History, it would appear, is in the eye of the beholder.We have here accounts of the collapse of the post-World War II monetary system by two insiders - Robert Solomon, for many years the top international adviser to the Federal Reserve Board in Washington, and Charles A. Coombs, former senior vice president of the New York Federal Reserve Bank.
Solomon takes a broad - even a detached - view of the world and the reasons for the international monetary problems of the last 30 years. The deficiencies of the Bretton Woods system became apparent after the war-torn European and Japanese economies recovered, and the former colonies began to demand a place in the sun.
Sadly Solomon observes, "The efforts made to cope with these deficiencies were too little and too late."
His book, packed with detail, should have appeal as an authoritative text on the final demise of Bretton Woods in a rapid series of monetary crises. And it contains, along the way, some explanation of why the average citizen should be concerned with such arcane things as SDRs - special drawing rights.
Combs, a wheeler-dealer in the foreign exchange markets for the Treasury and the Fed, has the narrower focus of the true central banker. He believes that it was a mistake to let currencies escape from a fixed ratio. He wouldn't have messed around with SDRs - an exercise that Solomon helped to put on track. Simply, Coombs had one major devotion: assure the stability of the U.S. dollar.
Curiously, although both men were intimately involved in these matters for more than 20 years, Coombs never mentions Solomon by name, and Solomon has only a couple of references to Coombs, largely critical.
If for nothing else, the two books are valuable as Exhibits A and B of the deep philosophical split between the Washington and New York Federal Reserve operations.
Solomon's book is thorough, well annotated, and a bit on the academic side. Coombs gives a more personal, breezier account, and at times provides a surprisingly gripping narrative of tension-filled dealings in the exchange markets.
One of his best chapters deals with the potentially traumatic monetary aftermath of the Kennedy assassination in November 1963. To assure the market of a "continuity of policy," Coombs reveals, he boldly acted on his own, committing the U.S. and its trading partners "to an all-out defense of the dollar," without advance permission to do so.
Such is (or was) the strength of the "old boy" network that Coombs was able to bring this off, only later hunting down the foreign officials whose currencies he was using.
Solomon, who for a period was vice chairman with the INF's Alexandre Kafka of the deputies of the Committee of Twenty, is at his best recounting the frustrations of trying to get a sensible reform of the international monetary system.
This exercise, of course, was aborted by the arrival on scene of the Organization of Petroleum Exporting Countries, which in 1973 and 1974 multiplied the price of oil five-fold, and created a balance of payments crisis from which the world has not yet recovered.
Solomon can be numbered among a small group of economists and officials who earlier evolved the concept of an articially created monetary assest - now known as SDRs - which was designed to replace gold and the dollar at the center of the monetary system.That remains the goal, but the future of the SDR is clouded: Gold has been demonetized, but essentially it is the dollar, rather than the SDR, that is at the heart of the system.
Neither book deals adequately with what surely must be one of the most meaningful international monetary stories of our time - former President Nixon's decision on Aug. 15, 1971, to cut the link between the dollar and gold, and to install wage-price controls.
Much remains to be told about the power struggle that led up to a fateful Camp David meeting where the announcement was drafted that weekend. Coombs reveals that Alfred Hayes, then president of the New York Fed, neither was consulted nor informed of the decision.
It will be left to some future historian to tell us more about the roles of John Connally, then Secretary of the Treasury, and George Shultz, then director of the Office of Management and Budget. How they sold the policy to Nixon in his "other" office at the Old Executive Office Building weeks before the Camp David meeting remains to be told. Even Chairman Arthur F. Burns wasn't clued in until some days before the Camp David meeting.
Parenthetically, I regret that neither author deals in detail with one ugly side of American policy making during the Connally era - the firing (in effect) of IMF Managing Director Pierre-Paul Schweitzer. Schweitzer, as Coombs says, made Nixon's "most wanted" list when he had the nerve to suggest publicly, and before it happened, that the U.S. probably should devalue the dollar by raising the price of gold.
Connally, to my knowledge, never had any use for Schweitzer, the IMF or, indeed, any international institution, and "foreigners" generally. The irony of it all was that Schweitzer, over a 10-year period, generally pushed his native France and other European countries toward the American position.
Solomon and Coombs predictably stress the need for further international consultation or cooperation. Unhappily, experience over these years has shown that self interest does not easily give way to international urgencies. When the world finds a way of coping with OPEC, it may wind its way back to some sensible international monetary system.