforts to control the deficit through the use of capital controls
coincided with the period of what Arthur M. Schlesinger, among others,
has referred to as the &dquo;imperial presidency,&dquo;32 the paucity of attempts
from outside the executive branch to reduce the strain on the monetary
system by redefining foreign policy is not difficult to understand.
Thus, in 1969, the Volcker Group and the Nixon administration as
a whole could freely express their conviction that regime maintenance

was an objective distinctly subordinate to that of preserving United

States autonomy in foreign security policy. Although government
spending abroad in support of foreign policy objectives was a major
contributing factor to the persistence and magnitude of U.S. deficits
that had come to plague the Bretton Woods regime, the Volcker Group
would recommend and the president accept no more than an effort to
cut the foreign-exchange costs of United States defense expenditures.
Low politics was simply not to intrude on the sphere of high politics.

The Fate of Devaluation

Less directly, the hierarchy of objectives shared by Nixon admin-
istration officials also eliminated a unilateral devaluation of the dollar
from the agenda of administration policy makers. Convinced that their
own emphasis on national goals was characteristic of other governments

as well, the Volcker Group argued vigorously and successfully against

an effort to improve the U.S. payments accounts by a unilateral rise in

the dollar price of gold, effectively, a devaluation of the dollar.

While members of the Volcker Group opposed a devaluation partly
because they believed that the attempt would adversely affect the mon-
etary system itself in several ways, the group’s report and interviews
suggest that the most fundamental objection of members of the group
to a unilateral devaluation of the dollar was their shared conviction that
it simply would not work, that a United States devaluation would not
achieve its goal of depreciating the dollar. They felt that other countries
would simply devalue their currencies against the dollar in response to a
rise in the price of gold and that the ultimate exchange-rate alignment
would not differ appreciably from the prevailing pattern. The United
States would have succeeded only in writing up the dollar price of gold,
at some cost to stable international monetary arrangements. &dquo;Certainly
the belief at the time,&dquo; recalls a CEA staff member,
was that we did not have any clear sense of what a gold devaluation would do to

exchange rates. That was an uncertainty. We thought the French would be very
reluctant to accept any appreciation of the franc, for example, and if they didn’t

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 103

that would pose serious problems for the Germans. And that the Japanese were
extremely reluctant to see any appreciation of the yen. So there was very genuine
skepticism about how we could effectively depreciate the dollar against other
currencies There was a danger that you would end up only with a higher
....

33
gold price.
While Germany and Switzerland might &dquo; ’stand still’ if the United
States devalued by no more than 10 percent ...,&dquo; concluded the
Volcker Group, &dquo;for the forseeable future, nearly all other countries-
including all the large ones-would be expected to follow the dollar, or
to devalue by even more
Underlying this pessimistic evaluation of the response of other
states to an attempted devaluation of the dollar by the United States
was a perspective on international economic relations that was widely
shared within the Volcker Group and was a logical extension of their
own emphasis on the primacy of national objectives relative to inter-

national regime maintenance. From that perspective, other states as

well had only a thin veneer of commitment to the survival of the post-
war networks of trade and monetary relations, a veneer that, when sub-

jected to pressure, would quickly vanish to reveal the much more

profound commitment of those states to national goals.
Were the United States to devalue the dollar in an effort to reduce
its deficit and to reduce the strain imposed by that deficit on the inter-
national monetary system, the Volcker Group calculated that other
states would not respond by accepting a lower value for the dollar in
exchange for an extension of the Bretton Woods system’s life span. In
the opinion of Volcker Group members, those states would instead act
to negate the impact of a dollar devaluation on their competitive

positions in the world markets, effectively rendering the United States

initiative null and void. Projecting its outlook onto other states in the
system, the Volcker Group recommended to the president that he not
even attempt a unilateral devaluation of the dollar. The president,

partly for domestic political and foreign-policy concerns, was all too
happy to concur, rejecting the arguments of Arthur F. Burns, then
counselor to the president, who, alone among the president’s advisers,
argued that a devaluation would be both desirable and successful.35
The Fate of an Immediate Suspension
The idea of immediately closing the gold window was influenced by
the same forces. While administration officials apparently believed that
a suspension would result in an exchange-market verdict of dollar

devaluation that foreign markets would not long resist, they also
believed that the barely latent nationalism they perceived to exist in

