The Atlantic and Its Enemies

10. The Sixties

In the outcome of the great dramas of 1956, the Americans could be quite content. The European empires were finished; the West had been refashioned in America’s interest, or at any rate in the interest of most Americans. NATO took firm shape, as the Communist threat in western Europe receded; the fifties were a time of American triumphalism, and the immensely popular new President, General Eisenhower, was an apt and genial symbol. Eisenhower could as easily have been elected as a Democrat if he had chosen, but the Republicans, whose chief platform was tax-cutting, got in first. America had become very prosperous; her trade and investments boomed. By 1965 the USA produced 119 million tons of steel, almost as much as France, Germany (37 million, as against the maximum 10 million generously allowed in 1948), Great Britain and Japan put together, and it easily led in the consumer goods that marked the age — nearly 8 million television sets to very few German, for instance. The Europeans were catching up, but even in 1969 American workers earned over twice as much as German workers ($460 per month as against $209, and $199 in the British case). Three million Europeans emigrated to the USA in the fifties. However, Europe was becoming more united, and the impetus was really American: the European Economic Community contained the arm spiritual of NATO. Besides, for all of the talk of a European bloc, it was open to cheap and very rewarding investment.

The USA did very well out of this. The conglomerates such as IBM spread abroad. Investment ran at $2bn per annum in these years, and in 1956 American private investment abroad exceeded public spending there for the first time since the twenties. From 1946 to 1950 US foreign investment rose from over $7bn to nearly $12bn and by 1958 $25bn, and spread from mining and trade into more sophisticated fields such as petroleum-linked industries and manufacturing. The investment was dominated by the ‘multinationals’, firms which set up in western Europe to take advantage of lower costs or a growing market, or to escape from the tariffs that would otherwise have hit them, and some of the great American companies became worldwide names, the products ranging from soap to oil tankers. They were regarded as models of efficiency, with headquarters of plate glass and concrete, abstract sculptures and fountains well to the fore, and they developed a large research-and-development infrastructure. Their managers were also, often enough, teachers: IBM became something of a model, even, in the 1960s, for Romanians whose Communist government was then trying to become less dependent on the USSR. There was much alarm at the time about the allegedly predatory nature of this, but in 1950 there were higher western European investments in the USA than vice versa and in the later 1950s the USA had a positive balance of payments, despite the NATO spending. In the fifties and sixties — at any rate their first half — American business had a formidable reputation: it could do what Europeans could not imagine themselves doing, because the quality of management was so high. Some explanation is needed. In the twenties, when the phenomenon had first struck Europeans, it had seemed inhuman — workers like cogs in a machine, much exploited and put upon, turning out the same bit of a machine or an automobile on an assembly line, and not able to take any pride in the craftsmanship of a completed product. Fritz Lang, in the Weimar cinema, or Charlie Chaplin, captured this hostility, though it had roots in the England of Blake (‘dark satanic mills’). But it resulted in a huge flow of goods, and in high wages; during the war it had produced the extraordinary American production miracles, whereas for much of the time German workers, putting together a first-class piece of aeronautical engineering in craft groups, might take pride in the product but did not make nearly enough of it. In Europe in 1948 there was not a single continuous strip steel mill, because small firms and cartels resisted it, such that the cheap steel needed for refrigerators or automobiles was much more expensive than in the USA. A washing machine cost eight man-hours in New York, and 500 in Paris. But it was American management that shone.

It had quite long origins: even in the 1830s, Stendhal, for instance, has throw-away and dismissive lines about American business and dollar worship, and the Teamsters, a famous union mainly on the docks, took their name from the mule-drivers of yore. In the 1850s Sam Colt was able to assemble a first-class gun in thousands, because he made each part the same, to within a thirty-second of an inch to start with, and then a five-hundredth, so that they were interchangeable, and Linus Yale, of locks fame, goes back to that period. Machines were soon made with interchangeable parts, and the tools that produced these became an American specialty, keeping British war industries going in both of the world wars. Henry Ford famously transferred this to motor cars that were therefore cheap. Various explanations have been offered: unskilled immigrant labour, needing to be given simple and repetitive tasks within their capacity; expensive labour, putting pressure on firms to diminish their costs by use of machinery; practical education, such as was plentifully on offer; the peculiarly classless atmosphere in the USA, where ordinary workmen would co-operate on friendly terms with an owner when it came to reporting faults and taking an interest in machines, whereas elsewhere workmen regarded them as an enemy and in Britain were notoriously reluctant to accept them, because they would be tended by fewer workmen and might depress wage rates. In the Marshall years British trade unionists went to the USA to learn about productivity and the results were generally depressing. But the essential seems to have been the quality of management.

