The Rise and Fall of the Bretton Woods System

Why draw up the rules of the post-war world economy in the middle of the war?

At the height of the Second World War, American and British officials were already discussing the rules by which money and trade would move between countries once the fighting ended. Behind this lay the memory of the 1930s. In the Depression countries raised tariffs, cut the value of their own currencies to win exports (devaluation) and built discriminatory trading blocs. A devaluation makes a country's goods cheaper abroad and so raises its exports, but when others do the same nobody gains and trade simply shrinks. The State Department's Office of the Historian sums up that these policies destabilised the international environment without improving the economic situation, and that the experience led the leaders of the anti-Axis alliance to conclude that economic cooperation was the only way to achieve both peace and prosperity. President Roosevelt and Secretary of State Cordell Hull held the Wilsonian belief that free trade promoted not just prosperity but peace. 1 2

The idea was first set down in the Atlantic Charter that Roosevelt and Churchill issued in August 1941. Its fourth point promised all states, victor or vanquished, access on equal terms to the trade and raw materials of the world, and its fifth pledged economic collaboration for improved labour standards, economic advancement and social security. In Article VII of the lend-lease agreement of February 1942 Britain agreed, in return for American aid, to work to eliminate all forms of discrimination in international commerce and to reduce trade barriers. In the 1930s Britain had kept American goods out with Imperial Preference, lower tariffs within the Empire, so the article bore directly on opening the post-war British imperial market to the United States. The American calculation was plain too: there was real fear that the end of war spending would bring back the unemployment of the 1930s, and to avoid it Europe and the sterling countries had to be able to buy American goods. That is why the United States put free trade and the free convertibility of currencies first. 1 2

How did the Keynes and White plans differ?

The blueprints of the new system were drawn separately by two men: John Maynard Keynes, adviser to the British Treasury, and Harry Dexter White, the chief international economist of the US Treasury. Both chose fixed exchange rates, believing that wildly swinging rates leave traders unable to judge what their future payments will be worth and so choke trade. Both also planned an institution to lend short-term funds to countries in balance-of-payments deficit, so that they would not be driven to protectionism or competitive devaluation. A balance-of-payments deficit means that a country pays out more foreign currency for imports and spending abroad than it earns from exports and the like; if the deficit persists its reserves run out and it can no longer hold a fixed rate. 3 1

The difference lay in who would bear the burden of imbalance. From 1941 Keynes planned an International Clearing Union, a kind of world central bank. It would issue a new international currency, the "bancor", settle payments between countries on its books and give each country an overdraft in bancor. A deficit country that went over its limit would pay interest, but so would a country whose surplus grew too large, and surpluses above the limit at the year's end would be confiscated. The scheme pressed surplus countries to restore balance by importing more, building factories in debtor countries or giving them aid. Keynes feared that if the United States fell into depression again after the war, other countries would be pushed into deficit and forced to choose between domestic stability and exchange-rate stability: when only the deficit country must adjust, it can cut its imports only through austerity and unemployment. 4 3 2

The United States, about to become the world's greatest creditor, would not accept this. On the surplus-country provisions White said, "We have been perfectly adamant on that point. We have taken the position of absolutely no." His Stabilization Fund would issue no new currency but work from a finite pool of the gold and national currencies its members paid in; it placed the burden of balancing payments on deficit countries and set no limit on surpluses. What was adopted at Bretton Woods was much closer to White's plan. As a concession to Keynes a "scarce currency" clause let the fund ration the currency of a surplus country that became scarce in world trade and authorise limits on imports from it, and the fund's resources were enlarged. The economic historian Brad DeLong writes that on almost every point where the Americans overruled him, events later proved Keynes right. 4 3 2

How was the Bretton Woods agreement meant to work?

From 1 to 22 July 1944, 730 delegates of 44 Allied nations met at the Mount Washington Hotel in Bretton Woods, New Hampshire. The gathering was formally the United Nations Monetary and Financial Conference, and its president was US Treasury Secretary Henry Morgenthau. Commission I, on the International Monetary Fund, was chaired by White; Commission II, on the International Bank for Reconstruction and Development, by Keynes. The conference ran three days past its planned close and signed its Final Act on 22 July. In his closing remarks Morgenthau said that the founding of the two institutions marked the end of economic nationalism: countries would keep their national interests, but trade blocs and economic spheres of influence would no longer be their means. 4 3

