Three Days at Camp David: A Review

`The global monetary system often goes unnoticed by an American public whose concern over the economy usually only extends to gas prices, unemployment numbers, and whatever big scary number the national debt happens to be at the given time. And yet, its mechanics are critical to the functioning of the economy. Underlying every purchase of a foreign good, every investment in a foreign company, and every issue of international relations are the currency exchanges by which international trade is conducted. The entire modern fiat system was born out of decisions made  in 1971 by President Richard Nixon at Camp David which forced the world to rethink the foundations of its monetary system. In Three Days at Camp David, Jeffrey Garten ‘68 covers not only the pivotal conference but also the decades of economic history that led to the historical decisions made at the presidential retreat.

The modern world runs on fiat currencies. Those are currencies that can increase or decrease in value relative to other currencies freely in accordance with shifting demands. Importantly, they have nothing backing up their value but the word of whatever government issues them. Not too long ago, however, the monetary system rested upon the principle that a currency needed to be backed up by something. In the 20th century, that thing was gold. Garten explains how after WWII the Bretton-Woods Conference established a global monetary system, in which the dollar was pegged to gold at $35 per ounce and in which all other currencies were pegged to the dollar. Thus, for thirty years there existed a system of fixed exchange rates which held firm the global trading system. Yet the cracks begin to show quickly. Europe and Japan rebuilt themselves with generous American assistance, making them competitive with American manufacturing towards the end of the 1960s. Yet, they still maintained import tariffs and quotas that they had put in place to prevent American companies from dominating their economies during the 1950s. The combination of competitive products and tariffs made American goods more expensive and less appealing to foreign consumers. As a result, the United States recorded a trade deficit for the first time ever in the 1960s. This outflow of dollars resulted in there being too many in the world economy. This in turn made the economies of foreign countries less secure, and caused many, notably France, to exchange their dollars for gold. This in turn caused the US gold reserves to decrease. By 1971, the Nixon Administration had realized that the US would no longer have an acceptably large gold reserve within a year.

Often, the story of the abandonment of the gold standard ends in August of 1971 when Nixon let the dollar float. Yet, neither was that decision permanent nor was it the last step. At Camp David from August 13th to the 15th, American economists and government officials met to solve the problem of shrinking reserves and growing trade imbalances. Over the course of the meeting they came to an inevitable conclusion: that the current exchange rate of dollars to gold and the rates at which other nations’ currencies were pegged to dollars was unsustainable. The United States of America could not continue to satisfy the gold demands of other nations or afford the effects that unfavorable exchange rates had on exports and thus domestic manufacturing.

The book’s main strength is in its personalization of the Camp David Summit. Far from a dull overview of politicking and financial negotiation, Garten succeeds in creating a story driven by people. His characterization of President Nixon was especially interesting. He describes Nixon as a man who cared little for monetary optimization. In fact, he held in contempt the Ivy League-educated intellectuals who lectured the American people about the importance of monetary stability. Rather, he had a keen and practical focus on the things which directly impacted the American consumer: prices and jobs. We often think of Nixon as, well, a crook, and he was. But what should not be ignored is Nixon’s almost unmatched political instinct. He understood that the American people do not care about America’s international relationships or the strength of the dollar nearly so much as they care about the state of their own lives. Nixon, concerned mainly with his own re-election, thus focused entirely on American jobs and the American economy, often at the expense of our relationship with long-time allies.

Nevertheless, Nixon himself did not even attend the Camp David meeting. Rather, he carried out the recommendations made by men like Arthur F. Burns, Chairman of the Federal Reserve; John B. Connally Jr., Secretary of the Treasury; and John D. Ehrlichmann, Counsel to the President. Garten covers their backgrounds and how each came to their respective position on currency. Connally, for example, was a longtime conservative Democrat, and so supported currency manipulation as a tool for improving economic growth. He cared far less about the reactions of Europe and Japan to American economic policy than his more internationally minded colleagues did. Together, these senior bureaucrats reached a consensus that President Nixon enacted, which in turn forced the developed nations of the world to come to the negotiation table. In December of that same year, representatives from the Group of 10 hammered out a compromise in which the dollar would be devalued against gold and other nations’ currencies would in turn be increased in value against the dollar. However, within a decade another American devaluation would prompt Japan and Germany to float their currencies, leading to a cascade of nations adopting fiat currencies.

Garten adeptly integrates the state of global politics at the time into his discussion of Camp David and the gold standard. In 1971, America’s presence in the world was undergoing a fundamental shift. America saw its allies grow in prosperity, and its people and leaders wondered why it still had to shoulder the lion’s share of the burden of defending the West from Soviet aggression. No longer wanting to be the world’s sole protector, the American people began increasingly to demand that Western Europe and Japan pay for their own defense. This only further drove the demand for currency reform. In the minds of many in Washington, America’s defense burden served as yet another example of European nations taking advantage of the post-war world order to drain wealth from the United States. Garten helps the reader to sympathize with this and other political trends the Nixon Administration had to confront.

The book’s largest flaw is that in making its subject matter approachable to a general audience it does gloss over some of the finer points of economics. He intentionally glosses over the mechanics of currency exchange rates and how they affect international trade. Perhaps most importantly, he spends little time on the role of the dollar as an international reserve currency. While focusing on the personal over the technical makes for a more enjoyable read, there was something missing in Three Days from an educational perspective.

In reading this review one might have noticed that it focuses primarily on Garten’s chronicling of the American perspective on the Camp David conference. That is because, in a book covering one of the most critical recent changes to the world economy, Garten focuses almost entirely on the American perspective. While this narrow focus keeps the book at a more approachable length, more time spent on the responses of the politicians in Berlin and Tokyo to Camp David would help the reader better understand the importance of a three-day long meeting on currency reform. Rather than simply relating the reactions in a few short paragraphs, Garten should have dedicated at least a chapter or two to the counterparts of American policymakers  and how they responded to America’s near unilateral decision to upend decades of monetary policy.

All in all, Three Days at Camp David effectively relates the events that led to a fundamental upending of the world’s economy. It succeeds in making the book approachable to an interested audience and does so while giving the important economic issues of the day at least an adequate amount of coverage. The book shines as an exploration of the characters of a little-remembered but incredibly important historical episode. I would recommend the book to anyone interested in understanding the economic history of the 20th century and to those who want to learn about American politicians of the 1960s and 1970s without having to read a biography.