#Reviewing Gold, Dollars, and Power: How U.S. International Monetary Policy Could Have Lost the Cold War

Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971. Francis J. Gavin. Chapel Hill: The University of North Carolina Press, 2007.

In Gold, Dollars, & Power: The Politics of International Monetary Relations, 1958-1971, Francis J. Gavin studies how the Bretton Woods agreements and the associated decades of U.S. balance of payments concerns and gold outflows from U.S. reserves “conflicted with the larger goals of American foreign policy, strategy, and domestic economic policy.”[1] Gavin argues there was a “triangular relationship between U.S. grand strategy in the Cold War, economic policy intended to promoted grown and avoid another depressions, and American objectives in Europe.”[2] While perhaps more seemingly intuitively obvious today, Gavin’s history review of U.S. monetary policy and its interactive effects on strategy, economic policy, and foreign policy provides a specific lens to view U.S. national security challenges in the decades following World War II.

Throughout the book, Gavin provides examples that show the Bretton Woods system fueled multiple crises amidst the tensions of the Cold War, many of which were connected to political and military issues between the U.S. and Europe. Recurring Cold War debates about U.S. military posture in Europe had to include the financial costs, and the associated impacts to the balance of payments system, while at the same time addressing security commitments, domestic politics, and international relations with both allies and adversaries. The basis for many of the U.S.’s challenges with international monetary policy are connected to imbalances in spending that place the U.S. in a deficit. During the Cold War countries like West Germany, France, and Japan, began holding more dollars –– which in turn could be redeemed for U.S. gold. As a countermeasure, the U.S. maintained gold reserves to cover outstanding dollars. When foreign countries kept too many dollars, the U.S. had the potential for a fiscal crisis. The memory of the Great Depression, the costs of World War II, and the U.S.’s desire to continue expanding its economy following World War II exacerbated the challenge of diffusing and containing potential monetary crises.

At a time when the U.S. is looking for innovative ways to exert power, any national security professional desiring a deeper understanding of how monetary policy could be both an opportunity and a vulnerability should read Gavin’s book.

Citing internal deliberations, memos, and declassified government documents, Gavin provides ample evidence from the Eisenhower, Kennedy, Johnson, and Nixon presidential administrations to support his argument. Towards the end of the Eisenhower administration, the State and Treasury Departments began to express concern about U.S. balance of payments, deficits and gold outflows. This concern resulted in several recommendations to reduce military spending overseas.

For Eisenhower, who was predisposed towards decreasing the U.S. military presence in Europe, this analysis provided additional impetus to ensure Europe would eventually provide for its own defense. Eisenhower specifically handed his balance of payments concerns to Kennedy, who quickly understood the sensitivity of the threat. Moving through the 1960’s, the more internationally expansionist foreign policy of the Kennedy and Johnson administrations exacerbated the economic issues brought to light at the end of Eisenhower’s term. The U.S. was always quick to connect their challenge with military force deployment, threatening to withdraw forces if countries like West Germany did not do more to help remedy the economic issue. For security debates during the Cold War, such as West German military policy or France’s Charles De Gaulle taking a hardline approach with the U.S. over NATO and nuclear weapons, Gavin illuminates how the U.S. role in the international monetary system was critically interconnected with U.S. and NATO security strategy. As the U.S.’s role in Vietnam escalated and the Johnson administration implemented the Great Society program domestically, the U.S. remained in a poor position with overseas dollar and gold flow. Ultimately, President Nixon dismantled the Bretton Woods system which allowed all international currencies to float against each other instead of connecting the U.S. dollar to gold.

The Price of Gold, the Influence of the "Gold Standard," and the Floating Dollar. Gold prices in nominal U.S. Dollars per ounce, adjusted for inflation, from 1914 to 2016 using historical London prices and dollar-pound exchange rates. Gold as the exchange standard was adopted, adjusted, and abandoned numerous times by the great powers in modern times, most notably in the build up to World War I, World War II, Bretton Woods, and the conflicts in Southeast Asia. (Wikimedia Commons)

Gavin’s book is particularly relevant in the present considering how significant economic and monetary policies are to U.S. national security and grand strategy. Even then as the leader of the international monetary system, the U.S. remained at the mercy of other countries, some of which sowed crises from monetary policy failure, others which deliberately manipulated the system to their advantage. Gavin succeeds in connecting fiscal policy, national security, and foreign relations to the international monetary system with his extensive review of this history. The “gotchas” of economic and monetary policy, and particularly the interactive effects with other aspects of national power, should be little surprise to national security professionals, but Gavin certainly makes the case that they presented quite the challenge for a generation of national strategic-level policy makers.

Gavin’s book provides a useful reminder of the many facets of national security and grand strategy. While certainly not a primer for domestic or international monetary policy, Gavin does a great job in connecting what seemingly could be disparate strategic policies –– security, military, economic, international relations, etc. –– and ensuring they are considered together. At a time when the U.S. is looking for innovative ways to exert power, any national security professional desiring a deeper understanding of how monetary policy could be both an opportunity and a vulnerability should read Gavin’s book. For in his own words, the book “underscores how influential these generational lessons can be in policy debates. It also underscores how important it is for historians to scrutinize these lessons, so that myth can be separated from fact.”[3]

Rob Ludington is an officer in the U.S. Air Force. He holds degrees from the Air War College, The George Washington University, and the U.S. Air Force Academy. The views expressed in this article are the author’s alone, and do not reflect those of the U.S. Air Force, the Department of Defense, or the U.S. Government.


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Header Image: Delegates from 44 countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire, July 1–22, 1944, to create the architecture for a new international monetary and financial order. (AP Images)


[1]  Francis J. Gavin. Gold, Dollars, & Power: The Politics of International Monetary Relations, 1958-1971 (Chapel Hill: The University of North Carolina Press, 2004), 7.

[2] Ibid, 8.

[3] Ibid, 202.