The heart of the agreement was an exchange rate that was "fixed but adjustable". Each member set a par value for its currency in dollars and had to buy and sell dollars in the foreign-exchange market to keep the market rate within 1 percent either side of it. The United States separately tied the dollar to gold at $35 an ounce and undertook to convert dollars presented by foreign governments and central banks into gold at that price. Other currencies were thus pegged to the dollar, and the dollar to gold. To defend their rates countries had to hold ample reserves for intervention, and for the same reason capital movements between countries could not be too large. So while members pledged to make their currencies freely convertible for current-account transactions such as payment for trade, the agreement explicitly allowed them to control capital flows. A par value could be changed only to correct a "fundamental disequilibrium", and a change of more than 10 percent needed the Fund's consent; what a fundamental disequilibrium was, however, was never defined. 2 4 5

The International Monetary Fund was a pool of the subscriptions (quotas) its members paid in gold and their own currencies, from which it lent foreign currency to deficit countries. Original quotas were to total $8.8 billion, paid 25 percent in gold or currency convertible into gold and 75 percent in the member's own currency. Votes were weighted not one country, one vote but by quota. The United States began with a third of all quotas, enough on its own to veto changes to the Articles, and the Fund was based in Washington. The International Bank for Reconstruction and Development, the World Bank, was given an authorised capital of $10 billion to lend for reconstruction and development. The Fund could lend only for current-account deficits, not for reconstruction. The Articles entered into force on 27 December 1945, once ratifications covering 80 percent of quotas were in, and the Fund began operations on 1 March 1947. The way the system bound economic policy resembled the gold standard: a country losing gold had to raise interest rates to attract funds and shrink its money supply. 2 4 6 5

Why did the Soviet Union sign and then stay out?

Roosevelt and Morgenthau wanted all five great powers, the United States, Britain, France, the Soviet Union and China, inside the Bretton Woods system. The Soviet delegation attended and signed the Final Act. But it did not ratify by December 1945, and it was absent from the inaugural meeting of the two institutions at Savannah, Georgia, on 8–18 March 1946. The Soviet Union rejected placing the dollar beside gold at the centre of the system and called the new institutions "branches of Wall Street". It never joined the IMF or the World Bank; its successor, the Russian Federation, did so in 1992. Western accounts leave the precise Soviet motives a matter of speculation. The architects of the system were themselves aware that a sizable share of the world's known gold reserves lay in the Soviet Union. 4 2

The split hardened over the Marshall Plan in 1947. At the Paris Three-Power Conference on 2 July 1947, Vyacheslav Molotov rejected the Anglo-French plan, warning that a steering committee to organise the European economy would override national sovereignty and split Europe into two groups of states (Molotov's Statement at the Paris Conference). Czechoslovakia, Hungary and Poland were interested in the aid, but it came with requirements of convertible currencies and market economies, and in July Stalin ordered these governments to pull out of the Paris conference. Then at a Moscow economic conference on 5–8 January 1949 the Soviet Union, Bulgaria, Czechoslovakia, Hungary, Poland and Romania founded the Council for Mutual Economic Assistance (Comecon), the Eastern Bloc's response to the Marshall Plan and the Organisation for European Economic Co-operation (OEEC). GATT's notion of non-discriminatory trade was thought incompatible with socialist solidarity. With neither meaningful exchange rates nor market economies, Comecon countries took world-market prices as a reference but held them stable for years at a time to suit planning, and settled in the "transfer ruble" introduced later. If the Bretton Woods system was a world bound together by the dollar and market exchange rates, Comecon was a separate world of plans fitted to one another. The same line ran through the IMF itself: Poland withdrew in 1950, allegedly under Soviet pressure, and returned in 1986, and Czechoslovakia was expelled in 1954 for failing to provide required data and readmitted in 1990. 6 7 2

Within Soviet economics, how to read post-war capitalism was itself contested. Evgeny Varga, director of the Institute of World Economy and World Politics since 1927, argued in his 1946 book The Economic Transformation of Capitalism at the End of the Second World War that during the war Western governments had accumulated great power over the management of capitalist economies, which brought them closer to socialist economies and made them more likely to last. Western Kremlin watchers went so far as to call him a "defender" of the Marshall Plan, but the implications were unacceptable to Soviet conservatives who believed that capitalism was heading for an extreme and possibly terminal crisis. A meeting of economists condemned his book in May 1947, and his institute was closed and subsumed into Gosplan. Whether to concede the stability of state-managed post-war capitalism was a question with political weight in Cold War Soviet economics. 8

Did the system work as soon as the war ended?

