Podcast: Luke Nichter on the Nixon Tapes, Withdrawing from Bretton Woods, and the End of the Gold Standard
On August 15, 1971, President Nixon gave a televised address to the American people, explaining America’s new economic policy. (Associated Press)
Luke Nichter is Professor of History at Texas A&M University, Central Texas.
On this edition of the Nixon Now Podcast, we explore the Nixon Tapes, with specific focus on President Nixon’s conversations about how he attempted to avert an economic crisis in the early 1970s. On August 15, 1971, President Nixon’s shocked the world, again, a month after he revealed that he was going to China. He announced on national television that he would be ending America’s involvement in the Bretton Woods System, and ending the practice of backing the dollar with the precious metal, gold.
Our guest again is Luke Nichter, Professor of History at Texas A&M Central Texas. He’s the nation’s foremost expert on the Nixon White House Tapes, and founder of NixonTapes.org.
Conversation Oval Office 547-009. 27 July 1971. 12:15pm-1:09pm. Connally, John; Nixon, Richard; Peterson, Peter.
Conversation Oval Office 553-006. 2 August 1971. 9:58am-2:05pm. Connally, John; Nixon, Richard.
Conversation EOB 273-020. 12 August 1971. 5:30pm-7:00pm. Connally, John; Nixon, Richard; Schultz, George.
Jonathan Movroydis: You are listening to the “Nixon Now Podcast.” I’m Jonathan Movroydis. This is brought to you by the Nixon Foundation. We’re broadcasting from the Richard Nixon Presidential Library in Yorba Linda, California. You can follow us on Twitter @nixonfoundation or at nixonfoundation.org. Today we’re talking the Nixon tapes, again, with specific focus on President Nixon’s conversations about how to avert an economic crisis in the early 1970s. On August 15th, 1971, President Nixon shocked the world again a month after he revealed that he was going to China. He announced on national television that he would be ending America’s involvement in the Bretton Woods system and ending the practice of backing the dollar with the precious mineral, gold. Our guest, again, is Luke Nichter, professor of history at Texas A&M University, Central Texas. He’s the nation’s foremost expert on the Nixon White House tapes and founder of nixontapes.org. Luke, welcome back.
Luke Nichter: Thanks for having me back, Jonathan.
Jonathan Movroydis: Let’s start with some definitions and background on this very complex issue, the Bretton Woods Agreement. What was it and when was it made?
Luke Nichter: Well, the Bretton Woods Agreement was from 1944. It takes the name of the city where it was negotiated in Bretton Woods, New Hampshire. And, you know, the bottom line is, so leaders from the West, economists, bankers, political leaders, were meeting in Bretton Woods, New Hampshire in 1944. It was getting near the end of World War II. I think it’s, you know, sort of the light at the end of the tunnel could be seen, you know, in the distance, although there was quite a bit to go still yet in ’44 and then defeating Japan through the summer of ’45. But the short answer is it was close enough to the end of the war, and certainly the European side of the war, that leaders in the West, because the war had destroyed many Western economies, especially in Europe, but it had also greatly taxed the American economy, which had moved dramatically over from civilian production to wartime production to assist our allies as well as to prepare our own wartime effort.
These leaders were meeting in Bretton Woods, New Hampshire to decide, “How are we going to rebuild the world economy when this war is over? What do we want it to look like? What in the future do we want to do that might resemble past practice? Where in some cases do we want to make a clean break from past practice?” So, it was really a future, a forward-looking conference in 1944, where they were deciding, “How are we going to put this economy back together again?”
Jonathan Movroydis: What did it mean for the American economy? And, I mean, in large part, what did it mean? How did it have an impact on the American economy, the domestic economy, and how it was woven into the international order?
Luke Nichter: Well, I think, you know, as Americans, we’ve always grown up, you know, believing our side was…believed in democracy, and capitalism, and free markets. But there’s no more pure example of a free market than there was during the Soviet Union to have a centrally-controlled market. The fact is on each of our ends of the continuum, there’s a mixture of free market and controls that are put into place. And so, in our system, we have a number of controls. I mean, we have, for example, the central bank, the Federal Reserve Bank, as most governments do. We have political controls. You know, we have a process to appoint Federal Reserve Board Governors. We have politicians and legislators who are very much involved in economic policy in the country. And, of course, the president sits on top of all those and not just in terms of what the president does, but in setting the tone for our economic policy.
