Bretton Woods, 1944: J. M. Keynes and the Reshaping of the Global Economy

Matthew Bishop in the New York Times:

Thesummitcover-318x494For 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 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. It would also be more orderly and sustainable than the endless beggar-thy-neighbor currency devaluations of the subsequent foreign-exchange market free-for-all. In agreeing to this, according to the fans of Bretton Woods, the Allied governments had learned 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.

More here.