In Europe at large this was misunderstood, because of business schools; and it was a curious fact that they did more damage than good. Any true businessman regarded them as pernicious or at least useless: Sir James Goldsmith remarked, for instance, that he would never hire anyone for senior management who had failed to leave school at sixteen. One trouble was that those who could not manage, taught, and sometimes preached. Real managers have better things to do, and asking them about theories of management is equivalent to asking a first-class golfer to lecture on ballistics. There was even around 1900 a group of men who wanted to make business academically respectable and Harvard acquired a business school that its founders expected to rival the law school. Frederick Winslow Taylor (1856-1915) invented the time-and-motion study, in which white-coated experts studied the performance of the workforce, and, with slide-rules, criticized. Early on, the application of these methods caused demoralization and in the Ford plant at Dearborn turnover of the workforce stood at 900 per cent a year. Taylor’s claim was to ‘mathematize’ everything, and though himself a failure as a manager of men, he was the ancestor of the management consultant, and even the originator of a notion that management could be learned from books as distinct from experience. He and later followers referred to their creed as ‘Scientific Management’, and this suited some modern production methods, by ‘flow’, i.e. of workers each, on a slowly moving belt, assembling one part and moving it on to another worker who would add something to it. To manage men doing this mechanical stuff was not at all easy: in fact Taylor himself once remarked that he preferred a ‘little Dutchman’ for a pig-iron job because what it needed was ‘the mental make-up’ of an ‘ox’. In the USSR later on, ‘Taylorism’ was thought to be a good doctrine to follow. As things turned out, it was not, because it was so machine-like and inhuman. One reason for the failure of the USSR in the end was that it copied what it thought to be the most successful, because nastiest, method of managing labour. It merely demoralized, and created drunks.

America’s businessmen managed in fact in different ways and in the fifties they were very successful. One striking aspect was the in-house research laboratory. The Dupont Company, the first of America’s great ones, already employed a hundred technicians in gleaming new buildings, and the example was followed by General Electric, where a mathematical genius tinkered away at Schenectady in New York State, and helped produce the cathode tube and the high-frequency alternator which made commercial broadcasting possible. General Electric then set up the National Broadcasting Corporation. Bell Laboratories was the research side of AT&T and it produced sixteen Nobel Prizes over the half-century: even the theory of information technology came from there, with a paper in 1948 called ‘A Mathematical Theory of Communications’, by Claude Elwood Shannon (like other mathematicians a considerable eccentric, who rode along the corridors on a specially made bicycle which enabled him along the way to juggle balls). As Kenneth and William Hopper say, these vastly successful companies ‘achieved a delicate… balance between… share-holders, employees, managers, suppliers, customers — and researchers’. They also attracted young scientists, who somehow gave of their best, because they were well-led, by men with knowledge and enthusiasm. Productivity growth per man-hour was 3 per cent per annum in the fifties and sixties, an extraordinary and unmatched figure.

Alfred Chandler analysed the success story — two men at the top, one a chairman, complementing each other; both, products of the business itself, and sometimes with a very lowly start in it; a readiness for long-term thinking rather than short-term profits. A rule was ‘one man, one boss’; employees would be given as good a guarantee as possible of long-term work: the middle manager was seen as the ‘keystone of the managerial arch’ because, through him, information could be collected and passed up. The great companies survived the 1930s because they had carefully avoided debt; they were able to shift resources towards the new products that distinguished that decade, despite the general blackness: radio, telephones, commercial aircraft, electrical goods. The Slump stimulated them as slumps are meant to do — ‘the only cause of prosperity is depression,’ said the economist Clement Juglar, a student of the business cycle. They cut costs and made intelligent adaptations towards new goods. IBM did not borrow on any scale until the 1970s, and Gillette had an office in an old factory with bare brick walls. When it came to war, there was further extraordinary adaptability — a peacetime economy created aircraft-carrier-borne fighters that outdid the Japanese Zero by 1943, and the nature of the Pacific war changed overnight. The Mustang, which transformed the bomber campaign in Germany through precision attacks, unperturbed by German fighters, had its prototype within six months of the designing, and had few troubles in testing. This economic machine, so successful at home, now turned abroad. Ford, IBM, General Motors, Chrysler, General Electric, Xerox became household words the world over.