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 104

other states could be contained only if

U.S. decision to suspend gold
a

’ convertibility appeared freely made but as an involun-

not as a choice
tary response to conditions of extreme financial unrest. While an
immediate suspension might exert a beneficial impact upon the dollar
and the system as a whole, it might also provoke a wave of nationalism
that could inundate the system itself. As a Federal Reserve official
observed in mid-1969,
an early United States decision to suspend convertibility, especially if prior to sus-

pension the dollar was under no pressure in exchange markets and no central banks
were purchasing gold in significant amounts, would seem to foreign countries to be
a throwing down of the gauntlet in a grand manner. In these circumstances it would
be natural for the rest of the world to label the United States a progenitor of the
ensuing crisis, and it would probably be easy to make the label stick. There seems
litt!e doubt that the governments of the major foreign countries would be less coop-
erative after a suspension &dquo;unprovoked&dquo; by an exchange crisis than [otherwise] 36

I Deferring a decision on suspension was the only option congruent with

the Nixon administration’s attribution to other governments of its own
rank ordering of national and systemic goals.
In the case of this alternative, in particular, it should be clear that it
was not only an emphasis on national autonomy that persuaded the

.
Nixon administration to abjure an early resort to a suspension of gold
convertibility. An at least equally important influence in this instance
was the genuine fear and uncertainty that gripped administration

officials as they contemplated an action that might resuscitate but that

might also provoke the premature collapse of the postwar monetary
system. Most U.S. officials regarded a suspension in apocalyptic terms,
although they frequently could not specify precisely the nature of the
catastrophe they feared. &dquo;There was enormous uncertainty,&dquo; said an
administration official, &dquo;just fear of the unknown. We just didn’t know
what would happen if the United States announced one day that the
dollar was no longer convertible into gold
Many administration policy makers were extremely apprehensive
about what they could identify as possible outcomes of a suspension,
other than that of a dollar depreciation, and their fears were exacer-
bated by their inability to assess the probability of any particular out-
come. A Treasury official recalls that he and others considered that

there was always the question of what would happen to world financial relations if
the United States were to close the gold window. Who would do what to whom and
how? And just as when Penn Central was about to go under, would United States
financial markets collapse, whatever that means? Or wouldn’t they?
Because we had no example. We were guessing as to what would happen ....
But there was a definite fear that closing the gold window... would start massive

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 105

flows of funds. [That prospect] warranted the kind of concern and caution about
stepping off the cliff ... not knowing how you would land or where you would
land. 38

Thus, the Nixon administration’s decision to defer a closing of the gold

window was strongly influenced by factors other than that of the
administration’s consensus on national autonomy.

The Fate of Capital Controls

The Volcker Group also gavesuch short shrift to an intensification
of controls that this, too, can be classified as a nonoption. The view of
Nixon administration officials, recalls a CEA official, was &dquo;that the
game was up. [That] means when you get into [a difficult] situation,
you’re going to suspend gold rather than talking about curbing tourist
expenditures, the way the Johnson administration did.... The discus-
sion in the Volcker Group was a discussion about whether you should
suspend out of a blue sky or not. The implicit assumption was that
once we have the next round of problems there will be some changes
made.&dquo; 39
For a of reasons, members of the Volcker Group concurred
variety
that capital controls could not be relied upon as a long-run solution to
the problems of the Bretton Woods system. The U.S. system of capital
controls was becoming ineffective, as corporations became more adept
at evading the intent of the controls. Moreover, officials of the Nixon
administration, as a CEA member remarked, were clearly &dquo;not controls-
minded.&dquo;‘~ Evidence of this sentiment abounded: the Haberler task
force’s and Burns’s transitional reports to the president-elect urged an
end to the controls; 41 the Republican presidential candidate had issued
a campaign pledge to end the controls; and, in his first ten days in

office, President Nixon ordered his Cabinet Committee on Economic

Policy to develop quickly &dquo;something to show we’re trying to get rid of
the damn controls.&dquo;42 That the Volcker Group would recommend and
the administration accept reliance on capital controls as a long-run
response to the payments problem was, in this atmosphere, unlikely.
Controls were relaxed in April 1969, although they were not removed
entirely until 1974.
The Fate of Reform: The
Influence of Structure and Process
In stark contrast to the virtual unanimity of perspectives that
enabled its officials to dismiss other alternatives to policy stasis, the
issue of international monetary reform evoked a heated debate within
the Nixon administration, a debate that bore many of the imprints