What the Bretton Woods Agreement really sought to do was to be a kind of framework, an international framework, where we would agree with along with our allies for the controls we would have. And a central component of this is to have a system based on…you know, a kind of system where the fulcrum of the system was the U.S. dollar. So, the dollar was intentionally created as the strongest currency at the end of World War II because frankly, the American economy was the strongest economy at the end of World War II with so many being devastated. And a central part of that fulcrum was that gold would be fixed. An ounce of gold would be fixed at $35 per ounce. And so, that became kind of the hub, the fulcrum, of this global monetary system, and all the other major currencies of the world, of the French Franc, the Swiss Franc, the German Deutsche Mark, the British Pound, the Italian Lira, and so on and so forth.
Many of these currencies all went out of business when they were replaced by the euro. Many of them were all then linked in a kind of a hub and spoke system at various fixed conversion rates between gold and thus with the U.S. dollar. So, it was really kind of hammering out what would the details of this system be and it would provide a safety net, an economic safety net, as postwar fluctuations were occurring in all these economies. And so, it was really designed to be a decision about how big the safety net would be, how wide it would be that we would erect underneath all of these economies with the U.S. playing the leading role.
Jonathan Movroydis: And what’s happening…you know, fast forward to the late 1960s and the late 1970s. What was the state of the American economy then?
Luke Nichter: Well, you know, when you get into the ’60s, a curious problem starts to develop. You know, the whole system was based on the fact that we would have this unmovable link at $35 per ounce of gold. And the U.S. responsibility was pretty simple. The U.S. responsibility was that we would maintain gold reserves, our federal government, and these are in Fort Knox in Kentucky, is where the gold reserves were stored. And we would agree to impose a kind of fiscal-monetary discipline at home by making sure that we don’t print more dollars than we have gold to back them at that rate of $35 per ounce of gold. That was basically our system, whereas the other nations of the world, the discipline they had imposed on them was, well, one, they’d never had a completely independent monetary system because they were also linked. Their currencies were linked to gold and to the dollar. And then they also agreed basically that they would not cash in their currencies and take all our gold.
And so, you know, it was kind of a system that had an ebb and a flow. And we learned later that after 1958, we started to slip and the United States was no longer strictly adhering to this $35 per ounce of gold held in reserve in Fort Knox. And then this was exacerbated throughout the ’60s. A, you’ve got the challenge of Vietnam and really a global U.S. foreign policy, where the U.S. is involved in a lot of parts of the world and we have to pay the price of that. And so, we had to print more money to do that. And then secondly, expansive domestic policy at home, led by many of Lyndon Johnson’s great society programs.
You know, this was the classic challenge of, you know, guns or butter, as economists refer to it. And we learned throughout the ’60s that it became more and more difficult to pay for both guns and butter. That is an expansive foreign policy parallel with a very expansive domestic policy. These are both very expensive. And so, we moved further and further away from our original commitment to maintain this discipline at home and this link between dollars and gold. So, the whole system… We were building up to the need of somehow modifying the system by the time Nixon reached the White House.
Jonathan Movroydis: And when did it really hit the Nixon administration’s radar? Was it was a day one January 20th, 1969?
Luke Nichter: It’s a great question. You know, I think several presidents were very concerned about this. You know, I was recently listening to a lot of Kennedy tapes from 1963 and he is very concerned. I mean, I hear him talking about this more than I ever did Nixon do. I mean, Kennedy is concerned in the summer of ’63. In the spring, he’s worried about the whole system collapsing. But ultimately, his advisors tell him, “Well, you know, our predictions are in five years, the economy will be so much better. We don’t really have to worry about this just yet. Put it off.” Fast forward five years to ’68, Nixon has on his campaign a series of economists advising him on this problem. You know, and there’s a whole range of opinion among the economists. You know, some say, “Don’t do anything about this. You’ll cause another depression. It’s just too risky.” You’ve got others advocating, you know, “Just float that with the change in administration,” because no matter what, Johnson wasn’t going to be president. It was either going to be a new president who’s a Democrat or any a new one who was a Republican. So, this was an ideal time to just make a break with the past system.
