THE SUMMIT
Bretton Woods, 1944: J. M. Keynes and the Reshaping of the Global Economy
Ed Conway
Pegasus Books; 453 pages; $28.95
For many people, Bretton Woods stands for that rarest of moments: when governments and experts come together to restore order to a chaotic global economy. After the financial meltdown of 2008, the president of the World Bank and the financier George Soros joined Bill Clinton's and Tony Blair's earlier call for a "new Bretton Woods". It didn't happen. The world and especially America may yet come to regret that.
To its admirers, many good things were achieved at the Bretton Woods conference over three hectic weeks in the summer of 1944. As the Allies made their final push to liberate Europe, 730 representatives of 44 countries gathered in New Hampshire to set the rules for the postwar economy. Crowded into the half-restored grandeur of a hotel named after nearby Mount Washington, they agreed to create two new institutions to oversee the world economy, the International Monetary Fund (IMF) and World Bank, and to establish a managed system of exchange rates.
Anchored semi-rigidly to the dollar (which was pegged to the price of gold), this new system was intended to be fairer and more economically rational than the old gold standard, which had collapsed in 1933. In agreeing to this, according to the fans of Bretton Woods, the Allied governments had learnt important lessons after World War I, when the determination of the victors to punish the vanquished, rather than rebuild their devastated economies, only added to the pressures that resulted in World War II.
The Economic Consequences of the Peace, John Maynard Keynes's pamphlet pointing out the likely disastrous consequences of the victor-friendly policies adopted after World War I, had turned Keynes into the century's first celebrity economist. At Bretton Woods, he led the British delegation. He was the dominant intellectual force at the conference, though that did not stop him from losing many of the crucial political battles to his American counterpart, Harry Dexter White. A Jew from a rough part of Boston with a dislike for British elitism, White was later accused of spying for the Soviets, but only after he had won some notable victories over the Cambridge don.
The battle between Keynes and White provides much of the colour in The Summit, Ed Conway's entertaining and insightful history. "They were the odd couple of international economics," he writes. "The pair would shout at each other in meetings, bully each other in an attempt to get their way and, afterwards, abuse their rival to their friends."
Comprising Colombians and Chinese, Ethiopians and Russians, this was, Mr Conway writes, "quite possibly the most cosmopolitan gathering ever seen in that part of New England". It was a chaotic fusion of summer camp and labour camp (the British called their rooms the "salt mines"). The delegates worked hard and partied harder. Early on, Keynes said it was "probable that acute alcoholic poisoning would set in before the end". The leading Chinese delegate, H H "Daddy" Kung, made it his goal to throw the most extravagant party. Many delegations, the Soviets above all, brought along bevies of beautiful women, not, it seems, for the typing and translation for which they were ostensibly employed.
Keynes did not get much of what he wanted, largely because he was playing with a lousy hand. He who has the money calls the tune. Britain, on the verge of bankruptcy because of the cost of the war, was desperate to be bailed out by its wealthy creditor, America. (Were he alive today, perhaps Keynes would be negotiating for Greece to get a better deal from its euro-zone creditors.)
Was White waging this battle not as a representative of the United States but as an agent of Soviet intelligence? Mr Conway gives him as much benefit of the doubt as is possible given evidence that by 1997 was strong enough to convince Senator Daniel Patrick Moynihan. "Though his involvement with the Russians undoubtedly looks shady from certain angles," Mr Conway says equivocally, "the reality is that we shall never know for certain whether White knowingly betrayed his country." Well, maybe.
By the time of the inaugural meeting of the IMF in Savannah, Georgia, in March 1946, both White and Keynes were losing faith in what they had created. Suspicions of spying may have cost White the top job at the fund. Keynes felt that the ability of the new institutions to provide the money needed to revive the global economy had been wrongly constrained. (Indeed it took a later initiative financed with American money, the Marshall Plan, to get Europe back on its feet.)
There are many important lessons for today from all this, not least that having the smartest person in the room on your side is no guarantee of success. It highlights how the fall of an old superpower and the rise of a new one can impose huge strains on the global economy. Today, America is the old power that is having to learn what it is like to play a game in which others are catching up fast, and yet it continues to control the global reserve currency as if we were still in 1944. How serious China was in 2009 when it proposed the establishment of a new global reserve currency is unclear. Yet, one way or another, as China rises the power of the dollar will diminish and some more China-centric alternative will arise. Similarly, the recent grumbling from developing countries about America's dominance of the IMF and World Bank will only get louder.
© The New York Times News Service 2015
