Within weeks of D-Day, the story goes, diplomats and negotiators from 44 countries gathered to thrash out a new monetary framework for peacetime.
Led by enlightened officials from the U.S. Treasury and the great British economist John Maynard Keynes, they agreed on a new architecture that would contain, if not prevent altogether, the damaging “economic aggression” -- competitive devaluations and trade wars -- that had contributed to the breakdown of order in the 1930s.
The International Monetary Fund (IMF) and the World Bank emerged from the talks. Twenty-five years of relative stability and worldwide economic recovery followed, enshrining the memory of the occasion and its supposedly utopian spirit -- so much so that the need for “a new Bretton Woods” has been frequently invoked since the onset of the financial crisis in 2008.
Now Benn Steil, a senior fellow at the Council on Foreign Relations, has carefully dismantled this anodyne version of events. In his masterful account, “The Battle of Bretton Woods,” Steil situates the conference firmly in the tense, heightened atmosphere of the final months of World War II.
Though they might have been sincere in their hopes for a durable new monetary system, almost all the delegates were most immediately concerned with the desperate state of their wartime economies and with securing access to U.S. dollars for their reconstruction.
For no country was this truer than Britain, which faced the unraveling of its empire and its status as the world’s foremost trading nation. The bargaining position of the British delegation was almost entirely defined by the weight of its debts to its ally, the U.S.: $22 billion in Lend-Lease assistance and loans, which were not paid off until 2006.
The Roosevelt administration, meanwhile, knew that Bretton Woods was a singular opportunity to rewrite the rules of international trade and foreign exchange to the benefit of the U.S., and to install the dollar as the world’s reserve currency. As Treasury Secretary Henry Morgenthau declared to his team: “Now the advantage is ours here, and I personally think we should take it.”
The showdown between the two great allies -- one in decline, the other ascendant -- was embodied perfectly by their chief negotiators, “the antipodal characters” of John Maynard Keynes, Britain’s “silver-tongued” celebrity economist, and his counterpart, the dogged, bullying, nerve-ridden figure of Harry Dexter White, the U.S. Treasury economist later revealed as a Soviet spy.
For both men, Bretton Woods was a chance to imprint their economic vision on the world to come. Steil’s book comes alive in his description of their contrasting experiences at the conference.
Feted by reporters, accompanied by his Russian ballerina wife, Keynes gave wonderful, amusing speeches while quivering with rage at the concessions he was forced to make and the “Cherokee” legalese of the negotiating text.
White, on the other hand, stayed largely out of sight, substituting critical phrases into the agreement without consulting anybody at all.
Neither man lived long enough to see the outcome of Bretton Woods. Exhausted by his wartime exertions, Keynes died in April 1946. White, the victor of the conference, suffered a massive heart attack the following summer, three days after appearing before the House Un-American Activities Committee to deny his Communist connections.
(The full extent of White’s work for Soviet intelligence was not made public until 1995.)
The true “Bretton Woods era” did not last very long either. It was not until 1961 that the articles of the IMF were fully implemented and within a decade, President Richard Nixon had canceled the convertibility of dollars into gold, the keystone of White’s new monetary order.
As a result, the main aim of Bretton Woods -- to establish a fair system to balance the monetary needs of the world’s great debtor and creditor nations -- remains elusive. Seventy years later, however, the roles of the protagonists have changed. Now the U.S. is in debt to China, and any “new Bretton Woods” is likely to be as tense and confrontational as the last.
“The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White and the Making of a New World Order” is published by Princeton University Press in the U.S. and U.K. (449 pages, $29.95, £19.95). To buy this book in North America, click here.
(Sam Knight writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
To contact the writer on the story: Sam Knight in London at email@example.com.