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106

considered by bureaucratic politics analysts to be characteristic of the

American foreign-policy decision-making process as a whole: it was a
debate marked by intense pulling and hauling, divisions among officials
of different agencies, and maneuvers to influence outcomes in direc-
tions favored by particular officials.
And, as bureaucratic politics analyses would predict, the prefer-
ences of the most powerful actor prevailed. Because the Department of
the Treasury is the dominant player in international monetary policy
making generally and because the department was skeptical about the
limited-flexibility reforms being urged elsewhere in the government, the
United States did not, between 1969 and 1971, vigorously advocate
negotiations to reform the international monetary system before it
collapsed.
The Treasury’s victory is also attributable to factors other than its
formal power and position, however. As Morton Halperin states, &dquo;rules
do not dominate the [foreign policy] process, although they do make a
difference to the extent they may structure the game. This still leaves
considerable flexibility for participants to maneuver ... to get the deci-
sions they want.&dquo; 4~ In the Nixon administration, however, advocates
of international monetary reform were unable to maneuver successfully
to challenge the advantages conferred upon the Treasury as a conse-
quence of its formal power: their influence was constrained by their
relationships with their agency heads and by the reputations of their
agencies.
CEA, NSC, and Federal Reserve representatives to the Volcker
Group were frustrated in their pursuit of international monetary reform
because they could not persuade their superiors to argue their belief
with the president. The CEA and the Federal Reserve perceive inter-
national monetary issues as clearly peripheral to their central mission of
overseeing the domestic economy; top officials of those agencies could
not be expected to expend their scarce time with the president on what
they perceived to be less than central issues. Henry Kissinger’s dis-
interest international monetary issues at the time is near
in
legendary:44 C. Fred Bergsten, Kissinger’s representative within the
as
Volcker Group, observed recently, &dquo;Working as an economist for
Kissinger was comparable to being in charge of the military for the
Pope.&dquo; 45
CEA and Federal Reserve officials were also handicapped by the
reputations, however inaccurate, of their agencies. The CEA is per-
ceived within the government as the bastion of academicism and the
Federal Reserve as the preserve of conservative bankers. The statement
that the CEA is the province of academics is not merely a statement of

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 107

fact; it is also a suggestion that CEA members are plagued by the

ethereal concerns peculiar to academics who have not been honed down
by the grind of daily life to possess the sense of reality that is so
essential to effective policy making.
The Federal Reserve has a different but no more helpful reputation;
it is perceived within the government as the American species of the
genus central bank, conjuring up, as a consequence, the images of
conservatism and exceptional caution attributed by most observors to
all central banks. The Federal Reserve, said one Volcker Group mem-
ber, for example, &dquo;was the voice of conservatism. The Federal Reserve
was the voice of maintaining convertibility, of maintaining the system,
of doing whatever had to be done domestically to maintain external
equilibrium. And there are times when that message is well-received and
there are other times when it isn’t. To put it mildly, that was a period
when ... we were moving away from that.&dquo; 46
Thus uninhibited in its ability to extract maximum leverage from its
position at the top of the hierarchy of international monetary policy
making, the Treasury succeeded in translating its preferences with
respect to monetary reform into official U.S. government policy. Inter-
national monetary reform, as a consequence, was not a high priority
item on the agenda of U.S. policy between 1969 and 1971.

FROM MUDDLE THROUGH TO AUGUST 15

As a consequence of a great deal of consensus and a much smaller

amount of conflict, the Nixon administration in its first two years in
office embraced a cautious, piecemeal approach toward what was, in all
estimates, a very difficult situation. Members of the administration, for
example, pressed for the first issuance of special drawing rights,
resolved a conflict with South Africa over gold, and exerted some (al-
though how much remains fiercely disputed)47 pressure on surplus
countries to revalue their exchange rates. What the administration did
not do was to try to suppress the anticipated re-emergence of U.S.

payments deficits or reform the monetary system. Whether the Nixon ‘

administration’s agenda and nonagenda were &dquo;correctly&dquo; chosen is,

even in retrospect, uncertain: it is not at all clear that vigorous efforts
to suppress the deficit or to reform would have done any more than

postpone the collapse of the Bretton Woods system; moreover, even

had they done that and more, it is still not clear, in terms of the costs
involved, whether they would have been worth pursuing.
In any case, the Treasury, the United States government, and the
Bretton Woods system were able to muddle through successfully for
two years, as the Nixon administration’s first years in office turned