When did ‘the sixties’ begin? The obvious moment to choose would be January 1961, when John F. Kennedy, aged forty-four, became President of the United States. But definitions of decades can only be ragged, and in a sense the sixties began in 1956. That year launched Elvis Presley; the London theatre was assailed by ‘angry young men’, especially John Osborne; Hollywood was stunned by James Dean, the ‘rebel without a cause’ who starred for sullen teenagers, was rated sixth most sexually attractive film star ever, but had died in a car crash the year before, aged twenty-four. On an altogether different plane, 1955 had been the last year in which world prices fell generally, as, from time to time, classical economics expected to happen: thereafter, prices just went up, overall. There was a mysterious sea-change, in other words, away from the old world. In the short run, it had obviously enough to do with the prosperity that was spreading so extraordinarily fast, as domestic tools made life much easier, food and energy became cheaper, television spread and spread. In another perspective, the sea-change had to do with a ‘youth culture’ which reflected the rise in population in the Anglo-Saxon West, where, in place of the sometimes negative growth rates of the troubled interwar years, it became normal again for families to produce three or four children. They were growing up and, because the necessities of life were costing less, they had money to spend. Youth, at least in the media world, had its decade in the sixties. Student revolts occupied the headlines; student thoughts were taken seriously; the vote was given to people aged eighteen, though in many places they were forbidden to buy alcohol until they reached the age of twenty-one. All of this was emerging in Eisenhower’s second period, and the elderly golfing President, with his occasional troubles with long words, was not the man of the hour. Deeply honourable, in defence of the dollar, Eisenhower accepted three recessions, one of which in effect cost Nixon his succession. John F. Kennedy succeeded him in January 1961, and seemed indeed to be the man of the hour. He too had to defend the dollar, but it was characteristic of him and indeed the sixties as a whole that he imagined it could be done without pain.

Chateaubriand had remarked of Talleyrand that he was ‘a nineteenth-century parvenu’s idea of an eighteenth-century great nobleman’. In the same way, Kennedy, with his fairy-tale looks, money and wife, was a hairdresser’s Harvard man. He was easily adaptable to a television age that older men had found uncomfortable. Next to the glowering, charmless, permanently unshaven-looking Richard Nixon, his election opponent, he shone, and especially entranced the intelligentsia of the East Coast. They, culturally still overshadowed by Europe, were often embarrassed by their own country, in some ways still very naive and simple. A visiting English grandee, Harold Nicolson, had gone on a coast-to-coast lecture tour in the USA to rescue his finances, had addressed Midwest ladies in cherried hats as to how the two democracies stood shoulder to shoulder facing the foe to the east, had taken yet another train to yet more ladies offering tea and cookies, and had gone back to London and told his friends that it had been ‘like a month at a servants’ ball’. The New York intelligentsia in their way agreed. They had not much cared for Eisenhower, who played the golfing Republican buffoon; and Norman Mailer set the tone for many writers to come when he dismissed the fifties as ‘the worst decade in the history of mankind’. Most writers really respond to conditions a generation before, did not feel at home in mass prosperity, and made fools of themselves when they pronounced on politics. But pronounce they did, and the sniggering or resentment of the intelligentsia had effect. Kennedy appeared. He was less well-read and was certainly less musical than Truman (who was a good pianist) or even Eisenhower, but the image was far better: he could pretend, and perhaps even believe in the pretence. Kennedy, a Catholic, and sprig of a corrupt Boston-Irish dynasty, was not by nature a convinced friend of the left-wing intelligentsia, and he had even, for a time, gone along with Joe McCarthy’s persecution of the crypto-Communists among them. That had helped Kennedy’s father, notoriously crooked, in effect to buy a Massachusetts Senate seat, which was retained by the longest-surviving Kennedy brother, Edward, for decades, despite a reputation that included manslaughter. Kennedy’s own electoral victory came only with a tiny margin, which he owed to the slippery practices of the man whom he chose as Vice-President, Lyndon B. Johnson, who had managed Congress for Roosevelt and understood how Texas worked. Almost everything to do with Kennedy was, in other words, false. In practice, as Johnson said, he ‘never did a thing… It was the goddamnedest thing… his growing hold on the American people was a mystery to me.’ However, he was the man for the decade to come.

Kennedy proclaimed a ‘New Frontier’. The reference to Roosevelt’s New Deal was obvious, and Kennedy took office with a promise of new energy. Fashion clothes and concert pianists appeared in the White House, and clever academics made up a good part of the new presidential team. Was there any substance? ‘New’ is not generally a word to use in politics. It is exhausted before it even begins: it generally means that the user of it has no ideas of any depth, and runs out of steam early on. However, when he began, Kennedy symbolized quite well what were to be the great makers of the decades to come. Apart from anything else, he was the first, and very, televisual politician. That instrument was to give politics an altogether new shape, or, rather, it vastly spread what had already been a vice of the cinema, to oversimplify to the point of caricature. William Blake had prophesied this a century and more before, and in their way the medieval iconoclasts had done so, as well. ‘They ever will believe a lie who see not with but through the eye’, said Blake, and St Bonaventura had announced that ‘the ears communicate faith and the eyes, fervour’. But there were other inventions that shaped the sixties and beyond.