Then you’ve got some like Milton Friedman, who wasn’t yet as famous as he would be as a Nobel Prize winner at the mid-70s, but he was saying, offering kind of a third way that, “Now is the time to float. Just break from the system entirely,” that we would move beyond the original need for the system. But Nixon ultimately decided not to do anything more than he had to. It was just seen to be too risky. His advisors were split down the middle on just about every aspect of it. But fast forward a couple of years, Nixon realizes he’s very close to, and he would have no choice, not only to do something, but to involve a great deal of his personal time. Beginning in the spring of 1971, I think he pretty well knew he was coming close to having to do something.
Jonathan Movroydis: This is an interesting time around the spring and then summer of 1971. The President is…the Vietnam War still going on. This is a critical time for both planning for possible summits with the…or strategizing the possible summits with the Chinese and the Soviet Union. And then you had this other international issue come into play. Let’s listen to the first conversation. Let’s give the first conversation of July 27th, 1971. This is a conversation between President Nixon, Treasury Secretary John Connally, and the Assistant to the President for International Economics, Pete Peterson.
President Nixon: In view of the high sensitivity of this, if we ever have anything in secret in this damn government, this, next to China, has got to be secret. You agree?
John Connally: Yes Sir.
President Nixon: Therefore the only people that can participate besides the three of us, probably are [inaudible] McCracken and Schultz.
John Connally: Basically we agree, and whoever else you want.
[Connally and Nixon cross talk inaudible]
John Connally: Pete and I talked this morning for about an hour. We are basically on the same wavelength without any question. I am thinking about going a little further than he is. [inaudible]. I think what we need to do is get into more detail with George and McCracken. [inaudible] Frankly, I think we ought to tell Arthur Burns. The problem with Arthur, and I sounded him out last night. He’s not thinking in terms of as a bold step as Pete and I are.
President Nixon: Will he keep quiet?
John Connally: Yes, he will, provided we bring him in the issue. The danger without him there, he’s going to be hot.
Pete Peterson: And perhaps with good reason.
President Nixon: One way to work Arthur on this, knowing his ego, is to get him to think the idea was his.
John Connally: That’s right.
Jonathan Movroydis: Later on in this conversation, Connally explains that we’ve had a negative balance of trade up $360 million. April and May we’re over $200 million deficits in each of those months. And this is the third success of month in a row. And the reserve assets are the lowest in the United States since 1938. How did we get to this point?
Luke Nichter: Well, you know, it’s complicated. You know, so going back to 1958, which Connally also references, that that seems to be the year that most economists believe that the United States did not adhere or is not able to adhere to this strict tenet of the Bretton Woods Agreement, this link between dollars and gold at the rate of $35 per ounce of gold. But I think it’s a bigger issue than that. You know, the U.S. as I said, was the fulcrum of the system. The U.S. was the only nation in the world that probably could act as the fulcrum of the system in 1944 when it was set up.
I think one issue is that there was a lack of sufficient monetary discipline at home with successive political leaders, Republicans, and Democrats, to adhere to the system. I think number two, as Europe rebuilt in the postwar period, as Japan rebuilt, and, you know, nations like Germany and Japan had really almost a miraculous 30 years of growth from 1945 and 1975, you know, this harkens back to Nixon’s point that that his presidency really marked the end of the postwar period. The U.S. wasn’t needed in the same way in the early ’70s as it was in the late 1940s. The U.S. had the right to no longer serve as the fulcrum of the system.
The other countries, like in Europe and Japan, were not only standing up on their own now, but in many ways, as you can hear in some of these very long conversations, which ranges…some of these conversations are the longest ones on the tapes. You know, the average length of a conversation in this period is, like, two to four hours. And it covers trade and it covers all kinds of subjects. So, I think, you know, point number two was that, you know, I think the U.S. deserved the right to no longer pay for the system. I mean, the U.S. was hindered and paid a lot by imposing this artificial level of restraint at home, which it had trouble doing, again, for political reasons anyways.