The planners expected the system to be working properly after a transition of no more than five years. It was not. After the war the United States held $26 billion in gold, some 65 percent of the world's stock, and ran huge trade surpluses, while a devastated Europe had no dollars to buy food, fuel and machinery from America: the "dollar gap". The IMF's credit was far too small for Western Europe's enormous deficits, and the Fund could not lend for reconstruction. Of the World Bank's capital only the US contribution of $570 million was actually available, and since its only market for bonds was conservative Wall Street it lent only when repayment was assured. By 1947 the two institutions were themselves admitting that they could not deal with the system's problems. The World Bank's first loan, on 9 May 1947, was $250 million to France: half what was asked, with strict conditions of a balanced budget and priority for repaying the Bank, and before it was approved the State Department told the French government that its Communist ministers would first have to go. The French government complied, and the loan was approved within hours. 2 9 5

The United States filled the gap mostly with grants rather than loans. In a speech at Harvard on 5 June 1947, Secretary of State George Marshall said that Europe's requirements of foreign food and other essentials for the next three or four years so exceeded its ability to pay that it must have substantial help or face economic, social and political deterioration of a very grave character. Before the speech, memoranda by the Policy Planning Staff and Under Secretary Clayton inside the State Department had set the outline of the aid (Two Marshall Plan Memoranda). Through the European Recovery Program, the Marshall Plan, the United States gave sixteen Western European countries $17 billion in grants in 1948–54. From 1947 to 1958 it deliberately let dollars flow out through aid, military spending and foreign investment, and from 1950 it ran a balance-of-payments deficit in order to provide the international economy with liquidity. It also encouraged the European countries to devalue against the dollar so that they could earn dollars by exporting; otherwise they would have had to submit to deflation to restore convertibility. 2 5

The third pillar, on trade, did not go up as planned. Bretton Woods was a conference of finance ministries and did not negotiate trade, but it recommended that governments agree to reduce trade barriers. The resulting Charter of an International Trade Organization (ITO), covering employment, commodity agreements and investment rules as well, was adopted in Havana in March 1948, but opposition in the US Congress led the Truman administration to abandon ratification in 1950, and the organisation never came into being. Meanwhile the General Agreement on Tariffs and Trade (GATT), signed by 23 countries in Geneva on 30 October 1947, became the provisional rule book of world trade from 1948. Its first round produced 45,000 tariff concessions covering $10 billion of trade, about a fifth of the world total. Current-account convertibility of the European currencies came only in December 1958, and from then the Bretton Woods system worked fully as designed; the yen followed in 1964. 10 11 12 4 2

What sustained the high growth of the "golden age"?

The years in which the Bretton Woods system worked coincided with growth unmatched in the history of Western capitalism. Real GDP in the OECD countries grew by an average of over 4 percent a year in the 1950s and nearly 5 percent in the 1960s, against 3 percent in the 1970s and 2 percent in the 1980s. The countries devastated by the war grew fastest. In West Germany's "economic miracle" industrial production doubled from 1950 to 1957 and GNP grew 9 or 10 percent a year; France calls its period of 5 percent average growth in 1947–73 the "Glorious Thirty", in which average French income rose from 55 percent of the American level in 1950 to 80 percent in 1973. Japan began the world's fastest growth as a supplier to the UN forces in the Korean War. Economic historians generally date this "Golden Age of Capitalism" from about 1950 to 1973. 13

Underlying the growth was the pairing of production and consumption called "Fordism". Henry Ford brought out the Model T in 1908, cut its price by mass-producing a standardised car on the moving assembly line, and in 1914 offered a $5 daily wage, more than double what most of his workers earned. Complex tasks were broken into simple ones that needed no skill, and in return workers were paid enough to buy what they made. The term was taken up by Antonio Gramsci in his 1934 prison notebook essay "Americanism and Fordism" and was used mainly in the Marxist tradition thereafter. In the 1970s the French regulation school explained the post-war golden age as a "Fordist regime of accumulation" in which mass production and mass consumption meshed: rising productivity raised wages, and rising incomes raised demand and investment in turn, a "virtuous circle" stabilised by a set of institutions (the mode of regulation) comprising the forms of money, wages, competition, the state and the international regime. 14 15 16