The 1960s were indeed a new age. In 1958 the world economy was revolutionized, because the main currencies became convertible one into another: that created a true world economy, almost independent of national governments or at any rate putting a great strain upon them, because money would just move out if they defied its rules. But other things of revolutionary importance were coming about. Most ages are marked by some invention or other: as Orwell wrote in a ten-second summary of world history, the castle defeated the knight, gunpowder defeated the castle, and the chequebook defeated gunpowder (he went on that the machine-gun defeated the chequebook). In 1960 such inventions came onto the mass market — the fax machine and the contraceptive pill. The first sent money round the world far faster than ever before. It had long and disputed origins, but came into its own because the Japanese could use it. Their language was almost impossible to type, for there were a great many characters, each needing a different combination of many pen strokes. These could now be quickly scribbled by felt pen, and sent by fax, not typewriter, and as Japan started on her long economic boom, towards the middle of the 1950s, faxes to banks and importers made it possible. She developed into a world economic power, second or third in weight. That example was followed, later on, by Taiwan, a desperately poor country that became fourteenth trading nation in two decades, and by South Korea, devastated by the war. Now, the money exchanges became very busy, no longer dependent on mail, and the amounts of money that went round the world made trade itself of less and less apparent weight. The later effects of the computer have been just a continuation of that process, though on a much greater scale.

The Pill’s effect on the relations of the sexes was, said Conrad Russell, like that of the nuclear bomb on international relations. On 1 June 1961 it came on the market in Germany (through Schering AG). It had origins going back to the early twenties, a time when ‘race improvement’ (eugenics) was fashionable, and the poor or stupid were supposed to be discouraged from procreating (in Sweden, up to the 1970s, Lapps were being sterilized on the grounds that they drank too much and were not very bright). German scientists received grants from American foundations for such research (the money was frozen in Germany under Hitler, and was used to pay for the experiments of Josef Mengele, at Auschwitz). Preventing ovulation had been done by natural methods in the past — in Mexico, for instance, women knew the qualities of wild yam in this respect; the ancient, Hippocrates, had recommended a wild carrot known as Queen Anne’s Lace. In 1951 Carl Djerassi, of Bulgarian-Jewish and Viennese origin, working in Mexico and connected with the Swiss chemical firm Ciba, took out a patent, and experimented with the first synthetic compound in 1956 in Haiti. Germans marketed the Pill first, but it spread very rapidly. Freeing women from unwanted childbirth was equivalent to a new dimension in world history. Before 1914, in England, women doctors had not been allowed to contribute to medical journals because this was thought to be immodest, indicating an interest in the body that was improper. Fifty years later, women were establishing themselves in a man’s world — probably the single greatest change, among the very many that set in after the Second World War. In the next generation, even mothers of small children were going out to work, some of them very successful, and many others left with no choice but drudgery. Feminism became a fashionable cause.

In some ways, what followed was a natural enough outcome of the sheer silliness with which conservatives defended their not indefensible world. They had been, in a way, spoiled by their own success against Communism. There was of course a conservatism that the following decade sneered at — churches got a billion dollars for building, twice what public hospitals got. The fifties ended with optimism and in retrospect seem to have been the last gasp of the old world. Families stayed together, women in the home or aiming to be, and the laws governing divorce or contraception were sometimes ridiculously difficult. A Catholic hierarch in Paris remarked that it was all very well to say that an extra child might break the family’s budget and starve; it would die surrounded by love. This business of course provoked unthought-out reactions. Republican women in Connecticut had to fight a (Catholic-inspired) law against birth control all the way to the Supreme Court and that resulted in the easy-abortion arrangements of Roe v. Wade in 1973. Homosexuals in England faced worse persecution than in the days of Oscar Wilde, as the police could gain promotion points if they provoked an approach in a public place, and got more convictions from magistrates’ courts than they had in the 1930s. There was still censorship, at a comic level, as when a lawyer, prosecuting Penguin for publishing D. H. Lawrence’s (unreadable) Lady Chatterley’s Lover, enquired in what he thought was a devastating way as to whether such a book could be read by the servants. Education was also rigidly unchanging, and everywhere operated unpredictably and unfairly, with, in most universities, a hierarchical professoriate that was all-powerful and old-fashioned. Sexual differences were enforced with ridiculous pinpricks. As late as 1968, at Trinity College, Cambridge, a 28-year-old graduate student was expelled when he was found by the porters ‘with a woman in his room’, and even in the 1970s, at Corpus Christi College, the Master’s wife was refused a key. When a distinguished French historian, Marc Ferro, wanted to bring his wife to stay at Jesus College, Cambridge, two seniors found an argument to stop them from using the main (and splendid) guestroom. The room was used for Boat Club breakfasts. Breakfasts meant toastcrumbs, difficult to vacuum-clean away. Men getting out of bed with bare feet might be expected to put up with the discomfort; women, not. Therefore no Madame Ferro. In the United States, such conservatism, picturesquely tiresome elsewhere, was deadly, because it worsened what was already the worst blot on the country, its treatment of Negroes, as they were then generally called. In New York, if you took a Negro friend to dinner in a restaurant, you telephoned the management beforehand. Even when Kennedy’s Vice-President went round Texas with his cook in a motor car, she could not use the roadside lavatories, and had to squat at the side of the road. Such things bred rebellion on the one side, contempt on the other, and guilty consciences in the middle.

