Triangular World: Capitalist Crisis and Petrodollar Recycling in the 1970s

Matthew Soener, University of Illinois - Urbana/Champaign

There is a vast literature on the collapse of the postwar Bretton Woods system and the origins of neoliberalism in the 1970s. Most of this historical work focuses on the domestic front in the Global North. Often this research elides forces of class conflict as well as historical contexts like the Cold War, decolonialization, and geopolitics. This paper addresses these concerns by focusing on the oil shock of 1973-4 using archives from the OECD. Global North planners confronted not only an energy disruption. More importantly, I find, they were confronted with daunting political economic challenges: substantial global payments imbalances and an ambitious Third World solidarity movement. This crisis spurred an interest liberalizing financial flows to recycle “petrodollars” while pushing for export-led growth in the Global South. What emerged was a new macroeconomic model based on the promise of non-inflationary growth. By the second oil shock in 1979, planners learned that austerity could work in an increasingly “interdependent” world. Postwar orthodoxies were shed and this new political management model had long-run consequences. For one thing, the dollar was increasingly backed by oil markets. That restabilized American hegemony and created an international monetary order hampering decarbonization.

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 Presented in Session 27. Financial Stability and the Dollar