'Nixon Shock', Revisited

August 15, 1971 was the date that America's postWW2 international economic hegemony ended officially. President Richard M. Nixon, an avowed disciple of the free-market and also free-trade, announced to the world that the United States was closing the dollar's convertibility to gold that had operated as the international reserve currency at a fixed-rate since the Bretton Woods accords in 1944. Nixon also proclaimed a 90 day wage and price freeze and slapped a 10% surcharge on all imports(another 'tariff avoidance' phrase). Though attempts at devaluation of the Dollar were made thereafter, no international agreement could be attained to reset a fixed rate. Hence, the floating currency exchange that we have now.

All of the Nixon Shock was supposed to be temporary and most of it was. That such a free-marketer such as Nixon would do such a thing in the first place, delves into the complexity of the man. Nixon could be said to be our one -and -only Shakespearean President ; RMN is a multi-act play taking the observer through triumphs, tragedies, and even comedy if one looks for it. Nixon was an introverted intellectual type who couldn't abide intellectuals; he always felt like an outsider of the Eastern Establishment, but at times tried to cozy up to them. Nixon was at heart a conservative, but did liberal things as President and when he was a Senator and Congressman: a Red Baiter who nailed Soviet agent Alger Hiss and talked about the Communist menace - then opened up to Mao's China and pursued detente with the USSR. One of Nixon's favorite Presidents was the 'idealistic' Woodrow Wilson, but he was a perennial pragmatist, Realpolitik was the foreign policy that he pursued. On his infamous tapes one can hear Nixon ranting about "Jews", but no Administration had more Jewish top level officials, and he risked a confrontation with the USSR to bail Israel's tookas out of the '73 Yom Kippur War. Though disappointed and irritated in perceived anti-Americanism of European leaders, he nearly worshipped Charles de Gaulle who was the most anti-American post-WW2 leader in the West and a certified ungrateful son-of-a-bitch. Nixon could play the piano, was an aficionado of Classical Music, a bookworm, but he spoke in terms of Football and identified with the Hardhats and the small-farmers and would often mock and deride arty sophisticated types in Archie Bunker fashion. He was a populist who coined the "Great Silent Majority" phrase, but he set up an 'imperial Presidency' and barricaded himself around a select group of advisers, many of them corrupt DirtBalls like Chuck Colson. Nixon was a hard-charging , go for the jugular,campaigner who disliked shaking hands and did not want to be touched , even by his wife. He was a natural paranoid, but when he trusted someone, it was often the wrong person to confide in; a man from the quiet and somnolent Quaker faith but he made friends with fire- breathing evangelists like Billy Graham, but he did not attend a church and seldom mentioned religion in his speeches. Nixon liked dirty jokes and took an interest in the extramarital affairs of his peers, but no evidence was ever uncovered that he ever had a mistress or even a one-night stand. He liked talking tough in foreign policy and bombed the bejesus out of Hanoi, but was always motivated to build an international order that would guarantee peace, at least between the Big Players of his day. Nixon inherited civil war conditions at the start of his Presidency and spoke of "law and order", yet he flagrantly broke the law and thought that he was entitled to do so.....

One can go on and on psychoanalysing Richard M. Nixon, the enormity of contrasts and contradictions in his policies and his personality. The dialectic of Nixon is transparent in the Shock of August 1971: he had free-marketeers like Arthur Burns on his economic team, yet he opted for the plan of practical Treasury Secretary John Connolly(some say that Connolly &Nixon were soul-mates). The Shock was short-term and was primarily motivated for his re-election; Nixon was not an economic President, and to his credit, he at least admitted that he did not understand a great portion of it(unlike LBJ, Carter, Reagan etc who pretended to understand and didn't). Such a free-thinker on foreign policy(contrary to legend, China, triangular foreign policy was his idea - not Kissinger's), Nixon was like a dutiful schoolboy taking notes from his economic and trade advisers:he'd cram hard for the test and then quickly forget afterwards what he had learned.

Nixon had developed an abiding detestment of wage/price controls when he had briefly served on one of the numerous bureaucratic War Boards in 1942, yet he implemented Wage-Price controls as part of his Shock. Though most only lasted 90 days, it was a glaring contradiction and contributed to inflationary problems in the long term. A 'fiscal conservative', he also claimed that "we are all Keynesians now" just at the time when intentional deficit spending was coming out of fashion, and was one of the biggest reasons that the US experienced spikes in inflation in the late 60s, early 70s. Though he spoke of the virtues of having hard-currency, Nixon took the US Dollar off the gold reserve that was the cornerstone of the Bretton Woods system. In his defense, Nixon didn't have a good decision to make on this point: other nations, because of inflation and the unilateral anti-protectionist policies of previous Presidential administrations, had accumulated surplus Yankee dollars that they did not want to hold indefinitely. The fear that said nations would cash them in for Yankee gold as they were entitled to were genuine. Especially since Nixon's hero, France's Chuck de Gaulle, intentionally& for the sake alone commenced undermining the US Dollar by accumulating gold with France's stockpiled Federal Reserve Notes in the early 1960s(why RMN loved this bastard is to me one of his biggest mysteries, enigma). Though West Germany gave a verbal agreement not to exchange dollars for gold, the danger was there that other nations would begin to panic and Ft. Knox would had been cleaned out in a matter of a few weeks if they did. Nixon had no choice but to close the gold window in this circumstance. It would had been more irresponsible and he would had had a lot more explaining to do if he would had allowed all the gold reserve in the country to flee, I think.

As an economic-nationalist, the 10% import surcharge(tariff) was the only genuinely good part of the Nixon Shock. Thanks to post- WW2 unilateral trade liberalization, the United States , for the first time in a long, long time began running a trade deficit by 1971 - something that was shocking in itself then. Where Nixon went wrong on this is that he only employed it short-term(again) and caved in to protests at the initial Tokyo Round in 1973 - which by then he shifted back to the free-market, free-trade policies of Arthur Burns - a Milton Friedman devotee. Bretton Woods ended on Nixon's watch;instead of taking the US back to it's protectionist roots when the opportunity required it, he left the worst thing about the Bretton Woods edifice in place when he could had easily knocked it off then for good by keeping his tariff in place, raising it if need be, and telling the whiners and sob sisters at the Tokyo Round to take a hike if they didn't like it. He could have nipped globalism in the bud then and we wouldn't have protectionist ranters and ravers at blogs like 'Left-Federalist' today. America would perhaps not be in the mess that we are now in trade if Nixon would had thought in the long -run in August of '71 instead of chiefly fretting about his up-coming re-election.

Nixon was a patriot but he neglected the economic and trade side of patriotism and shown gross irresponsibility in this department - to me this dwarfs Watergate and letting Kissinger talk him into prolonging the Vietnam conflict, giving the green light for the Chilean coup in '73...

In closing, Nixon was a character who had huge potential to have been both a benevolent human being and a great President, but he let his dichotomous personality, the inner demons of his dark side - 'Tricky Dick' - over-ride the noble qualities that the man had. Like a lot of organically brilliant men, he often did very stupid things and never could find the synthesis between the Idealist Nixon and the Practical Nixon.