Towards the end of the decade there was an international exhibition in Moscow, and the Americans showed off their kitchens. Vice-President Richard Nixon appeared, and there was a famous row between him and the Soviet leader, Nikita Khrushchev, who said that such things had nothing to do with justice or culture. Though he was not himself an expert in either field, a good part of the intelligentsia might have agreed with him. There was no question about it: Soviet high culture was far richer than American. There was now a Soviet challenge, in that the Soviet space effort appeared to be more successful than the USA’s where science, applied to space and weaponry, was concerned. Sputnik caused national alarm, and a new national effort by America (in Great Britain the alarm was similar if less effectual) was apparently needed. This coincided with a two-year slow-down in the economy, when it grew by 2 per cent and unemployment came close to 6 per cent, then thought excessive. These questions gave Kennedy his narrow margin at the end of 1960, and when he took over, early in 1961, ambitious academics advised as to how the challenge was to be met. There were some famous and influential books, and conservatism had a bad time. These new writers analysed problems, and often suggested easy-sounding solutions, one mark of the sixties. John Kenneth Galbraith’s Affluent Society (1957) noted that private people had money and governments none the less produced squalor: New York gorged with money, yet the roads were potholed and a good part of the population lived in poor conditions. Two decades later governments had a great deal more money and were still producing squalor: what conclusion was to be drawn, that governments should have even more, or that they just could not help producing squalor? Vance Packard’s Status Seekers (1960) described the American business rat race. Jane Jacobs, looking at the wreckage caused by the San Francisco freeway system, wrote The Death and Life of Great American Cities (1961) and she foresaw that housing estates for the poor would turn into sinks of hopelessness worse than the slums that they were to replace; she also foresaw that city centres would become empty, inhabited only by tramps. Betty Friedan’s The Feminine Mystique (1963) spoke for the bored housewife. Michael Harrington discovered that there were many poor Americans: The Other America (1962). David Riesman looked at the American rat race in The Lonely Crowd (1961) and shook his head at the two-dimensional misery of it all. René Dumont considered international aid, and thought that there should be much more of it; Gunnar Myrdal saw American race relations in the same light. Germaine Greer wrote The Female Eunuch (1970) saying that for women life was a bitter picture from the cradle to the tomb.

The answer was: spend money. Here, the presiding genius was Maynard Keynes. He had been contemptuous of the orthodox balance-the-budget financiers who had run things in the 1930s (and who were still running them in the 1950s): they reduced the National Debt and tried to run a budget surplus. An enlightened State, borrowing and spending, could easily be beneficial, especially if it helped poor people at the expense of the better-off. ‘Demand’ — the ability to buy — would stimulate supply, the provision of goods. It was just selfishness on the part of the rich that got in the way, and a measure of sheer stupidity. The great Slump of 1929 had discredited capitalism and especially bankers in many intelligent eyes, and Keynes had made easy conquests of intelligent young men and women, who would probably have agreed with the grandfather of a well-known Italian journalist, Indro Montanelli, in the sentiment that ‘it is possible for an honest man to have dealings with whores, but with bankers, never’. If making life better for people beyond the prosperous circles of the fifties meant spending money, then that was a worthy cause. Galbraith had been involved in price control during the Second World War and never did understand why his critics regarded the State as wasteful, corrupt and inefficient. The war economy had been extraordinarily successful, thought he and his like: even petrol rationing, which made life very difficult in the more isolated places, had been very widely accepted. Why bother with out-of-date economic rules?

