3. The context for reform
In a series of articles on the dollar crisis published by The Times of London in September
1971, Nicholas Kaldor wrote:
The persistent large deficits in the United States balance of payments—given the universal role of
the dollar as the medium for settling inter-country debts—acted in the same way as
a corresponding annual addition to gold output . . . So long as countries preferred the benefits
of fast growth and increasing competitiveness to the cost of part-financing the United States
deficit (or what comes to the same thing, preferred selling more goods even if they received nothing more than bits of paper in return), and so long as a reasonable level of prosperity in the
United States (in terms of employment levels and increases in real income) could be made
consistent with the increasing uncompetitiveness of United States goods in relation to European
or Japanese goods, there was no reason why any major participant should wish to disturb these
arrangements . . .
. . . [But] as the products of American industry are increasingly displaced by others, both in
American and foreign markets, maintaining prosperity requires ever-rising budgetary and
balance of payments deficits, which makes it steadily less attractive as a method of economic
management.
If continued long enough it would involve transforming a nation of creative producers into
a community of rentiers increasingly living on others, seeking gratification in ever more useless
consumption, with all the debilitating effects of the bread and circuses of Imperial Rome . . .
(Kaldor, 1971 [1978, pp. 62–4])