History is “forever new” and we keep asking “what’s new?” but the past is “forever suggestive” and so we inquire here as to whether the past gives us interesting echoes of the more recent.
To combat these problems, President Nixon consulted Federal Reserve chairman Arthur Burns, incoming Treasury Secretary John Connally, and then Undersecretary for International Monetary Affairs and future Fed Chairman Paul Volcker.
On the afternoon of Friday, August 13, 1971, these officials along with twelve other high-ranking White House and Treasury advisors met secretly with Nixon at Camp David. There was great debate about what Nixon should do, but ultimately Nixon, relying heavily on the advice of the self-confident Connally, decided to break up Bretton Woods by announcing the following actions on August 15:
- Nixon directed Treasury Secretary Connally to suspend, with certain exceptions, the convertibility of the dollar into gold or other reserve assets, ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold.
- Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government had enacted wage and price controls since World War II.
- An import surcharge of 10 percent was set to ensure that American products would not be at a disadvantage because of the expected fluctuation in exchange rates.
Speaking on television on Sunday, August 15, when American financial markets were closed, Nixon said the following:
“The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.
“In the past 7 years, there has been an average of one international monetary crisis every year …
“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.
“Now, what is this action—which is very technical—what does it mean for you?
“Let me lay to rest the bugaboo of what is called devaluation.
“If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.
“The effect of this action, in other words, will be to stabilize the dollar.”
Britain’s own experience in the twenties is explained like this:
“In 1925, Britain had returned to the gold standard.
(Europe of the Dictators, Elizabeth Wiskemann, Fontana/Collins, 1977, page 92-93)
The setting is both “infinitely different” across the decades but the feeling of “flying blind” applies to both cases: U.S.A. “closing the gold window,” August 1971 and Britain’s overturning Churchill’s 1925 return to the gold standard, by 1931. One gets the sense of “concealed turmoil” and a lot of “winging it” in both cases. Policy-makers disagreed and they all saw the world of their moments “through a glass, darkly.”