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 108

out to be placid ones for the dollar. Exchange markets focused on the
’

mark and the franc, which were seen as likely candidates for parity
changes. The stringent monetary policy pursued by the Federal Reserve
to combat domestic inflation raised interest rates to levels that
attracted large inflows of Eurodollars, thus draining foreign central
banks of their dollar reserves, relieving pressure on the United States
gold stock, and raising European interest rates.
In 1970, the tight money policy began to have its intended effect,
as the domestic economy began to slide into recession, boosting the
current account position of the United States but by a perceptibly
smaller amount than would have prevailed in the absence of an over-
valued dollar. The Federal Reserve began to relax monetary policy as
the pace of the domestic economy slowed. Interest rates in the United
States began to decline, and by early 1971, the inflows of funds that
had concerned the Europeans in 1969 reversed direction. The probable
effects of domestic recovery and capital outflows on the United States
balance of payments led market participants to anticipate a change in
the dollar’s value, and, by the spring of 1971, outflows of funds from
the United States began to appear not only as a response to interest-rate
differentials but also as speculation on a dollar devaluation. Currency
flows expanded massively early in May, as four German research insti-
tutes recommended a revaluation of the mark. After absorbing $1 bil-
lion in one hour on May 5, Germany closed its exchange markets.
Several days later, it let the mark float; the Netherlands followed; and
Austria and Switzerland revalued. The current account position of the
United States weakened, and in May the United States announced trade
figures for April demonstrating that the &dquo;now small export surplus had
given way to an import surplus....&dquo;48
In late July and early August, pressure on the dollar intensified, and
United States reserve assets declined precipitously. Belgium and the
Netherlands demanded that United States swap obligations to them be
paid off, pushing the United States uncomfortably close to the exhaus-
tion of its automatic borrowing rights in the I1~IF. Britain and France
converted $800 million into gold at the United States Treasury to repay
their drawings on the IMF,49 and the United States gold stock dropped
below the symbolic $10 billion mark. 50
On August 6, 1971, the House Subcommittee on International Ex-
change and Payments of the Joint Economic Committee issued a report
urging that the United States suspend gold payments if it could not
otherwise obtain a depreciation of the dollar.51 On August 13, the
British government requested that the United States guarantee a
portion of its dollar holdings at the prevailing sterling-dollar parity.

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 109

Then Secretary of the Treasury John B. Connally was called back from
his Texas vacation, and a meeting of the president and his top advisers
was convened at Camp David to decide whether the time had come for
the United States government to close the gold window.
Obviously influenced by the evident disarray in international
financial markets and by the prospect of a record U.S. deficit, the out-
come of the Camp David meeting-the suspension of gold convert-

ibility-was also influenced by and is evidence of the demand for

national autonomy and the existence of a political-business cycle. The
debate at Camp David on the issue of whether the gold window ought
to be closed was shaped by both national interest and domestic political
and economic concerns.
Persuaded that the interest of the United States lay not in an
offense against but in a defense of the internationalism embodied in the
Bretton Woods system, Burns, then chairman of the Federal Reserve
Board of Governors, argued against a closing of the gold window.52
Burns’s interpretation of the national interest did not prevail, however,
as the dominant opinion at Camp David echoed the emphasis on

national autonomy. President Nixon and others, according to a Camp

David participant, perceived the gold window issue &dquo;in somewhat
nationalistic terms.... That we were hemmed in to a degree that other
countries were not [by the gold convertibility requirement]. That our
competitive ability was limited by this. That our ability to manage our
own affairs was limited by this. That other countries were not limited

by this, and that it was a blow for American independence. 1153 Thus,
on national interest grounds, the debate at Camp David was resolved in

favor of a decision to close the gold window.

The Camp David discussion was also influenced by the workings of
what has been called the political-business cycle,54 the responsiveness
of macroeconomic policy to electoral concerns. The August meeting
was convened to resolve not only the gold window issue but also that of

the proposed New Economic Policy (NEP). The NEP was a package of
measures, including wage-price controls, designed to stimulate the
domestic economy, which, fifteen months before the presidential
election, was stuck at the then politically unacceptable combination of
a 4 percent inflation and a 6 percent unemployment rate.55

Impressed by the political restiveness generated by the state of the

domestic ’economy in mid-1971, 56 President Nixon was, as the Camp
David meeting convened, very much inclined toward endorsing the
NEP. In terms of the balance-of-payments accounts, as CEA Chairman
Paul W. McCracken pointed out, the stimulus inherent in the NEP and
the temporary nature of the wage-price controls promised an increase in

