THE BATTLE OF BRETTON WOODS: JOHN MAYNARD KEYNES, HARRY DEXTER WHITE, AND THE MAKING OF A NEW WORLD ORDER
BY BENN STEIL
Princeton University Press
John Maynard Keynes's monetary strategy was awkward and utopian. Don't underestimate what it accomplished.
On July 22, 1944, as allied troops were racing across Normandy to liberate Paris, representatives of 44 nations meeting at the Mount Washington resort in Bretton Woods, New Hampshire, created a financial and monetary system for the postwar era. It had taken three weeks of exhausting diplomacy. At the dosing banquet, the assembled delegates rose and sang "For He's a Jolly Good Fellow." The fellow in question was John Maynard Keynes, leader of the British delegation and intellectual inspiration of the Bretton Woods design.
Lord Keynes, the world's most celebrated economist, was playing a tricky dual role. He had proposed a radical new monetary system to free the world from the deflationary pressures that had caused and prolonged the Great Depression. Bretton Woods, he hoped, would be the international anchor for the suite of domestic measures that came to be known as Keynesian--the use of public spending to cure depression and the regulation of financial markets to prevent downturns caused by failed private financial speculation.
Keynes was also hoping to restore Britain's prewar position as a leading industrial and financial power. His two roles overlapped, but far from perfectly. The Americans shared the British desire to restore world growth, but not to preserve Britain's empire or its protectionist system of preferential trade deals for nations that settled their accounts in pounds sterling.
Writing to a colleague after the conference ended, Keynes professed to be pleased. He wrote that in the new International Monetary Fund, "we have in truth got both in substance and in phrasing all that we could reasonably hope for." The new World Bank, Keynes declared, offered "grand possibilities.... The Americans are virtually pledging themselves to quite gigantic untied loans for reconstruction and development."
Yet in many respects, Bretton Woods was a rout for Keynes and the British. America today is often described as the sole surviving superpower, but in 1944 U.S. supremacy was towering. Germany and Japan were on the verge of ruin. Britain had gone massively into debt to prosecute the war, sacrificing more than a quarter of its national wealth. The Russians had lost tens of millions of soldiers and civilians. America was unscathed, its casualties were modest by comparison, it held most of the world's financial reserves, and its industrial plant was mightier than ever.
Though Keynes inspired Bretton Woods, the Americans won the day. As leverage, Keynes had only his own brilliance and a fast-fading appeal to Anglo-American wartime solidarity. In most matters, a rival design by Keynes's American counterpart, Harry Dexter White, prevailed. White, a left-wing New Dealer serving as No. 2 man at the Treasury, shared Keynes's basic views on money. But the White plan provided a far more modest fund and bank. Instead of the generous extension of wartime lend-lease aid that Keynes was promoting, the British had to settle for an American loan, to be repaid with interest.
The Bretton Woods system was hailed as a vast improvement over both the rigid gold standard of pre-1914 and the monetary anarchy of the interwar period. For a quarter-century, Bretton Woods undergirded a rare period of steady growth, full employment, and financial stability. But in many respects, the vaunted role of the World Bank, the International Monetary Fund, and the Bretton Woods rules specifying fixed exchange rates was a convenient mirage. The system's true anchor was the United States--the U.S. dollar as de facto global currency; the U.S. economy as the residual consumer market for other nations' exports; and U. …