Rules of Engagement

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INTERNATIONAL FINANCE AND CHATAM HOUSE

Massimo Beber and Brigitte Granville

Between the two world wars, an Atlantic elite of economists, financiers and policy-makers, working in study groups at the Royal Institute of International Affairs, anticipated many of the themes and institutional mechanisms which contributed to international financial stability from 1950 to 1973. In the special atmosphere of Chatham House, ideas were freely expressed, exchanged and developed. Later events, especially the design of a new international financial system at Bretton Woods in 1944, were influenced by some of those ideas. The spirit and goals of the study groups, reflected in the hitherto unexamined documentary records, also have important lessons for the current debate on the international monetary system.

IF ONE HISTORICAL FIGURE EPITOMISES THE increasing influence of economic analysis on public life, the emergence of the 'economist as saviour, it is John Maynard Keynes. As a young British Treasury official and Cambridge academic, in 1919 he made the economic dimension ofthe Paris peace negotiations the subject of heated public debate. Just over ten years later, he was to emerge as the scourge of gifted amateurism in policy-making, with his scathing and widely disseminated criticisms of the Governor of the Bank of England, Sir Montague Norman.

IDEAS, MONEY, POWER

Yet Keynes ultimately achieved more through his less visible contributions to a remarkable series of intellectual ventures. These brought together financiers, academics, officials involved in policy-making, and opinion formers in those critical years for international finance.

Chatham House was where they met. Throughout the 1930s and early 1940s, the Institute hosted a series of study groups on economic topics which reflected - and often anticipated - the major issues in international economic relations, from trade, to foreign investment, to international money.

Around the table with Keynes discussing the international gold problem, for instance, were, among others, Roy Harrod, Lionel Robbins, Dennis Robertson, Noel Hall, and Walter Layton. They were able to speak in a personal and unattributable capacity under the Chatham House Rule. The study groups required them to investigate facts thoroughly and explain options clearly, rather than to advocate a particular party line. Through free and constructive discussion, some of the main actors in the worlds of ideas, money, and power, were able to refine and develop their understanding of crucial aspects of the international economy.

The tide of world events was flowing too fast towards economic nationalism for those advances in knowledge to have any impact on the doomed World Economic Conference of 1933. But many of the ideas emerging from the discussions in St James's Square were to influence the Bretton Woods negotiations, contributing to the design of the post-war international financial system.

The study of finance ignores history at its peril. The third quarter of the twentieth century was a time of financial parochialism, when slow change in the operation of financial intermediaries and markets was heavily controlled by national governments. Since then finance has evolved rapidly, eroding existing frameworks and bypassing barriers between national jurisdictions.

Just as in the inter-war period, this process of rapid financial change has been punctuated by episodes of crisis and perceived malfunction, which provided a powerful stimulus for debate: as Le Monde remarked in November 1973: Pour la plupart l'economie internationale est un peu comme les dents. On y pense quand on a mal (International economics are like teeth: one only thinks about them when they hurt).

ACROSS TIME AND SPACE

Finance links firms, individuals and public bodies across time and space, by defining and managing debt and credit relationships between them. …