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110

the U.S. deficit. As a consequence, McCracken contended, a decision to

endorse the NEP required a simultaneous decision to close the gold win-
dow. McCracken argued &dquo;that if there’s one lesson you can draw from
history, it’s that wage and price controls don’t stop inflation.... I
think we got that message across to the president: all you’ve done is
buy yourself a temporary respite. If you look at the history of wage
and price controls, you get a flattening out of the price level and then
you get an explosion. And, to pursue that, at that point the dollar
would have been scuttled in the worst of all possible circumstances.
Then you would have had disorder.&dquo; 57 The only measure consistent
with an expansionary domestic program, in light of the speculative pres-
sures already evident against the dollar, the CEA chairman argued, was

a closing of the gold window.

The prospect that a suspension of convertibility would alleviate,
albeit modestly, U.S. unemployment reinforced President Nixon’s
inclination to endorse both the NEP and a closing of the gold window.
The dollar devaluation that was expected to result from a suspension,
by increasing U.S. exports and decreasing U.S. imports, was also
expected to raise U.S. employment. In a period in which the inflation-
ary effects of a depreciated dollar had not yet impressed themselves on
United States policy makers, the most influential argument, recalls an
NSC staff member, was &dquo;50,000 jobs for every percentage point of
dollar devaluation.&dquo;5$
To a president who was extremely fearful of the effects of rising
unemployment on the political prospects of the incumbent party, the
likelihood that a dollar devaluation incident upon a suspension would
positively affect domestic employment levels must have given a closing
of the gold window great appeal. President Nixon was apparently con-
vinced that joblessness cost him the 1960 presidential election.59 Early
in his tenure as president, President Nixon made clear to his cabinet his
perspective on the differential political impacts of inflation and unem-
ployment : &dquo;When you start talking about inflation in the abstract,&dquo; he
stated, &dquo;it is hard to make people understand. But when unemployment
goes up one-half of one percent,&dquo; he added, &dquo;that’s dynamite.&dquo; 60
That the president ultimately implemented the NEP and closed the
gold window confirms again, albeit in a slightly different way, the high
priority accorded by the Nixon administration to autonomy in
domestic economic management relative to that assigned to inter-
national regime maintenance. It highlights, in particular, the role played
by domestic-especially, electoral-politics in establishing that ordering
of priorities. Domestic politics influenced the domestic economic

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 111

course adopted by the Nixon administration that, in turn, contributed

to the demise of the Bretton Woods monetary system.

CONCLUSION ,

This analysis of the domestic political influences that contributed

to the Nixon administration’s decision to close the gold window identi-
fies several determinants of state action under conditions of autonomy.
The constraints that inhibited the Nixon administration from
implementing any of several policy initiatives that might have fore-
stalled the collapse of the Bretton Woods system were not imposed by
particular economic interest groups or classes; domestic groups were
instead largely quiescent with respect to U.S. international monetary
policy generally. The decision to muddle through was not the conse-
quence, in short, of pressure group or class politics.
It was instead the consequence of both conflict and consensus
within the Nixon administration itself. The administration did not, for
example, vigorously attempt to reform the monetary system before it
collapsed, although several of its officials believed that an effort to
introduce more flexibility into the Bretton Woods system was worth
pursuing. The Treasury, however, regarded the prospects of negotiating
monetary reform skeptically and, because the department was the most
powerful agency within the administration in this area of policy, it was
Treasury’s skepticism about reform that became official U.S. govern-
ment policy between 1969 and 1971. Thus, the absence of initiatives in
the area of monetary reform can be attributed to the same play of
bureaucratic politics that some scholars claim is the principal deter-
minant of U.S. foreign policy.61
For the most part, however, the Nixon administration’s policy was
not the result of bureaucratic conflict but instead reflected agreement
among administration officials that the preservation of national auton-
omy took precedence over the maintenance of international regimes.
Measures to reduce future U.S. balance-of-payments deficits to levels
compatible with the Bretton Woods system were excluded from the
administration’s agenda because they were inconsistent with the admin-
istration’s determination to maintain U.S. freedom of action at home
and abroad. The Nixon administration was not prepared to sacrifice the
ability of the United States to manage its domestic economy and for-
eign policy for the sake of the Bretton Woods system.
This case argues, therefore, that attention should be given to deter-
minants of state action of a specific and relatively unconventional kind
and not merely to the conflicts and power plays among state officials