Economists of the younger generation were convinced that they were the legislators for mankind, and even that they had abolished all problems. Keynes himself would never have agreed with this, but his younger disciples, among them splendid writers such as Galbraith, did not have doubts. Economists were the Druids of the age, and the message that, overall, they gave was very comforting: if governments spent money, problems would be solved and the good life (whatever that meant) would duly happen. As a profession, economists had been rather caught out in the interwar Slump, because they had preached austerity and virtue — saving, cuts in welfare spending. That had not cured the Slump — far from it, at least in the popular mind. On the contrary, it had worsened matters, to the point where, in Germany, Hitler came to power. Galbraith wrote a book on the Slump that blamed bankers, and it was a bestseller. Now, economists were associated, on the whole, with easy answers. How widespread their effect was can be seen from an aside by the English historian A. J. P. Taylor, in his book about the origins of the Second World War. Hitler’s economy had produced mild inflation, he said, and had thereby produced full employment in a country that, in 1933, had had 8 million men out of work; Taylor added that everyone now knew that mild inflation was a cause for prosperity. A dozen years after writing this, when, nearing old age, he saw his savings consumed by inflation, and the streets outside scattered with litter, he told a different story. But the essence of the sixties was a belief that there were easy answers, so long as grumbling old men got out of the way. Kennedy was inspired by Roosevelt, but the ghost of Keynes stalked his corridors (although when Keynes met Roosevelt in the 1930s, and tried to discuss his theory, the meeting was not a success). It is strange, looking back, how easy the solutions appeared to be. Cambridge, where Keynes had reigned, was still the leading centre in the world for economics, and one of the few dissidents with a sense of publicity, the young Milton Friedman, from Chicago, went there for a spell. He was a good mathematician, and his work might have proved useful to the economists there. Instead, he was in effect frozen out by a grand old dame of Cambridge economics, Joan Robinson (who padded around King’s College in a bizarre Chinese peasant costume: but she was the daughter of a reactionary general who had fallen foul of Lloyd George in 1918, and the granddaughter of a considerable Victorian poet). There were of course dissident voices, but they were few, and they were unfashionable. Milton Friedman published a key article, ‘The Quantity Theory of Money’, which warned that there was a danger of inflation with the then current practices. He was waved aside, and when in the early 1960s Alan Walters — much later on, a recognized authority on both sides of the Atlantic — applied for a grant to develop statistics as to how much money was being created in England, he was turned down. At the time, economists were fighting their last war, in this case against unemployment, and an engineer-turned-economist, Alban Phillips, who had worked on a long run of data, produced one of the great symbols of the decade, the Phillips Curve. Wage rises and unemployment were related, with only one variable, import costs (as in the Korean War). In England, welfare benefits stopped wages from falling too low, and so demand for goods was kept up; government must surely maintain that demand to the point at which unemployment would never rise above 2.5 per cent. That way, there would be price stability, and men such as Alan Walters, wanting to make complicated calculations as to how much credit there was in the system were simply wasting time. The Phillips Curve dominated academic economics (or ‘discourse’). If anything went wrong, ran a further assumption, then price controls could be used — after all, they had been so used during the war, and operated, even by J. K. Galbraith. In ultra-prosperous Sweden, prices and wages were controlled by law. Why not elsewhere? So the economists, on the whole, assumed that they either had the answers or would have them.

There would in ordinary circumstances have been something of a problem with foreign exchange. If governments produced paper money in excess of other governments’ production of it, then the rate of exchange between the virtuous currency and the vicious one would clearly be affected. Why should Germans, their money prudently run by the Bundesbank, have to exchange their solid Mark at twelve to the dollar? The answer lay in the post-war system loosely (and not altogether accurately) known as Bretton Woods. The dollar was the anchor currency, taking most of the role of the British pound in its imperial days, and it had a fixed value in terms of gold: if foreigners wanted to exchange their dollars for gold, they were (in theory) free to do so, and the Americans, at Fort Knox, had laid up an enormous treasure of it. The fixed dollar had been associated not just with the fifties trade boom, but with the recovery of western Europe; the system therefore seemed sacrosanct, the more so as the American military undertook the burden of defence in western Europe.

