The Battle of Bretton Woods
John Maynard Keynes, Harry Dexter White, and the Making of a New World Order
(Princeton University Press)
IN JULY 1944, as Allied troops pressed into Normandy, 700 delegates from 44 countries met in a sprawling resort hotel called Bretton Woods in the White Mountains of New Hampshire, their purpose being to agree upon the international monetary arrangements and supporting institutions necessary to ensure stability between the world’s economies after the war.
Of the 44 nations present, two in particular did the lion’s share of the negotiating, namely the United States and Britain. According to Harry Dexter White, an economist who was first assistant to Secretary Morgenthau at the US Treasury, this would be no less than a ‘New Deal for a new world’.
Benn Steil devotes only a couple of chapters to the conference itself; the bulk of his book is concerned with what came before and after. Indeed, Bretton Woods was the natural consequence of the bargaining over Lend-Lease and the British loan during the Second World War. In all these negotiations, Britain’s John Maynard Keynes, ‘the first ever celebrity economist’, was outmanoeuvred by White, who despite his Anglo-Saxon name was a Lithuanian Jew originally called Weiss.
Britain faced a ‘financial Dunkirk’, to use Keynes’s phrase, in the first part of the Second World War. Without a vast credit facility it could not pay for the imports it needed for survival. The quid pro quo, though couched in vague language, was that it should give up its preferential terms of trade with the countries of the British Empire. Keynes argued doggedly against this, but he was ultimately in no position to resist.
Or was he? At one point a consortium of New York bankers proposed to lend Britain the money if it would repudiate the proposed monetary arrangements that were finally adopted at Bretton Woods, since the bankers — White referred to them as ‘buzzards’ — thought these new arrangements would be bad for their business. It is a pity the author does not tell us more about this intriguing episode.
Both leading negotiators were formidable characters. White was combative and rude, a Harvard PhD from a working-class background, who was likened by Keynes to a grand rabbi. Keynes had the intellectual gifts needed to be a master diplomat, and yet he was profoundly undiplomatic. He might have been more successful, Steil suggests, if he had ‘been more concerned with converting opponents than with cornering them logically and humiliating them’.
White’s major goal was straightforward enough: he wanted the dollar to supplant sterling as the world’s leading reserve currency and sneakily slipped into the final agreement the designation of the US dollar as the only ‘gold-convertible currency’. Yet he wanted more than that. The greatest area of tension between Britain and America over the international stabilisation fund (later the IMF) and the World Bank ‘came not over the content of their character, but the siting of their buildings’. Washington won.
But White had another agenda. He was also an agent of influence for the Soviet Union, which is not to say that he was a traitor. He thought the Russians were hard done by and he sought to redress the balance by influencing US Treasury and State Department policy in favour of the Soviet Union, though without undermining US interests. In 1948 White’s association with other Soviet agents of influence was probed by the House Un-American Activities Committee, but he died of a heart attack two days after he gave evidence.
It later transpired that the Soviet Union had helped to fund the education of White’s daughter. There is no evidence of the Russians seeking to influence the thinking behind Bretton Woods, but Steil observes that their influence might have increased had White become the head of the IMF, which was briefly a possibility.
For all the talking and planning that went into it, the Bretton Woods system was short-lived. It took years to get going and was abandoned in 1971 when the Nixon administration decided that the dollar no longer needed the backing of gold to guarantee its value:
‘The dollar was in essence the last ship moored to gold, with all the rest of the world’s currencies on board, and the United States was cutting the anchor and sailing off for good.’ Neither White nor Keynes had thought this possible. What is still with us today from Bretton Woods is the institutional architecture of the IMF, the World Bank and the World Trade Organisation.
Steil’s book may not have the same dramatic tension and narrative colouring, nor the same resonance, as Liaquat Ahamed’s Lords of Finance, but it nonetheless shows how normally abstruse economic and diplomatic history can be made palatable and even alluring to the general reader.