Bretton Woods

800px-Image-Mount_Washington_Hotel

Hotel Washington, Bretton Woods, NH.
Image courtesy of Wikimedia Commons.

 

"We have had to perform at one and the same time the tasks appropriate to the economist, to the financier, to the politician, to the journalist, to the propagandist, to the lawyer, to the statesman-even, I think, to the prophet and to the soothsayer."  — John Maynard Keynes on the Bretton Woods Conference.

From July 1 through July 24 1944 The United Nations Monetary and Financial Conference convened at the Washington Hotel in Bretton Woods, New Hampshire.  Over 40 allied nations from World War II sent 730 delegates to write the constitution of the post-war monetary and financial order.  Its work to was endure until August 15, 1971.

James Buchan, author of Frozen Desire: Meaning of Money writes in The New Statesman about the Bretton Woods conference with a novelist’s eye for telling detail:

“It arose in the minds of two men of different temper and background but equal brilliance and arrogance: the British economist John Maynard Keynes and Harry Dexter White of the US Treasury. …

“The Victorian system for settling international transactions, known as the international gold standard, had come to grief in the Depression of the 1930s. A succession of countries, led by Britain, detached their currencies from gold rather than be forced by a fixed exchange-rate to cut demand and add further to unemployment. .... By the summer of 1941, when Keynes retired to his country house in Sussex to think about a successor to the international gold standard, Britain was in a desperate plight, in debt not just to the US but to the countries playing host to her armies, such as India and Egypt. Without currency controls, Britain was bankrupt. …

“In Washington, Dexter White, director of monetary research at the US Treasury, was also thinking about "future currency arrangements" but from a different viewpoint. From President Roosevelt down, the US could not care less about preserving the British empire. The US wanted currency convertibility and open markets for its exports as soon as possible. The compromise between the Keynes and White plans, which were published in 1943, became known as the Bretton Woods System.

Eventually, Keynes and White devised a system in which only the US dollar would exchange at a fixed rate into gold. …

The post-war world monetary and financial system as proposed, countered, and resolved, were, nicely summarized by Wikipedia:

John Maynard Keynes proposed the ICU as a way to regulate the balance of trade. His concern was that countries with a trade deficit would be unable to climb out of it, paying ever more interest to service their ever greater debt, and therefore stifling global growth. The ICU would effectively be a bank with its own currency (the "bancor"), exchangeable with national currencies at a fixed rate. …

Lionel Robbins reported that "it would be difficult to exaggerate the electrifying effect on thought throughout the whole relevant apparatus of government ... nothing so imaginative and so ambitious had ever been discussed". However, Harry Dexter White, representing America which was the world's biggest creditor said "We have been perfectly adamant on that point. We have taken the position of absolutely no."

Instead he proposed an International Stabilisation Fund (now the IMF), which would place the burden of maintaining the balance of trade on the deficit nations, and imposing no limit on the surplus that rich countries could accumulate. White also proposed creation of the IBRD (now part of the World Bank) which would provide capital for economic reconstruction after the war.

The monetary regime set up lucidly was described by monetary economist Murray Rothbard:

“The new international monetary order was conceived and then driven through by the United States at an international monetary conference at Bretton Woods, New Hampshire, in mid-1944, and ratified by the Congress in July, 1945. While the Bretton Woods system worked far better than the disaster of the 1930's, it worked only as another inflationary recrudescence of the gold-exchange standard of the 1920s and--like the 1920s--the system lived only on borrowed time.

“The new system was essentially the gold-exchange standard of the 1920s but with the dollar rudely displacing the British pound as one of the "key currencies." Now the dollar, valued at 1/35 of a gold ounce, was to be the only key currency.”

Next: The Post-War Era

Previous: World War II