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112

traditionally emphasized by bureaucratic politics analysts. The con-

straints and incentives that influence state action, it argues, lie in

priorities that more frequently unite than divide state officials.
In part, these priorities reflect domestic politics and the domestic
economy, although they do so in a way that reflects not particular but
aggregate interests. The refusal to sanction domestic deflation as a
balance-of-payments measure and the more general emphasis on domes-
tic economic autonomy was a reflection of the size and structure of the
U.S. economy and of the reluctance of the U.S. public, Congress, and
private industry to sacrifice the domestic economy to the international
economy. Proximate to the decision itself, President Nixon’s endorse-
ment of both the NEP and the suspension of gold convertibility reflects
a different aspect of U.S. domestic politics-the relationship (or at least

the relationship once perceived to exist) between presidential elections

and an expansionary macroeconomic policy.
But not all of the objectives that influenced the action of Nixon
administration officials can be attributed to the influences of domestic
politics and of a relatively large and self-contained economy. The
priority assigned to autonomy in U.S. foreign policy, for example, did
not derive wholly from domestic sources. Indeed, as noted earlier, the
insistence of Nixon administration officials on ignoring, almost com-
pletely, the costs to the monetary system of its foreign policy aroused
some, albeit low-level, societal dissent. The administration’s emphasis
on the primacy of foreign policy was due instead, in part, to President

Nixon’s well-known determination to implement a grand design for

foreign policy, a design that would not be altered for the sake of the
Bretton Woods system. It was also a continuation of a long tradition in
U.S. foreign policy, a tradition that made the Bretton Woods system an
instrument but not a determinant of broader U.S. foreign policy.
Thus, the Nixon administration’s policy in the dying days of the
postwar monetary system was not generated by particular interests
within U.S. society. Instead it was generated largely by state officials
themselves: what prevented the Nixon administration from attempting
to preserve the Bretton Woods system were images of the domestic
and international system shared by its officials, as well as some disagree-
ment about the utility of monetary reform.
This analysis of the domestic politics of the decision to close the
gold window argues, then, that a consensus on priorities and, at the
margin, bureaucratic politics may explain state action in the absence of
particularistic pressures. Recent analyses of U.S. decision making on the
Vietnam war, moreover, suggest that such factors influence the forma-
tion of American foreign policy across a realm much wider than that of

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 113

U.S. international monetary policy: Leslie H. Gelb and Richard K.

Betts have argued persuasively, for example, that the images of domes-
tic and international politics shared by at least five U.S. administrations
prevented the United States from taking action in Vietnam that would
end decisively either American involvement or the war itself. 62 It seems
plausible, therefore, that the actions of autonomous states may be
explained, across several policy areas, in terms of the factors discussed
in this case study.

NOTES

1. See, e.g., the various essays in Peter J. Katzenstein, ed, Between Power and
Plenty: Foreign Economic Policies of Advanced Industrialized States (Madison:
University of Wisconsin, 1978); Theda Skocpol, States and Social Revolutions:
A Comparative Analysis of France, Russia, and China (New York: Cambridge
University Press, 1979); and Eric A. Nordlinger, On the Autonomy of the Demo-
cratic State (Cambridge: Harvard University, 1981).
2. For a provocative recent argument that emphasizes the importance to state
policy of the concept of national interest, see Stephen D. Krasner, Defending the
National Interest: Raw Materials Investment and U.S. Foreign Policy (Princeton:
Princeton University Press, 1978).
3. This, of course, is the bureaucratic politics approach. See Graham T. Allison,
Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little, Brown,
1971); and Morton Halperin, et al., Bureaucratic Politics and Foreign Policy
(Washington, D.C.: The Brookings Institution, 1974).
4. Stephen D. Krasner observes, for example, that the United States, in the
field of international monetary policy, has had, in effect, a strong state. "United
States leaders," he states, "have had a relatively free hand" in international mone-
tary policy making because the relevant arenas of decision, "the White House, the
Treasury Department, and the Federal Reserve Board... are well insulated from
particular societal pressures." Krasner, "U.S. Commercial and Monetary Policy,"
in Between Power and Plenty, ed. Katzenstein, pp. 66, 65.
5. Interview. See n. 6.
6. See the appendix for a list of these officials. Officials granted interviews on
the general understanding that their comments were not for attribution.
7. See, e.g., Susan Strange, International Monetary Relations, International
Economic Relations of the Western World, 1958-1971, vol. 2 (London: Oxford
University Press, 1976); John H. Williamson, The Failure of World Monetary
Reform, 1971-74 (New York: New York University Press, 1977), 2; W. M. chap. -