The role of the state changed too. Britain's Beveridge Report of 1942 called for a fight against the "five giants" of Want, Disease, Ignorance, Squalor and Idleness and proposed that everyone of working age pay a weekly national insurance contribution, in return for benefits when sick, unemployed, retired or widowed. The Labour government of Clement Attlee, elected in 1945, adopted it, and on 5 July 1948 the National Insurance Act, the National Assistance Act and the National Health Service Act came into force as the key planks of the British welfare state. Beveridge saw full employment, unemployment of no more than 3 percent, as the pivot of the programme. In the United States the Employment Act of 1946 made full employment, full production and stable prices goals of government. Keynesian economists argue that such demand management produced the post-war boom; others point to the theory of the permanent war economy, "military Keynesianism", in which heavy military spending stabilised the world economy. "Financial repression", low nominal interest rates and inflation that eased the real burden of war debts, and cheap oil are also counted among the causes. 17 18 13

How the gains were shared also marks the period. In the United States growth was distributed fairly evenly across classes, which some attribute to the strength of labour unions, whose membership peaked in the 1950s. In West Germany the unions postponed wage increases, minimised strikes and supported technological modernisation, and together with co-determination, which put workers' representatives on the boards of large corporations, this is credited with the long growth. The Marxist scholar David Harvey held that the post-war order rested on "some sort of class compromise between capital and labor": to keep domestic peace there was worldwide acceptance that the state should focus on full employment, economic growth and the welfare of its citizens, intervening in or even substituting for market processes if necessary. In Britain the Conservatives found they had to adopt this course to win elections, and it was called the post-war consensus. Seen worldwide, the Eastern Bloc grew rapidly in the same years: having rebuilt from the ruins of the war, the Soviet Union enjoyed a decade of rapid growth in the 1950s and launched the first satellite; growth slowed by the mid-1960s and picked up again during the Eighth Five-Year Plan of the late 1960s. The golden age ended with the collapse of the Bretton Woods system in the early 1970s, the oil crisis of 1973 and the recession of 1973–75. 13 19

How did the dollar go from shortage to glut?

In the end the international reserves of the Bretton Woods system were gold and dollars. Yet while world trade grew rapidly through the 1950s, gold production barely grew. For the reserves that countries needed to defend their rates to grow, the United States had to run balance-of-payments deficits and send dollars abroad. The US balance of payments swung negative in 1950, and after the European currencies regained convertibility in 1958 heavy investment in Europe by American firms and investors enlarged the deficit and sped up the gold outflow. By 1959 the dollars circulating abroad exceeded the gold backing them, and by 1961 foreign dollar claims outstanding exceeded the US government's gold stock. That meant the United States might not be able to keep its pledge to pay out gold at $35 an ounce. The moment a broken promise looks possible, whoever holds dollars does better to convert first: the same structure as a run on a bank. 2 5 20 21

The Belgian-American economist Robert Triffin pointed out the contradiction in testimony to the US Congress in 1959 and in his analysis of 1960. If the United States stopped running deficits, the world would lose liquidity, could not keep up with the growth of trade and output, and the system would halt. If it kept running them, the accumulating dollars would erode confidence in their gold convertibility and shake the dollar as a reserve currency. This came to be called the "Triffin dilemma". In the words of the Federal Reserve's history, "Without additional dollar reserves, the system was unworkable; with additional dollar reserves, the system was unstable." Keynes's bancor had been proposed precisely in anticipation of this difficulty of one country's currency serving as the world's reserve. In the autumn of 1960, amid the US presidential campaign, the price of gold on the London market passed $40 an ounce, well above the official $35, and the temptation to buy gold for the difference grew. 2 22 20 21 23

In the same years a new dollar market grew up outside the United States: the "Eurodollar". Eurodollars were dollar deposits held at banks outside the United States, beyond the reach of US regulation and deposit insurance. One account of their origin is the transfer of $800,000 on 28 February 1957 by a Soviet Union fearing that its assets would be frozen after the Hungarian Revolution, to the Moscow Narodny Bank in London; the name came from "Eurobank", the telex address of BCEN, a Soviet-owned bank in Paris. The Eurodollar market grew from nothing before 1957 to $80 billion in 1972. As large sums crossed borders, governments' efforts to control capital movements grew less and less effective. The further official rates drifted from market conditions, the more speculation became a virtually risk-free bet: move from a weak currency into a strong one, and if no revaluation came, move back with no loss. 24 2

How did the defence of gold collapse in the 1960s?

