Harry Dexter White (left) and John Maynard Keynes (right) led the US and UK delegations at Bretton Woods
Did we waste the last financial crisis? Could we have seized the opportunity to launch a global overhaul of economic policy? Near the end of the Second World War, a group of economists and politicians saw the great financial catastrophe of their age as just such an opportunity.
The Bretton Woods summit, held 70 years ago on 1st-22nd July 1944, saw these policy makers hammer out an international monetary system which would dominate global financial governance for nearly three decades. The system was defined by its tying of currencies around the world to the US dollar, and its introduction of the International Monetary Fund (IMF), which had the ability to bridge imbalances of payments between countries. The system also saw the introduction of the World Bank.
I spoke to Ed Conway, the Economics Editor of Sky News and author of "The Summit", a new history of the conference published by Little, Brown. Conway talks about the larger than life characters who drove the conference, the lessons we can take from it today, and the regret felt by many in the financial community that we could have used the last crisis better.
You say in the book that the delegates at Bretton Woods were aware of participating in “history in the making.” Do you think they had a more profound sense of the importance of what they were doing than policy makers now?
The stakes were obviously high. If you look at some of the accounts of the summit they say repeatedly: “if we don’t do this, there will be a World War Three.” I think there was a palpable sense of mortality and danger.
But these were economists rather than politicians. They were out to look at things from a technical perspective. What is so interesting about that moment is that you had these people who were legends in their field, thinking in an innovative fashion about the structure of the international monetary system. I think you can only do that in a war… there was scorched earth. They were starting from almost nothing. For me, having covered this and the eurozone and financial crises, the latter two felt shallow compared to Bretton Woods.
Was the financial crisis of 2007-8 the low point of the post-Bretton Woods world?
Many factors that contributed to the financial crisis in 2007/8 started to develop after the breakdown of the Bretton Woods system. Imbalances between different economies, inequality of wealth, the size of banks’ balance sheets in the UK and the US, started to increase around the early 1970s, climaxing in 2008 and the crisis.
The International Monetary Fund’s Chief Economist, Olivier Blanchard, told me that they are now more sympathetic to the idea of widespread capital controls. Ironically, John Maynard Keynes, leader of the British delegation, expressed a similar view in his speech in 1944, just before going out to Bretton Woods.
Why wasn’t there a global response to the last crisis? Why wasn’t there a Bretton Woods?
I don't think this economic crisis was as severe as that of the 1930s. There wasn’t the same degree of collapse in the banking system—central banks acted quickly to reduce the damage with quantitative easing and bailouts.
Some of the policy makers, such as central bankers and finance ministers, often say wistfully “I'm glad we sorted it out, but on the flip side we didn't really resolve it.” It’s a question of “did we waste the crisis?” And I think that a lot of people, if you talk to them frankly, would admit that.
What lesson can we take from Bretton Woods for global financial governance today?
One of the problems we’ve had during this crisis is that various different central banks ran short of dollars, and so what we call “swap arrangements” were agreed between different central banks, which allowed them to purchase dollars on the foreign exchange market if there was a shortage. That is precisely the kind of thing that a financial body such as the IMF should be organising, but instead those agreements were reached between individual central banks. That suggests a move back towards cosy bilateral agreements, as opposed to slightly tougher but fairer international ones.
At the centre of your book are these two huge characters: the economist and the 1930s US Treasury official Harry Dexter White, head of the American delegation, and John Maynard Keynes, leader of the British delegation. Which do you think was the hero of Bretton Woods?
They were the complete inverse of each other. Keynes was tall and privileged—a child prodigy who hung around with the Bloomsbury set. White was short and self-made, from the wrong side of the tracks in Boston, and was Jewish at a time when there was low-level anti-Semitism in the US. [In 1939, a Roper poll found that 53 per cent of Americans asked thought that Jews were different from other people, and that this should lead to restrictions in their work and social lives.]
Keynes was a genuine celebrity in a way that no economist has been before or probably will be again. Not even Thomas Piketty. In terms of the charisma and the public face of the summit, Keynes was the hero. But in reality, this was Harry Dexter White’s plan. Given that he’s such a fascinating character, that makes this subject doubly interesting.
Why do you find him fascinating, and why was this his plan?
White had to fight his way to the top. He fought in the First World War, while Keynes was a conscientious objector. He didn’t go to university until his 30s and wasn’t established as an economist until his 40s. Here was someone who rose quickly at a late point in his life through being aggressive with lots of people.
Trying to define his motives was tricky. What we do know is White was, at stages throughout his time at the Treasury, passing information to Soviet intelligence agents. Some people have tried to claim that he was an absolute communist, but I’m less convinced. I think that part of what motivated him was trying to carry out his own private diplomacy with the Russians. [Harry Dexter White has posthumously been identified as a Soviet source, given the codenames “jurist” and “lawyer” by the Soviets.]
Most of the British suggestions were dismissed and America got its way. [The plan] wasn’t totally against what Keynes would have wanted, but in reality this was Harry Dexter White’s plan. I think part of the intention of the Americans was to create something that had structure but also didn’t have rigidity. Keynes got very frustrated with this during the negotiations. He said: “why are you writing it in this legal jargon—it’s like Cherokee.” But the Americans would keep it in… and I think part of the reason for that it implied a kind of intentional vagueness [which allowed policymakers to adapt the system to different situations after the negotiations were over].
At Bretton Woods, you had Britain and America as the two key powers. Which powers would lead a global financial discussion today?
America and China. America will continue to be the dominant force for a very long time, but China would have to be involved. Back in the 1940s… the UK was a big current account deficit nation, the US was a big current account surplus nation. It was the upcoming nation. Now, it’s America which is the defecit nation, and China which is on the rise.
The problem is, talk to anyone who’s actually at meetings of the G20 or the IMF, and they say that although China talks a good game... they try and prevent discussions of any sort. They own about a third of American debt, so if there is any change in the way that debt or the dollar is managed then they could stand to lose as well.
Any changes made would need to be titanic, because the world has got used to a situation where there is free movement of capital between countries. I think the main resistance would come from the financial sector, as it did in the 1940s. But at that point the banks were ignored because Roosevelt didn’t want anything to do with them. This time around we seem to be a lot more sympathetic to their views.
The Summit by Ed Conway is published by Little, Brown and is available in hardback for £25.00