Scammel, The International Economy since 1945 (New York: St. Martin’s Press,
1980), chap. 12.
8. This, of course, is a brief statement of the "Triffin dilemma," articulated
at length by Robert Triffin in his Gold and the Dollar Crisis: The Future of Con-
vertibility (New Haven: Yale University Press, 1966).
9. The U.S. deficit on the official-settlements basis of accounting (which
measures changes in official reserves) stood at $10.7 billion in 1970 and $30.5
billion in 1971. In 1968, there had been small surpluses: $1.6 billion and $2.7
billion, respectively. Statistics from U.S., White House, International Economic

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 114

Report of the President (1973), pp. 82, 86. For an explanation and evaluation of
the several different ways in which the U.S. payments position is measured, see
Benjamin J. Cohen, Balance-of-Payments Policy (Baltimore, Maryland: Penguin,
1970), pp. 39-55.
10. The 1967deficits were very large in comparison to deficits recorded in most
as the following table indicates:
previous years,

SOURCE: International Economic Report of the President (1973), pp. 82, 86.
11. Charles E. Lindblom, Politics and Markets: The World’s Political-Economic
Systems (New York: Basic Books, 1977).
12. Allison, Essence of Decision, p. 144.
13. U.S., White House, "National Security Study Memorandum 7," January 21,
1969 (document released pursuant to a Freedom of Information Act [FOIA]
request; hereinafter cited as NSSM 7).
14. U.S., Department of the Treasury, "Basic Options in International Monetary
Affairs," June 23, 1969 (document released pursuant to an FOIA request; herein-
after cited as "Basic Options").
15. NSSM 7, p. 1.
16. Interview.
17. David P. Calleo and Benjamin M. Rowland, America and the World Political
Economy: Atlantic Dreams and National Realities (Bloomington: Indiana Univer-
sity Press, 19 73 ), p. 113.
18. U.S., Federal Reserve Board, Division of International Finance, "Balance-of-
Payments and International Financial Policies for the United States: A Review of
the Choices," June 30, 1969, p. 56 (document released pursuant to an FOIA
request; hereinafter cited as "A Review of the Choices").
19. As Robert O. Keohane observes, "the direct effects of particular trade meas-
ures were highly visible and specific, and could be readily perceived by industrial-

ists, union officials, and members of the general public. Unlike international
monetary policy, trade was not perceived as an esoteric issue area that had to be
interpreted by squabbling bands of arcane economists. Whether for these or other

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 115

reasons, trade attracted more domestic controversy than issues of exchange rates
and the international monetary system even though the latter may have been more
important for the economy as a whole." Keohane, "U.S. Foreign Policy toward
Other Advanced Capitalist States," in Eagle Entangled: U.S. Foreign Policy in a
Complex World, ed. Kenneth A. Oye et al. (New York: Longman, 1979), p. 110.
20. Richard N. Cooper, "Prolegomena to the Choice of an International Mone-
tary System," in International Economics and International Politics, ed. C. Fred
Bergsten and Lawrence B. Krause (Washington, D.C.: The Brookings Institution,
1975), p. 92.
21. Congressional Quarterly Almanac, 90th Cong., 2nd sess., 1968, vol. 24
(Washington, D.C.: Congressional Quarterly Service, 1968), pp. 717-28.
22. "Report of the Task Force on United States Balance of Payments Policies
to the President-Elect," n.d. (document in the files of Gottfried Haberler,
Washington, D.C.; hereinafter cited as "Report of the Task Force").
23. Ibid., p. 1.
24. "Report of the Cabinet Committee on Economic Policy," April 10, 1969,
p. 6 (document in the files of William Safire, Chevy Chase, Maryland).
25. "Basic Options," p. 48.
26. "A Review of the Choices," p. 75.
27. Interview.
28. Interview.
29. Interview.
30. "Report of the Task Force," pp. 20-22.
31. Congressional Quarterly Almanac, 1968, pp. 717-28.
32. Arthur M. Schlesinger, Jr., The Imperial Presidency (Boston: Houghton
Mifflin Co., 1973).
33. Interview.
34. "Basic Options," p. 35.
35. Interview.
36. "A Review of the Choices," p. 179.
37. Interview.
38. Interview.
39. Interview.
40. Interview.
41. "Report of the Task Force," p. 15; "International Economic Relations,"
Transitional Report, n.d., p. 107 (document in the files of Martin Anderson, San
Marino, California).
42. "Report of the Cabinet Committee on Economic Policy," January 28, 1969,
p. 69 (document in the files of William Safire, Chevy Chase, Maryland).
43. Halperin, Bureaucratic Politics and Foreign Policy, p. 115.
44. Henry Kissinger, White House Years (Boston: Little, Brown, and Co., 1979),
pp. 950-51.
45. New York Times, September 30, 1982, p. B12.
46. Interview.
47. Charles A. Coombs, The Arena of International Finance (New York: John
Wiley and Sons, 1975), pp. 210-11; interviews. Special drawing rights (SDR) were
the international reserve assets created by agreement among IMF members in 1969,
after lengthy negotiations. For an explanation of the SDR and an account of those
negotiations, see Stephen D. Cohen, International Monetary Reform 1964-69: The
Political Dimension (New York: Praeger, 1970).

