Published by EH.Net (October 2018)
Simone Selva, Before the Neoliberal Turn: The Rise of Energy Finance and the Limits to U.S. Foreign Economic Policy. London: Palgrave Macmillan, 2017. xv + 423 pp. $75 (hardcover), ISBN: 978-1-137-57442-8.
Reviewed for EH.Net by Alain Naef, Department of Economics, University of Cambridge.
An abundant literature focuses on Bretton Woods on the one hand, or the liberalization of markets and exchange rates in the 1970s and 1980s on the other. Little is known on the transition between these two periods, however. Simone Selva’s book attempts to make sense of this transition before the “Neoliberal Turn” in the late 1970s, by giving an account of U.S. currency and the functioning of the international monetary system. A Research Fellow in the history of international economic relations at the University of Naples L’Orientale, Selva brings an interesting approach to the subject, specifically tracking the role of the dollar from the 1950s to the late 1970s. Indeed, U.S. balance of payments issues first found their roots in Europe and were linked to postwar loans in the 1960s before the problem moved to Gulf countries in the 1970s. Petrodollars accumulated by oil producing countries had to be disposed of without causing the dollar to suffer. The book explores the struggles of different U.S. presidents to manage both their balance of payments and the dollar.
Chapter 2 describes how American balance of payment deficits in the 1960s conflicted with the country’s military objectives across the world. The Vietnam War was one of these commitments and was a strong inflationary force. As the Federal Reserve increased the money supply to support the Vietnam War in the late 1960s, the dollar weakened, eroding the U.S. competitive position in global markets. Chapter 3 shows how successive devaluations in Europe put more pressure on the U.S. balance of payments. The 1967 devaluation of sterling especially destabilized U.S. policies. This chapter also offers a detailed narrative of the gold crisis in 1967-68, when the price of gold surged and the Gold Pool was disbanded. The author nicely shows how troubles in the USSR prompted the regime to sell gold on the international gold market.
In Chapter 4, Selva argues that inflationary pressures were building up long before the first oil crisis of 1973 — arguing in effect that not all 1970s inflation can be blamed on the price of oil. He describes the Nixon Administration struggling to understand the link between developments in energy markets and the international monetary system. The chapter also offers an interesting account of how U.S. policymakers pushed American banks to open branches in Gulf countries, in an attempt to increase U.S. manufacturing and financial service exports to dollar surplus countries. These U.S. banks then channeled money into the Eurodollar (or Eurocurrency) market in London, where it was then loaned to European countries with balance of payments deficits. This was possible only as long as the Eurodollar market was capable of absorbing currency from oil producing countries.
Around 1974 OPEC countries shifted their investment from short-term (mainly Eurodollar) investments, to long-term ones (mainly loans to governments). Chapter 5 explores what happened when OPEC dollar surpluses overtook the Eurodollar market’s ability to absorb them. Oil producing countries began offering loans directly to governments starting with Egypt, Syria, and France, expanding to other Western countries. The American administration realized that direct investments in the U.S. would have a less detrimental effect on the dollar. Despite public outcry and fears of oil producing countries taking over U.S. firms, the Ford administration promoted direct petrodollar investment into the country. The Treasury actively encouraged OPEC investments in the US, which Selva illustrates with the example of a $100 million investment in telecoms giant AT&T, “openly approved by the Ford Administration” (p. 301).
The research is well documented with archival material across Europe and the U.S. Beyond the archives from international financial institutions, governments, and central banks, the author also relies on archives from the CIA which offer an objective and strategic assessment of the international monetary questions at the time. Selva does not shy away from the complexity of the international monetary system and manages to connect the domestic situation in the U.S. to the troubles of the international monetary system with skill. However, he sometimes lets this complexity cloud the clarity of his argument. The writing is dense. Some paragraphs extend over many pages, some sentences over many lines.
Nonetheless, Simone Selva’s contribution is a solid piece of serious scholarship that helps better understand the origins of the 1970s oil crisis, and how the U.S. managed its balance of payments. It offers a review of American policies at the point when markets became more open and oil production took the center stage in international finance. As such, this detailed analysis will benefit financial historians of the period as well as scholars interested in energy finance and modern American historians.
Alain Naef is a teaching fellow at the Economics Faculty of the University of Cambridge, where he is finishing a PhD on the role of reserve currencies during the Bretton Woods period. His latest working paper on the Gold Pool with Michael Bordo and Eric Monnet is available at https://ideas.repec.org/p/nbr/nberwo/24016.html and his work on central bank intervention is available at https://ideas.repec.org/p/cmh/wpaper/32.html.
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