And then I think really number three, you know, we had kind of outgrown the system. I mean, levels of international trade had dictated to have capital movements. I mean, the system was under a lot of strain anyways. So, I think, you know, the stars were beginning to align here in 1971 to the point where, you know, the system had served its purpose. It served a critical purpose in terms of postwar world economic development. But how do we now move beyond that purpose, you know, with the declared end of the postwar period? And I think the conclusion of most of Nixon’s advisors was we had moved beyond the purpose of it. There were different kinds of disagreements over whether you throw the whole system out or whether you keep some tenants of it, but I think most people by ’71 had moved in favor of pretty substantive reform of the system.
Jonathan Movroydis: You hear in this conversation, President Nixon, and John Connally, and Pete Peterson talking about Arthur Burns, the chairman of the Federal Reserve, and whether to bring him on board with this idea of informing them about ending the…closing the gold window. They felt that he would be against it, but they felt that by including him, maybe they could, you know, get some buy-in from him. Who were the key principles in the administration, aside from this small group that’s in this conversation, who worked on the issue? And were there any disagreements within the ranks, you know, principally Arthur Burns or any other buddy in the administration?
Luke Nichter: Well, it’s a complicated subject, and you can hear on the tapes the kind of play-by-play of Nixon feeling his way into the subject. I mean, he and his advisors. I mean, each of them bring a kind of expertise, political, monetary, financial, you know, central banking, but there are aspects of this because there are so many that are out of the grasp of almost everybody involved. I think the issue…I say in my book, “Richard Nixon and Europe” that I hear at least on the tapes, that the need to do something, that the issue is really put on Nixon’s radar for the first time in about April. And Nixon sees it as really a trade issue. Pete Peterson is talking to Nixon a lot about his council on international economic policy and how, you know, trade is not just trade. Trade is an economic issue and trade and the economy ultimately are a foreign policy issue. And so, that really gets Nixon’s attention beginning in the spring.
And so, Peterson is involved certainly on the trade issue. Connally is Nixon’s Secretary of Treasury, so he’s very involved. Then there’s also concerns in terms of whatever we do, does it have to be approved by the Fed? Well, that brings in Arthur Burns, Chairman of the Federal Reserve. On the domestic side, if we’re talking about a financial or economic initiative, that sounds like that might need Congressional approval. So, that brings in Legislative Affairs people. It brings in domestic policy people. And then on the foreign side, we’re talking about gold and modifying Bretton Woods. I mean, these are international treaties. And so, then the question is, do we bring in foreign policy people and the State Department people, international economics people? And does the Senate need to ratify this if it’s a trade that we’re either ending or starting something new or modifying the Bretton Woods Agreement? So, you can see it is a complicated thing. It’s politics. It’s domestic policy. It’s foreign policy. It’s monetary. It’s economic.
And now, yeah, but Nixon is a year out from a reelection campaign. And in a previous election campaign in 1960, he felt kind of burned by the Federal Reserve. You know, there was a brief recession during the ’60 campaign, which he lost so narrowly to John Kennedy and Lyndon Johnson. And so, I think he was a little bit worried in ’71 of allowing any single entity like the Fed to control too much of whatever they decided to do because Nixon felt that the Fed in some way had acted unfairly toward him in 1960. So you can see, I mean, it involves just about every element of the U.S., of the policymaking apparatus. It’s a very, very complex situation.
Jonathan Movroydis: Luke, in our podcast series on tapes, in our conversations, a common thread has been the importance of secrecy in conducting diplomacy and high-stakes policy. We talked about that in the China Initiative, the Vietnam War, the Indo-Pakistani War, and the issue of…and the Yeoman Radford affair, as well as the Ellsberg, the case of the Pentagon papers. Why was secrecy so important in this process in international economic policy as well?
Luke Nichter: Well, I think, you know, you see in headlines…even today, every once in a while, you see someone…you know, traders in the markets find a way to get very rich very quick. And there are always concerns about insider information. And this is a case of pretty serious insider information. At one point Paul Volcker says…Paul Volcker is sort of Connally’s number two guy. Volcker and George Shultz are the other two I didn’t mention when I was describing the cast of characters and each of them brought their own portfolios of expertise to the topic. Volcker was kind of Connally’s number two guy who did kind of international monetary affairs at the Treasury. And Volcker at one point says to Nixon, “With the knowledge I have here, I could make you $1 billion on the stock market tomorrow.” And so, it shows you that…And at one point Volcker says, another thing. He says, “Fortunes can be made on the information that we have, made or lost.”