The Kennedy and Johnson administrations used a series of stop-gaps to hold $35. On 1 November 1961 the central banks of the United States, Britain, West Germany, Switzerland, the Netherlands, Belgium, Italy and France formed the London Gold Pool: they sold pooled gold when the London price rose and bought when it fell, holding the market price near $35, with the United States supplying half the gold. From 1962 the Federal Reserve set up currency swaps (agreements to lend each other's currencies for a period) with foreign central banks, giving them cover for unwanted dollars so that they would not convert them into gold; by the end of 1962 it had lines with nine central banks totalling $900 million. The United States also restricted direct investment abroad and bank lending abroad. These measures were meant to buy time until the balance of payments corrected itself, but in the Federal Reserve history's words they were "postponing the inevitable". 25 23 5 26

It was France that raised the problem most directly. Finance Minister Valéry Giscard d'Estaing called the system "America's exorbitant privilege": other countries had to hand over $100 worth of goods to obtain $100, while the United States could pay by printing notes. Jacques Rueff, de Gaulle's economic adviser from 1958, became in the 1960s a leading advocate of a return to the gold standard and warned that using the dollar as a reserve unit would cause worldwide inflation. In February 1965 President Charles de Gaulle announced that France would redeem its dollar reserves for gold at the official price. In 1966 foreign central banks held $14 billion in dollars, while US gold reserves stood at $13.2 billion, of which only $3.2 billion was available to cover foreign holdings. The United States persuaded West Germany and others not to present dollars for gold, but France was the exception. In June 1967 France withdrew from the Gold Pool and moved large amounts of gold from New York to Paris. 27 28 29 5 23

The final trigger was sterling. On 18 November 1967 Britain devalued the pound by 14.3 percent, and another run on gold followed. On the evening of Thursday 14 March 1968, at American request, Britain closed the London gold market the next day, and it stayed shut for two weeks. After a weekend conference in Washington the US Congress on 18 March repealed the requirement of a gold reserve behind the currency, and the London Gold Pool came to an end. Its seven remaining members moved to a "two-tier" system: central banks would go on using gold at $35 in settling debts among themselves but would sell no monetary gold on the private market. One Federal Reserve history holds that this changed the system from a de facto gold standard with a fixed dollar price of gold into a "dollar standard". Earlier, at Rio de Janeiro in 1967, the IMF had agreed on special drawing rights (SDRs) as a new reserve asset to supplement gold and dollars; they were created in 1969, each worth 0.888671 grams of gold, roughly one dollar at the time. 23 25 5 6 2

Meanwhile conditions inside the United States raised the pressure. The passage of the Kennedy tax cut in 1964 signalled a political consensus on full employment, taken to mean 4 percent unemployment, as a national goal, and it became nearly impossible for the Federal Reserve to raise interest rates for balance-of-payments reasons. The Johnson administration did not pay for the Vietnam War and its Great Society programmes through taxation, and US inflation rose from under 2 percent in early 1965 to 6 percent by the end of 1969. Under fixed rates American inflation passed straight to other countries: foreign central banks had to buy up the inflowing dollars to hold their rates, which swelled their own money supply and pushed up their prices. By the late 1960s the dollar was overvalued and the mark and the yen undervalued, but West Germany and Japan wanted to avoid revaluations that would make their exports dearer, and the United States a devaluation that would wreck confidence. 5 21 2

How did the system end?

In May 1971 West Germany floated the mark rather than buy any more dollars, and on 9 August Switzerland followed. In the first six months of 1971, $22 billion in assets fled the United States, and on 11 August even Britain, which had founded the system with the United States, asked for $3 billion in gold. On 13–15 August President Richard Nixon met in secret at Camp David with Treasury Secretary John Connally, Federal Reserve Chairman Arthur Burns and others, and on the evening of Sunday 15 August he announced a "New Economic Policy" on television: a 90-day freeze on wages and prices, a 10 percent surcharge on all dutiable imports, and the suspension of the dollar's convertibility into gold for foreign central banks, the "closing of the gold window". The decision was taken without consulting the other members of the international monetary system or even his own State Department. The background of this "Nixon shock" and the crisis of the 1970s it opened are treated separately. 28 26 25 2 30

