On July 1, 1944, less than a month after Allied forces stormed the beaches of
Normandy, 730 delegates from forty-four nations gathered at the Mount Washington
Hotel in Carroll, New Hampshirean area more commonly known as Bretton
Woods. With the White Mountains serving as a backdrop, the participants spent three
weeks designing multilateral institutions to facilitate international economic cooperation
after the war. To paraphrase Vassar economist and American delegate Mabel
Newcomer, there was little time for hiking. Two of these institutions, the International
Monetary Fund and the International Bank for Reconstruction and Development
(the first of two institutions that compose the World Bank), continue to play
significant roles in the global economy nearly seventy years later.
In his new book The Battle of Bretton Woods, Benn Steil provides a wellresearched
and interesting account of the historic monetary conference. Steil is currently
a senior fellow and director of international economics at the Council
on Foreign Relations. He draws heavily on archival evidence and clearly explains the
motivations underlying the complex interactions leading up to, during, and immediately
following the Bretton Woods meeting. His efforts make for an enjoyable read.
At its core, Steils book is a story of two men battling in the midst of a power transfer
from Britain to the United States. An aging but nonetheless quick-witted JohnMaynard
Keynes attended the conference as a British delegate. He was easily the most famous
participant, a celebrity economist with ballerina wife in tow. Indeed, the U.S. Treasury
feared he might steal the show. [T]hey could not let theman near the podiumon opening
day (p. 202).And although Keynes was an important figure at the conference, Steil writes
that he was ultimately shunted off to head a commission dealing with the bank, widespread
agreement over which hadmade it a mere peripheral concern (p. 197).
Keynes comes across as more of a pundit than an economist in Steils book,
an advocate of anti-Bolshevist Middle Wayism (p. 76). Though he was a deep
skeptic on the benefits of trying to engineer social change, Steil writes, he had almost
unbounded faith in the ability of experts to engineer the proper fixes for whatever
economic ailments might afflict the nation at any point in time (pp. 7879). Many
members of Congress viewed him as nothing more than a slick-tongued, aristocratic
bamboozler (p. 202). And they were arguably justified in doing so: Keynes was
firmly entrenched within the British political establishment (p. 96). He would do
everything in his power to ease the plight of the fading empire.
Unfortunately for Britain, Keynes did not have much power. War debts had left
the British delegation in a poor bargaining position. And Keyness condescending
tone only made matters worse. His idea for an international reserve asset, known as
bancor,was scrapped well before the July meeting. He could not get the bank or
the fund located in Londonor, once it was clear both would be based in the United
States, in New York. After the war, he failed to secure an interest-free loan for Britain.
Indeed, his negotiating was so poor in this instance that on December 6, 1945,
Britain settled for a worse deal than had been offered two months earlier. Yet, with
every defeat, Keynes managed to spin a more favorable account of events. As such,
Steil concludes, Keynes was at least as concerned with maintaining his standing
in the process as he was with molding the actual terms (p. 187).
Opposite Keynes at BrettonWoods was Harry DexterWhite.White had joined the
U.S. Treasury on invitation of University of Chicago economist Jacob Viner in 1934 to
assist with a study on the U.S. monetary system. With a preternatural ability to explain
technical subjects clearly and carefully, and to relate economic principles to actual international
political circumstances, he quickly became an important advisor to then
treasury secretary Henry Morgenthau. His efforts to establish a foreign-policy role
for the Treasurycontesting jurisdictional boundaries with the State Departmentultimately led to an informal promotion from Morgenthau in December 1941 to
assistant secretary (a made-up title not to be confused with the formal position
Assistant Secretary of the Treasury) (p. 58). In this position, White would draft his
plan for the postwar international monetary system and solidify his place in history.
While working at the Treasury, White was secretly moonlighting as a Soviet spy.
He passed confidential information to Moscow through handlers, helped like-minded
analysts rise through the ranks at Treasury, and, according to some accounts, was used
to provoke the Japanese attack on Pearl Harbor. After the war, he arranged for the
Soviets to get duplicate plates for the Allied marks circulating in Germany. The
Soviets used these plates to print roughly 78 billion Allied marksmore than seven
times the amount put into circulation by the Western Allies. White would testify
before the House Un-American Activities Committee in August 1948, denying he
was anything more than an American in the Progressive tradition (p. 319).
Whether White was fully committed to the Communist cause or merely aimed
at strengthening U.S.Soviet relations is unclear. Like Keynes, he admired the economic
machine, but was looking for the dials government might fiddle with to make it run
better (p. 20). Did White believe this would require minor tinkering or full-scale planning
of important sectors of the economy? The sharp contrast between his public and
private writingsexplored in great detail by Steil, who unearths a hitherto overlooked
manuscript written byWhiteprecludes answering such questions definitively.
Informal though his promotion may have been, White was not one to let such an
opportunity go to waste. By March 1942, he had completed a draft of the so-called
White Plan, a blueprint for the postwar international monetary system. With
Morgenthau somewhat uninterested in the proposals technical aspects, White
became the principal architect of the conference. He hosted a preBretton Woods
drafting session with fifteen delegations in Atlantic City, where he learned which
aspects of his proposal were likely to encounter opposition at the Mount Washington
Hotel. Then, having appointed himself chairman of the commission dealing with the
International Monetary Fund and global currency regime at Bretton Woods, he was
able to shape the outcome in his favor. The result was a Bretton Woods agreement
that closely resembled the White Plan.
The Bretton Woods systemwhereby the exchange rates of member-country
currencies were fixed to the dollar, and foreign governments and central banks could
exchange dollars for gold at $35 per ouncewas designed to reduce trade barriers
and allow capital to flow freely between member countries. The pre-1914 gold
standard, Steil points out, had achieved both of these aims to an historically
unprecedented degree, without any complex, formal international agreement . . . . But
the gold standard had been made the bogeyman for all the errors of monetary policy
in the 1920s (p. 128). As such, a return to the classical gold standard was not
politically palatable. To be sure, the gold standard was dead and buried. Monetary
rules were out; autonomous national government discretion was in (p. 34).
Steil is perhaps at his best when articulating how the Bretton Woods system
differed from the classical gold standarda difference that would ultimately lead
to the failure of Bretton Woods. The classical gold standard provided an automatic
mechanism for regulating the price of credit and the cross-border flows of gold. . . . It
was the very fact that governments refrained from taking action to block foreigners
from redeeming paper currencies for gold that made the pre-1914 gold standard
so successful in promoting global economic integration. . . . Whites plan involved
no mechanism to ensure that the United States would operate a monetary policy
consistent with maintaining adequate gold stocks. In fact, the system virtually ensured
the opposite. . . . Whites scheme contained a built-in tendency for more and more
dollars to be forced into circulation around the globe. With proportionally less gold
to back those dollars, there would be a rising likelihood of foreign holders of dollars
panicking and demanding gold all at once (p. 132). As Steil explains, the lack of an
automatic mechanism ultimately brought the Bretton Woods system to an end with
Nixons decision to close the gold window in 1971.
Recent financial crises in the United States and Europe have renewed interest
in monetary reform. Yet many economists and most politicians balk at a truly automatic
mechanism for monetary policy. Like Keynes and White, modern reformers put
their faith in technocrats, who fiddle with the dials at their own discretion. Steils
excellent book should serve as a gentle reminder of which monetary systems have
worked well in the pastand which of them should not be repeated.