And, so certainly for the concern over insider trading, for the concern over… You know, some economists, Arthur Burns was one of these, who was really, you know, almost kind of predicting a possible second depression if something is wrong here. And here Connally echoed the year 1938, “Reserve assets are at the lowest point since ’38.” Well, anybody who lived through the depression is gonna identify that as being a depression year. So, there’s just a lot of, you know, great… Some of the concern is emotional. I think some of it is quite legitimate. But I think secrecy is important for a number of reasons, for the politics of it, for the insider information involved.
Plus, I mean, as you say, Nixon’s planning these summits with China and the Soviet Union. And he’s sure going to make sure he goes to those summits looking strong. Well, if we cause a great disaster here in ’71 on the economy and possibly cause a recession or even a depression, that’s going to possibly ruin his other initiatives if it looks like it’s, you know, either his fault or at least his country’s fault for not managing this economic issue very well. So, I think Nixon’s concerns…I mean, his hair must have been raised on the back of his neck for just about every possible reason. So, secrecy was certainly very much needed.
Jonathan Movroydis: Let’s listen to the second tape, the second conversation of August 2nd, 1971. This is President Nixon and Treasury Secretary John Connally in the Oval Office.
John Connally: Seems to me there are two essential problems involved here… One is an international problem. Two is a domestic problem… In the international field, [it’s] convertibility of dollars into gold. And we’re going to have to stop at at some point. Most people seem to think that $10 billion in gold [reserves] is a point below which we should not go. We can stop convertibility very easy, by just saying so. The next thing is, you ought to float… Whatever we do in the international field ought to be coupled with action on the domestic front, so they tend to shield each other… But then you say you recognize we have problems at home, and coupled with that, you’re going to put a ceiling on spending in the Congress. So you want to reduce [the Federal budget by] ten billion dollars. So this gives you a strong position on fiscal responsibility. Then you say “I’m going to impose a ten percent border tax on all imports into this country until such time as we renegotiate our currency… because we are non competitive.”
Jonathan Movroydis: That was John Connally talking to President Nixon. Connally says something interesting here. “Closing the window solved the international problem. But there’s also a domestic problem.” He proposes a domestic action by employing wage and price controls and an import tax. How do these actions, Luke, solve the domestic issue of the economy?
Luke Nichter: Well, you know, it’s a fascinating thing because, you know, we have this conversation where Connally is really laying out the complexity and all the possible moving parts of a possible solution. We don’t get kind of the exact rationale for each. My take after listening to the various conversations, there are about 50 hours of conversations, is that what Nixon ultimately decides to do is to do a kind of something for everyone approach. Each person involved in this had certain fears. Each person involved in this had certain things they either wanted or recommended.
And so, with this very liberal international policy of changing the gold window, Connally recommends these very protectionist domestic policies, which would not only shield against things that might go wrong in the international field, because we’re not really sure yet until Pandora’s box is opened, but it would also, Connally says, be domestically…politically good for Nixon a year out from the election campaign and remind people that he’s looking out for them. He’s looking out for sort of America first and he actually uses a number of these kinds of terminologies when talking about the advantages of these.
So, I think you pair the very sort of liberal, you know, out of our control international solution with protectionist domestic policies. And as I state, you know, I think ultimately, Nixon doesn’t really say in the tapes he feels strongly about any of these, but I think that the view is he’s giving something and kind of making everybody happy.
Jonathan Movroydis: Nixon later says in his memoir that he regretted imposing wage and price controls. But back in the early 1970s, he wanted his economic aides to think long-term about the U.S. economy. Do you think that he had any other choice but to impose wage and price controls?
Luke Nichter: It’s a good question. You know, if Nixon was not writing his memoirs during a period of a great economic recession in the late ’70s, he might have felt differently, had he been writing maybe 10 years later. You know, at the time in the late ’70s, many economists thought that the protectionist maneuvers that he had done in the early ’70s were not helpful, you know, to the later recession in the late ’70s, that when we had stagflation, and double-digit unemployment, double-digit interest rates, double-digit inflation, pretty much every measure was going the wrong direction in the late ’70s.