Nixon wanted other currencies to appreciate, but did not want to devalue the dollar against gold. After months of negotiation the Group of Ten met at the Smithsonian Institution in Washington in December 1971 and concluded the Smithsonian Agreement. The United States raised the price of gold to $38 an ounce, devaluing the dollar against gold by about 8 percent (7.9 percent in the dollar's value); the yen was revalued by 16.9 percent and the mark by 13.6 percent. The permitted band widened from 1 to 2.25 percent either side of parity, and the United States dropped its surcharge. The net effect was an average devaluation of the dollar against the other key currencies of about 10.7 percent. Nixon called it "the most significant monetary agreement in the history of the world", but fixed rates with no gold convertibility did not last. 21 31 26

The Federal Reserve kept lowering interest rates for the sake of full employment at home, and instead of the expected return flow, dollars kept flowing out; foreign central banks kept buying them up and absorbing the inflationary pressure. Speculative pressure that had eased in the second half of 1972 resumed in early 1973, and in February the dollar was devalued by another 10 percent. When it came under heavy pressure again a few weeks later, nobody tried to shore up the system any more. In March 1973 the Group of Ten approved an arrangement in which six members of the European Community tied their currencies together and floated jointly against the dollar, and Japan floated the yen too. The fixed-rate system among the major industrial countries was effectively over, and the era of floating rates began. Its end was formally ratified by amending the IMF Articles in the Jamaica Accords of 1976. 5 26 31 2 6

How is the Bretton Woods system judged?

The explanation most widely cited in mainstream economic history is Barry Eichengreen's. He attributes the system's success to three factors: "low international capital mobility, tight financial regulation, and the dominant economic and financial position of the United States and the dollar". All three weakened in the 1960s: the Eurodollar market and multinational banks slipped past capital controls, and as Europe and Japan caught up, the US share of international reserves fell below 16 percent by 1970. The financial stability of the period also stands out: in the 27 years from 1945 to 1971 the world saw 38 financial crises, against 139 in the 24 years from 1973 to 1997, a contrast often used to compare a system that held capital in place with the world that followed its release. 2 13

Keynesian assessments put weight on the system's design. Capital controls and adjustable rates let countries keep domestic policy autonomy for high employment while keeping trade open, a synthesis of Britain's desire for full employment and the United States' desire for free trade. In 1982 the American political scientist John Ruggie called this order "embedded liberalism": markets which Karl Polanyi saw as having become disembedded from society in the nineteenth century were re-embedded in a framework regulated by national governments. Keynes and White held that free capital movement conflicted both with states' freedom to pursue their own economic policies and with semi-fixed exchange rates, and so capital controls were allowed. Against that remains the criticism that, without the adjustment duty Keynes had wanted for surplus countries, the whole burden fell on deficit countries. After the 2008 crisis Zhou Xiaochuan, governor of the People's Bank of China, named the refusal to adopt Keynes's bancor as part of the reason the system broke down and proposed developing SDRs into a world reserve currency. 19 4 6 20

Critical readings see Bretton Woods above all as an institution of American hegemony, the "Pax Americana". Because the system rested on the dollar, the United States could run trade and budget deficits under fewer constraints than other countries, and as long as others were willing to hold dollars it could spend abroad for political purposes, on the military and foreign aid, without balance-of-payments constraints. On the British side too the system was seen as marking the passage of financial power from Britain to the United States: a senior official of the Bank of England called the Bretton Woods deal "the greatest blow to Britain next to the war". Policy-makers from the Southern hemisphere denounced the system as "a Northern-dominated arrangement that was ill-suited to their state-led development strategies", and from the 1980s the loan conditions of the IMF and the World Bank were criticised for laying heavy burdens on developing countries. The Soviet name for the institutions, "branches of Wall Street", was the earliest form of that criticism. 2 32 4

The Marxist economist Ernest Mandel analysed the system in the middle of the 1968 gold crisis. He held that the capitalist countries, fearing a repeat of the cataclysm of 1929–32, had moved at Bretton Woods to a "gold exchange standard" that removed the automatic adjustment of the money supply to gold reserves. But the cause of dollar inflation lay in the "neocapitalist techniques" for avoiding crisis: armament and war policy, the credit bubble in the private sector, and growing state, business and private indebtedness. The dollar therefore carried an "inextricable contradiction" between its role as a weapon against crisis in the United States and the capitalist world and its role as reserve money in the international monetary system. Mandel dismissed as a "Gaullist myth" the claim that distrust of the dollar came from American firms buying up European factories, and traced it instead to US government spending abroad, the financing of the Vietnam war and military aid to dictatorial regimes; these dollars, he wrote, were being spent "to maintain the whole world imperialist system". 33 34