With Kennedy, there was the first small step towards the weakening of this structure. He began the debauching of the dollar — what would have been called coin-clipping in earlier times, as rulers surreptitiously reduced the amount of silver in their coins (the milled edge around some modern ones is a survival from that era, showing that the coins had not been clipped). Quite outside the economists’ advice, there was temptation towards this course, because the dollar was in such a strong position that the USA could in effect just pay its foreign bills by printing pieces of paper. There was a minor recession in 1958-9 and the government’s finances were dented. A deficit appeared. Kennedy did not reduce spending, and reduced taxes that were still remarkably high, because of post-war responsibilities and the level of arms-spending. The pound sterling was by now being moved closely in concert with the dollar. They were the world’s trading currencies, and in the past the pound had been a true anchor. It could be exchanged, on demand, for gold, and the world’s prices had on the whole been stable while the gold standard was in force. Now, the pound followed the dollar, and in 1958 the Macmillan government also took an unorthodox financial course, of spending when there was no money to back it. Three Treasury ministers resigned in protest, and this was dismissed by Macmillan as ‘a little local difficulty’. It was, but it was a sign of great crises to come. By 1971 the post-war economic order, the very underpinning of fifties prosperity, was in disarray.

Even in 1960 the dollar was the victim of its own success. The real problem was to get the Americans to let the dollar be used as the world’s currency. That meant the printing of dollars for world (especially European) purposes. If any country bought more abroad — mainly of course in the USA — than it sold, its currency might become weak, and an International Monetary Fund came into existence, mainly with American contributions, to lend that country money to tide it over while it managed its affairs better, and sold more. The classic case of that was Germany, though the money came not from the International Monetary Fund but from other sources such as the Marshall Plan or the European Payments Union. There was also, from Bretton Woods, a World Bank (‘International Bank for Reconstruction and Development’) with, at the time, very limited resources. These institutions were meant to encourage world trade, made a brave start, encountered the Cold War and the troubles of western Europe, and stalled. Under the European Payments Union, a more limited system did emerge, and trade between the recovering (or booming) European countries was greatly promoted by it. If any country was in deficit on trade, its currency was supported by the country with the surplus. That way, the weaker country could go on buying. That system worked in the 1950s only in Europe. At the time, European currencies were still weak, and there was very limited credit; neither Frankfurt, the German financial capital, nor Paris had well-developed financial institutions such as a stock exchange, and in Germany most firms notoriously raised their own money from a bank or even from family savings. The system was closed to the dollar, as the European currencies could not be converted into dollars without enormous bureaucratic involvement. However, as trade grew, and as European prosperity rose, these restrictions came under pressure. In the first place, the Americans, using paper dollars, invested in Europe — in 1956 private dollars more than government ones. Conversion was therefore much easier for Europeans, especially Germans. But there were also easy ways round the restrictions: false invoicing, for instance, by which buyers and sellers agreed as to the recording of a figure for a purchase that was not true, the hidden balance then transferred, in dollars or Swiss francs, to some bank outside the system, in Switzerland for preference, though Luxemburg also made itself useful.

The Germans had been exporting successfully to the USA — their surplus on trade in 1958 amounted to $6bn — and had collected dollars. But dollars also went from the USA to Germany (and other European countries) because of the profits that investors could make there — greater than in the USA. There was a further problem. Some very large American firms established themselves overseas, partly to take advantage of cheaper labour costs, and partly to get over protectionist barriers. In France, especially, a desire to build up native industries meant that foreign goods were kept out. It was obvious, in that case, for the first of the great American electronic-computer firms, IBM or Xerox, to set up factories in France and elsewhere. These firms also represented a dollar outflow to Europe. The result was that in Europe there were large sums of money in dollars, the ‘eurodollar’.

In theory these dollars could be exchanged for gold, at $32 per ounce, and efforts were made to control the gold market somehow. If these dollars were at any stage sent back to the USA, with a demand for them to be exchanged into gold at the fixed rate, it might go beyond what the USA could stand. This eventually happened in summer 1971, and it was the end of the extraordinary quarter-century of prosperity that had followed the Marshall Plan of 1947. To stop this meant the Americans’ keeping their own government spending in reasonable bounds, and it also meant international co-operation: the European banks would have to buy up the spare dollars. A Belgian economist, Robert Triffin, who had migrated to Yale, had foreseen this problem — the Americans, required to send dollars abroad, would lose control of their own currency, and it could then slide in value. By 1960 eurodollars were already greater in value than the gold held in reserve at Fort Knox. With the British pound, which still accounted for half of the world’s trade, the problem was much greater, given the weakness of the British economy and the extent of British overseas commitments, with garrisons ‘east of Suez’ to keep some kind of control over the petrol reserves, or, for instance, to deter the Indonesians from invading Malaysian territory. As Europe recovered in the 1950s, these problems were under control, but by 1958 there was a deficit in the American balance of payments — $5bn — and $2bn went abroad in foreign investment.