But things were different in the early ’70s. I think it was good politics to do these things. I think no one was giving dire warnings in the early ’70s that these were bad. I mean, Arthur Burns, for one, Chairman of the Fed, liked the protectionist aspects of the eventual Bretton Woods solution. So, I think the view was very different in the early ’70s. It was optimistic. We were moving towards the big reelection. They were popular in the country. There didn’t seem to be any big downside. So, I think Nixon might’ve, you know, resented or didn’t like it several years later, but he wasn’t getting any advice along those lines in the early ’70s while this was being formulated.
Jonathan Movroydis: Let’s listen to the next conversation of August 12, 1971. This is three days before the big announcement on August 15th. This is in Nixon’s office in the Executive Office Building. And this the President with Treasury Secretary John Connally and the Director of the Office of Management and Budget, George Shultz.
President Nixon: You have to say of course, that when you do this, well the way I had it positioned is that, the way it would be done, and I mean just putting it out, was that you would make an announcement to the effect that because of speculation against the dollar, that the United States was taking action to preserve the dollar, to that effect, and that we were temporarily closing the gold window, and that we would be prepared now to discuss with our major, with nations around the world, the setting up of a new, a better, more stable system, or whatever we want to call it, and that we’re prepared to do that. Right, George? Is that the way you would say it?
And then, that sets in motion so that you and Arthur, could go have your meeting with five nations, or one, or ten, or fifty, or none. You know what I mean? Frankly, at least you can say you’re doing it for the purpose of defending the dollar against speculators, and, and incidentally, I would, if we did just this one thing, I would not have you do it—you should do it, not me, and you should not do it at prime time at night. Those people are, there’s no use to stir up a lot of people about things they don’t understand. You should do it just in a straight, a brief statement, take questions, and that’s it. Now that’s the way I would position that.
Then also, you would say that, in Burns, I think you could lift the lid, but we can’t lift it up on the wage price freeze unfortunately, but you could say that, we are going to take actions, that we want to take actions this year, the president will present to the Congress when it returns, and we can say on the budgetary front, put ‘em off a little, because you see, if you say it’s going to have a wage price freeze, as you know, then, the cat’s out of the bag, they’ll all raise their prices, and, we’re screwed. So you might throw ‘em off on that, that we’re going to take action, something of that sort. And then three weeks from now they’ll be other, now that’s one way to plug it.
Now, the other way to plug it, is to do exactly the reverse. And that is, just to announce now, only to announce, only the wage price freeze. Just that. That’s another way to do it. And then, figuring that that, will, sort of stabilize the, that that might, we should say stabilize the situation, and then, then come up with our legislative package on taxes, on, including the border tax and so forth at a later point, and then if necessary, as necessary, work out your international problem on a negotiated basis, rather than on, unilaterally closing the gold window. Now that’s another way you can get at the damn thing.
Jonathan Movroydis: In this conversation, there’s Nixon sort of debating with himself and discussing with Schultz and Connally this idea of what should be done and when it should be done. Closing the gold window, imposing the wage-price controls and an import tax. What should be done first? Should all this be done in piecemeal or should they be done all at once? What are some of the political considerations, in your opinion, of doing this all at once or doing it piecemeal?
Luke Nichter: Well, I think there are a number of considerations. I think the first thing, you know, 10 days had elapsed from August 2nd to August 12th from the two clips ago that we listened to, to the one we just listened to. I think one thing that’s clear is that Nixon is a lot more organized in terms of what he thinks needs to be done. Not necessarily in kind of how it’s done or how it’s sequenced and what the various rules are regulating different parts of the package, but you can tell his thinking is a lot more clear. I mean, he’s the one kind of leading the discussions as opposed to earlier, he’s really still hearing from his advisors and what they think. You know, I think there are several concerns. You know, for example, Nixon’s trying to figure out, you know, does Congress need to be involved in the decision related to gold? Typically, legislatures across the world have a say in devaluing, and revaluing, and modifying the Bretton Woods Agreement.