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48. Robert Solomon, The International Monetary System, 1945-1976: An

Insider’s View (New York: Harper and Row, 1977), p. 181.
49. Susan Strange, "The Dollar Crisis, 1971," International Affairs 48 (April
1972): 203.
50. New York Times, July 27, 1971.
51. U.S., Congress, Joint Economic Committee, Subcommittee on International
Exchange and Payments, "Action Now to Strengthen the U.S. Dollar," 92nd Cong.,
1st sess., August 1971.
52. Interview; William Safire, Before the Fall: An Inside View of the Pre-Water-
gate White House (New York: Doubleday, 1975), pp. 513-16.
53. Interview.
54. See Edward R. Tufte, Political Control of the Economy (Princeton: Prince-
ton University Press, 1978), chap. 1.
55. Leonard Silk, Nixonomics, 2nd ed. (New York: Praeger Publishers, 1972),
p. 17.
56. Richard Nixon, RN: The Memoirs of Richard Nixon (New York: Grosset
and Dunlap, 1978), p. 518.
57. Interview (quoted by permission).
58. Interview.
59. Richard M. Nixon, Six Crises (Garden City, N.Y.: Doubleday, 1962), p. 309
(cited in Tufte, Political Control of the Economy, p. 6).
60. "Report of the Cabinet Committee on Economic Policy," February 13,
1969, p. 4 (document in the files of William Safire, Chevy Chase, Maryland).
61. See, e.g., Allison, Essence of Decision.
62. Leslie H. Gelb and Richard K. Betts, The Irony of Vietnam: The System
Worked (Washington, D.C.: The Brookings Institution, 1979).

Appendix z

’ °

INTERVIEWEES
C. Fred Bergsten, senior staff member, National Security Council.
E. M. Bernstein, consultant, Department of the Treasury.
Michael Bradfield, Assistant General Counsel, Department of the Treas-
ury.
Ralph Bryant, staff, Division of International Finance, Federal Reserve
Board of Governors.
Arthur F. Burns, chairman, Federal Reserve Board of Governors.
Sam Cross, Office of the Assistant Secretary for International Affairs,
Department of the Treasury.
William Dale, executive director, IMF, Department of the Treasury.
Robert Hormats, senior staff member, National Security Council.
Hendrik S. Houthakker, member, Council of Economic Advisers.
Paul W. McCracken, chairman, Council of Economic Advisers.
Bruce MacLaury, Deputy Undersecretary for Monetary Affairs, Depart-
ment of the Treasury.
Fritz Machlup, consultant, Department of the Treasury.

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John R. Petty, Assistant Secretary for International Affairs, Depart-

ment of the
Treasury.
William Safire, chief economics speechwriter, Office of the President.
Nathaniel Samuels, Deputy Undersecretary for Economic Affairs,
Department of State.
Robert Solomon, director, Division of International Finance, Federal
Reserve Board of Governors.
Herbert Stein, member, Council of Economic Advisers.
Philip Trezise, Assistant Secretary for Economic Affairs, Department of
State.
Paul A. Volcker, Undersecretary for Monetary Affairs, Department of
the Treasury.
Sidney Weintraub, Deputy Assistant Secretary for International Finance
and Development, Department of State.
Marina v.N. Whitman, senior staff member, Council of Economic Ad-
visers.
George H. Willis, Deputy to the Assistant Secretary for International
Monetary Affairs, Department of the Treasury.
G. Paul Wonnacott, senior staff member, Council of Economic Advisers.

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