Carbon Democracy: Political Power in the Age of Oil

In Chapter 5, Mitchell begins by tracing the building of international financial mechanisms. The desire to create these mechanisms came out of the difficulty posed by governing the movement of money, “an obstacle increasingly connected with the flow of oil” (109). Speculation by private banks is often blamed for the collapse of methods of maintaining the value of money in the interwar period. Speculation here refers to making high-risk financial transactions in expectation of significant gains or returns. This collapse is further used to explain the collapse of democracy in Europe in the 1920s and 1930s and ensuing world war (1939-1945).

During WWII, Britain and the US created the Bretton Woods Agreement. Mitchell notes that “the goal of the Bretton Woods reforms was to eliminate the power of the bankers to speculate” (110). The Bretton Woods agreement created fixed international currency exchange rates. The US dollar became anchored to gold. Participating countries in the agreement agreed that the US dollar would be “the only reserve currency convertible at a fixed rate to gold” (111). The value of other currencies was tied to the dollar. Mitchell notes that oil, priced in US dollars, sustained the value of the US dollar after its circulation outpaced new gold accumulation.