Well, Congress is on recess at this point. So, they’re not around. So, if Nixon’s gonna do this, they’re not going to be there, unless an emergency session is called. The other thing is if you do this while the markets are open, so you’re doing it kind of, you know, during the work week, Monday through Friday, Eastern Time, while the New York Stock Exchange and the financial markets are open, the markets are going to take a hit. In fact, they might even have to make an emergency closing. And so, then there’s the other advantage of, do you want to do this at a time other than when the markets are open? The markets are going to boil no matter what, but do you want to minimize the hit on the markets? And so you’ve got, you know, the government gone. Most of our allied governments are also on some kind of recess. You’ve got the concern about the markets. And he’s still not clear over, you know, how much does Congress really need to be involved? So, I think, you know, there are various elements that he’s still not sure yet, but going into the weekend here, where this will all be decided at Camp David, you can tell his thinking is a lot clearer than it was just a week or two before.
Jonathan Movroydis: So, this is on Thursday. When did they ultimately go to Camp David?
Luke Nichter: They go on Friday, Friday the 13th, and they spend the weekend there and while there, you know, decide on what’s gonna be done.
Jonathan Movroydis: And who were the key principals in that meeting?
Luke Nichter: It was a big group. I don’t know how many total, but I would guess about 15 or 20, most of his economic advisors, Arthur Burns, the domestic people. The only ones that were really noticeably absent were, like, Henry Kissinger, who was away on some secret travel. And Nixon was still didn’t really think about this yet as a foreign policy issue. You know, he doesn’t come around to that view until the fall when Kissinger is much more involved and Rogers is more involved, the Secretary of State. But it’s a wide range of, I’d say, primarily domestic, Treasury, and economic advisors.
Jonathan Movroydis: And what was ultimately decided? Do they decide to go with all three measures or do they do a partial?
Luke Nichter: Well, so Nixon comes on. Nixon decides… He comes on live television on Sunday evening. It’s August 15th. He preempts the very popular show “Bonanza” on Sunday evening and he announces what he calls his “New Economic Policy.” The New Economic Policy is a term that actually came from the name of the original Soviet five-year economic plans. And some of his aides didn’t quite like the rebranding of that. But in essence, he announced that the dollar and major world currencies would begin floating. And they floated ever since uninterrupted since 1973. There would be a 10% tax on imports. He announced the Buy America program and that, you know, dollars could no longer be converted for gold. That was phased out. The last year, I believe the Treasury, where you could literally take dollars to the Department of Treasury and get gold in reserve was 1975 in the Cash Room, which is still there today, although used for a different purpose. So, Nixon announces the whole package on August 15th, 1971 on a Sunday evening, while the markets were closed and I think got just about everything he wanted.
Jonathan Movroydis: And what was the reaction on Wall Street?
Luke Nichter: Well, the markets were closed for a few days and they were around the world, too. You know, it took a period of settling in. They were tough negotiations in the fall between the U.S., Japan, and Europe that led up to the Smithsonian Agreement in December of ’71. And then a new Secretary of Treasury, Shultz, is still dealing with some of this into ’73 and finalizing it. He replaces Connally. But in the end, the economy saw upward movement. Nixon was really reelected in a landslide in ’72. So, I think in the short-term, it was difficult, but he got just about everything politically and economically that he wanted. The downside was in the longer-term, into the late 70s, you know, how much of these decisions had a negative impact on the recession that was already happening? So, you know, that’s difficult to tease out.
But, you know, in the big picture, I think it was right to remove the United States as the fulcrum from the system. It was unreasonable for the U.S. to pay for the costs of this outdated system. And in the end, you know, many economists and economic historians have said this decision was really the beginning of the, you know, modern globalization movement for better or for worse. Then, you know, we removed the limits on growth. But when recessions happen, we’ve removed the limits on how far we can fall. So, there’s a pro and a con to all this globalization and many attribute these decisions that Nixon made in 1971 to be the beginning of this modern movement.
Jonathan Movroydis: Our guest today is Luke Nichter, professor of history at Texas A&M University, Central Texas. Our topic was the Nixon White House taping system as it pertains to President Nixon’s decision to take America out of the Bretton Woods Agreement and close the gold window in 1971. Luke, thank you so much for joining us.
Luke Nichter: Thank you. It’s been complicated, but fun.
Jonathan Movroydis: Please check back for future podcasts at nixonfoundation.org or on your favorite podcast app. This is Jonathan Movroydis in Yorba Linda.