Butter and Guns: America's Cold War Economic Diplomacy.

There are several miracles which the devout associate with the years of the blessed Ronald Reagan and the saintly Margaret Thatcher. One is that they won the cold war--although one does not have to be an unalloyed admirer of Mikhail Gorbachev to suggest that they may so claim rather as the rooster may purport to be responsible for the rising of the sun. Another is that they somehow also defeated a soft but pernicious proto-communism at home in the form of a bureaucratized welfare state--even though the government's share of GDP in both Britain and the United States was the same when they left office as it had been when they entered upon it. But the most baffling effect of the Reagan-Thatcher years was their success in discrediting the ideology which was the organizing principle behind the West's most profound and ringing success.

Lurking not too deeply beneath the surface of Diane Kunz's economic history of the Cold War is a political conviction that is shared by most of us who have studied the period, and also by those who remember its early years most clearly. That is that from the grim lessons of the Great Depression, and from the happier ones in organizing total war in the 1940s, when a generation of American and British policy-makers concluded that capitalism was far too important to be left to the capitalists.

This had several implications which led the Western governments of the cold war period, from Washington to London, from Tokyo to Bonn, to develop a family of bodies politic that could all shelter more or less comfortably under the label of social democracies. National governments had a democratic mandate that gave them a right and even a duty to intervene in charting the strategic course for their economies; tO make the far-sighted investments that frightened off the capitalists; to tax the rich in order to invest in the poor; and to try to bring into sensible harness policies aimed simultaneously at both the national security and the national prosperity.

Diane Kunz has written an accomplished history of how the grand strategy of the Cold War, as an economic even more than a diplomatic and ideological tussle, was devised--and how brilliantly it worked. It was based on a belief in the mixed economy firmly held even by Republicans like Eisenhower. This mixed economy rested on high taxation, heavy government spending, generous pensions, and strong labor unions, all of which were cardinal features of that era when the United States bestrode the global economy like a colossus. This grand strategy created the modern world and the global economy we know today.

But the West (meaning the tripartite system of Japan, North America and western Europe) did not just grow. It had to be created, with Marshall Plan aid for the warravaged economies of Europe, and with special Pentagon funds to rebuild Japan's industrial base once the Korean War began. The very thought may send the current Congressional majority reeling like so many Victorian young ladies confronted with the sight of an undraped piano leg. But it is true, and they have to know sometime: America's cold war success depended on the readiness of even Republicans to spend large amounts of taxpayer money on foreign aid.

The money worked. The exhausted allies and defeated enemies of WWII recovered to be staunch friends, good customers, and formidable commercial competitors. Under free trading rules, promoted by the United States in its own interest, they all got richer, including the United States. Moreover, the success of the Marshall Plan produced an economic strength in depth, and reserves of democratic political support, which transformed the once socialist-inclined working classes of Europe into bastions of anti-communist sentiment.

The great strength of Diane Kunz's profound, thoughtful, and fundamentally useful book is that she stresses the grandeur of that post-war achievement, and then proceeds to show how it was tarnished, cheapened, and undermined--but never destroyed--by successive generations of politicians. She also shows the degree to which America's allies repaid those loans, accepted the re-organization of the global economic system to American advantage, and then swallowed the debasement of the American currency after 1971, which maintained the United States' economic primacy at foreign expense.

There are some minor errors when she strays into evidently unfamiliar territory like arms control, as well as some very important omissions--most notably early American policies in Japan.

But there are also moments of brilliance. Her chapter on the Nixon administration's dismantling of Bretton Woods is a minor masterpiece--quite the best succinct account available. And her familiarity with British sources considerably illuminates her account of the Sterling crises of the 1960s and their impact on the global economy.

A former merchant banker turned economic historian, Diane Kunz brings many assets to cold war scholarship, not the least of which is an insistence that international economics are neither too daunting nor too specialized for a lay audience. Happily, this also means that she writes without jargon. Sometimes, her taste for the democratic can stretch a trope too far. I think I have picked my way past the bestial metaphors to know what she means when she concludes: "By making the Bretton Woods regime an American poodle, the Soviet decision also allowed the United States to guide a unilateral wolf in multilateral sheep's clothing"

She means that by staying out of the post-war financial system devised at Bretton Woods, the Soviet Union foolishly allowed the United States to dominate what was supposed to be a multi-national structure. I wish she had said so. But there can be no mistaking the meaning in her conclusion, which modern politicians ought to be required to memorize before they start blathering about the glories of free markets and how governments are the problem. As Kunz summarizes:

The Cold War itself made

butter and guns possible

domestic economic

prosperity basked in the light

of post-World War II

government spending and the

economic support furnished

by our allies. The national

security state was not the

most efficient way of

injecting this continuing fiscal

boost but it was the only way

acceptable to the American

public....With the global

struggle concluded, Americans

confront issues they have

always dodged.

Joseph Stalin rescued Americans

fifty years ago. Can we rescue

ourselves now?

The short answer is, of course we can, once progressives and social democrats recover their nerve and expose the vainglorious political and economic nonsense of the Reagan-Thatcher cult for the historical tosh and heresy that it is. Diane Kunz has made a sound start on the necessary exorcism.

MARTIN WALKER is U.S. bureau chief of Britain's The Guardian, author of The Cold war: A History, and, most recently, of The President We Deserve: Bill Clinton's rise, falls and comebacks.