My blog post on Conrad Black's Richard M. Nixon: A Life in Full will focus on money supply and the gold standard.
1. On page 696, we read:
"Unemployment
was low, but inflation had risen from 3.3 percent to 5.5 percent under
Nixon, and Arthur Burns, who had gone to the Federal Reserve
chairmanship in January 1970, was a monetary conservative. Nixon urged
him to expand the money supply, as he had urged during the 1954 and 1958
midterm elections, but Burns declined to do so (as Eisenhower had).
There was virtually no economic growth through 1970."
When the
money supply is expanded, that can mean inflation, since, when more
money is out there, companies raise prices. But some people support
expanding the money supply as a means to stimulate the economy. Nixon
sometimes favored expanding the money supply for this reason. Arthur
Burns, however, a "monetary conservative" (as Black calls him), was
resistant to this. Ron Paul was a Presidential candidate in 2008 and
2012, and he often spoke in favor of the gold standard and restricting
the money supply to combat inflation. What did Ron Paul think about
Arthur Burns? On pages 115-116 of End the Fed, Paul states:
"Following the election of Jimmy Carter in 1976, [Burns] dearly wanted
to be reappointed. He cut the discount rate and accelerated money
growth. True, he was a Republican, but he wanted to go down in history
as bipartisan...Sadly for Burns, the courtship failed. Even more sadly
for the country, the courtship wrecked the dollar further." Paul
apparently did not regard Burns as a man of principle in terms of
monetary conservatism, at least after Jimmy Carter's election in 1976.
2. On page 739, we read the following about the Bretton Woods agreement:
"In
1944, the Western countries had agreed at Bretton Woods, New Hampshire,
on a new international currency agreement, based on the U.S. dollar and
the backing of the dollar by the gold reserves of the United States.
There was gold in the Treasury of the United States to redeem about
one-quarter of the outstanding currency, and there were fixed exchange
rates with other major currencies, especially the British pound. This
system had worked well for twenty-five years, but now U.S. gold reserves
had declined (from $25 billion to $10.5 billion), Europe was back on
its feet, Japan was much more powerful economically than it had ever
been, the United States was on the verge of running its first trade
deficit in over seventy-five years, and gold was clearly under-priced as
a commodity, as the dollar was overpriced as a currency. Gold played
an obsolescent and impossible role now because there were at least six
or seven other important hard currencies. Manufacturing in Japan and
Western Europe was now extremely competitive..."
That's Black's explanation of the problems in the Bretton Woods agreement, a sort of gold standard (though Ron Paul in End the Fed
refers to it as a "pseudo-gold standard"), which Nixon wanted to end.
These problems included a decline of U.S. gold reserves, gold being
under-priced, and the need for the U.S. to compete with Europe and
Japan, something that the Bretton Woods standard may have been
hindering.
Joan Hoff in Nixon Reconsidered is rather
critical of Nixon's policy on Bretton Woods. Her discussion of the
rationale behind ending Bretton Woods overlaps with what Black says:
"Faced with a gold drain and a trade deficit, the United States allowed
the dollar 'to float' on international markets to increase markets
abroad and stop any more speculative pressures against the dollar. This
could not be done without causing even more domestic inflation and had
to be offset by some deflationary action to placate unions in the form
of wage and price controls" (page 140). But Hoff argues on pages
143-144 that things did not work out as planned:
"Still another
unintended consequence arose from the decision to abandon the Bretton
Woods system. This aspect of the NEP represented a deregulation of
international currencies. Since then, economic regionalism has
flourished because three rival trading blocs emerged. Each established a
separate regional monetary order based on the yen, mark, and
dollar----a situation that has contributed to exchange rate instability
and currency speculation since then. The increased tension among these
three major regional trading blocs will continue until the current
global recession is over. What the world learned following the collapse
of the Bretton Woods agreement is that floating exchange rates and
freer trade do not go hand in hand. In fact, instability of the former
almost always produces complaints about unfair trading practices and
pressures for protectionism. Yet the intensification of regional
international competition based on competing currencies...could result
in a worsening of worldwide economic conditions in the 1990s. There is
little doubt that the world needs another Bretton Woods system to
stabilize currency exchange rates."
I vaguely understand some of
this discussion. I don't entirely comprehend why countries debase their
currency in order to make their exports more competitive. I did a
search online to find an answer to my question. Some of the articles
were too abstract for a layperson like myself. One comment that I read
simply said that debasing currency makes exports cheaper abroad, but it
did not explain why.
I think that what I see here is a tension
between a desire for flexibility and a desire for stability. The reason
that we ended Bretton Woods was probably that it did not allow for the
flexibility that we wanted: it was chaining the dollar (not all, but
some) to gold, which was not in great supply, and it was hindering the
U.S.'s ability to compete. But Hoff's concern appears to be that
eliminating Bretton Woods led to instability: now that currency is not
attached to gold but can float freely, there is not much stability in
terms of exchange rates. And countries are concerned that other
countries are debasing their currency in order to give their own exports
a competitive edge, a practice that they consider to be unfair, and
which can encourage them to retaliate with protectionism.