American business was still enormously successful and the great firms — Ford, which was all over the place, but many others — were all doing well, setting up overseas. The eurodollar problem was still easily under control, and the problem would have gone away altogether if a dollar devaluation had been allowed, or some revaluation of the Mark, which was anyway very low. The German exporters themselves did not want such a revaluation, because they thought that, if their prices rose, they would lose customers; and in any case holders of eurodollars did not want their value to be reduced. Instead of a serious readjustment, various hand-to-mouth expedients were used. The International Monetary Fund’s resources were too low to be very useful — they were still, in 1958, at the same level as ten years before, despite the huge increase in trade. Instead, a group of trading industrial countries was set up, the G10, in 1960. This happened just when, for the first time, people sold their dollars for German Marks. Gold on the free market also rose above $32 per ounce. This did not worry Kennedy. In his first year, a decision was taken to increase spending, and to take on a deficit. It was the first point at which post-war financial management broke with old prudent ways. Not many people objected, at the time. As a leading expert, Barry Eichengreen, comments, it was all rather clumsily done, yesterday’s problems being solved by the creation of tomorrow’s. He adds, ‘the array of devices to which the Kennedy and Johnson administrations resorted became positively embarrassing. They acknowledged the severity of the dollar problem while displaying a willingness to address only the symptoms.’ Americans were not allowed to own gold coins; visas became easier to encourage tourism, the virtues of Disneyland advertised. Besides, the low official price of gold, and the difficulties set up about using it, discouraged output and so made the potential problem worse. In the USA inflation in the sixties ran to 30 per cent, the very problem that Keynes’s critics had identified.

What was at stake, in these very technical transactions, was the base of the enormous prosperity that the fifties had seen. Oil cost $1 per barrel — almost absurdly cheap, and fuelling a great automobile boom in the West, especially Germany and the USA (where cars became boat-like). Other raw materials were also very very cheap, partly because the market had been glutted, partly because, during the war, men had understood how to make more of them go round. Once the dollar fell in value, those raw materials would rise in price. Wise old heads did shake, but this was not a period when wise old heads counted for much. Keynes had sneered at them as the ‘orthodoxy’. In the 1960s the world financial system, which in a sense he had inspired, did work. The central bankers regularly met, at the Bank for International Settlements in Basle, and they knew the rules. The dollar and pound were the essential trading currencies for the world, and if their value became unclear, trade might suffer. Therefore, the central bank of a country with a strong currency, the Mark being the obvious one, would not sell a currency that others (‘speculators’) might already be selling: instead, the central banks would buy it and so keep up its value. They did not exchange dollars for gold, and in 1961 there were ‘swap arrangements’ for immediate support of the pound ($1bn, with another $3bn in 1964). The Germans refused to revalue the Mark, thinking that their trade might suffer, but they did forbid the payment of interest on foreign accounts and they (like the Swiss) co-operated to keep the dollar price of gold at or near the low official rate (the ‘Gold Pool’). Of course, the basis of it all was that the Americans were chief defenders of the West in NATO with the British as loyal seconds, and when the whole system became weak later on a German chancellor even spelled it out — in supporting the dollar the Germans were defending themselves. NATO developed its own military-financial complex, and the central banks were part of it. The ‘American Peace’ ruled and the world gave Kennedy a good welcome. The ‘New Frontier’ books became bestsellers, endlessly discussed, and the New York Review of Books made the timing. But do these books now survive, except as remembered titles?

There was trouble ahead. The new team in Washington was self-consciously Rooseveltian, as they understood it, and that meant action against poverty at home, and an assertion of American power abroad. Curing poverty and removing the dreadful blot on the USA that the Black problem amounted to caused much enthusiasm, and at home there was an impetus for change. Spending on education rose, partly to counter the supposed advantage that the Soviet Union had acquired in natural science, as displayed with Sputnik. Kennedy preached 5 per cent growth in 1960: it was the federal government’s responsibility to abolish poverty, and Kennedy duly put up government spending, though not by very much. Less noticed at the time, he also lowered taxes, which had been at very high, wartime levels, and something of a boom followed. However, the New Frontier ran into difficult country. Kennedy also had to deal with foreign problems and one of these now developed. It was in fact a combination of problems — the whole nuclear structure on the one side, and the question of the West’s relations with what was turning into something of a nightmare, the ‘Third World’. Kennedy’s team were impressed by the sheer success of the Marshall Plan, as they understood it, and a Marshall Plan, applied worldwide, could, in their view, sort out the whole problem of underdevelopment (as it was then known).