Category Archives: bretton woodsiana

July 19, 2012, 8:30 pm

Some notes on Keynes’s 1919 “grand scheme for the rehabilitation of Europe”.

I mentioned in my previous post that Keynes, in April 1919, put forward a plan for the financial rehabilitation of Europe. Here is how it was supposed to work:

Germany would issue bonds, at a present value of £1 billion. (That’s a US billion.) They would pay 4% p.a. and have a 1% sinking fund to retire the debt beginning in 1925.

Most of the money raised from the bond issue would go to the Allies for reparations – something like seventy percent. Much of the remainder would stay in the hands of the German government, dedicated to a special fund for reconstruction.

Why would anyone buy the bonds? The securities had several safeguards. First, they would have priority over all other German obligations. Second, other enemy nations would guarantee them jointly and severally. Third, in the event of a default, the League of Nations would impose a penalty, or forfeiture, of “a…

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July 17, 2012, 12:39 am

There ought to be an opera about Keynes at Versailles.

John Maynard Keynes had such a long and influential career that it seems incredible it should have started with such a dismal failure – his effort to prevail upon the peacemakers at Paris in 1919. But it is a remarkable story, even a tragedy; Keynes at Versailles would make a superb play, or even opera (I’m thinking along the lines of Einstein on the Beach or Nixon in China.)

Keynes was only thirty-six when he went with the British delegation to Paris as the chief representative of the Treasury. Before arriving he had prepared memoranda on the question of extracting reparations from the Germans. In his first, of 10/31/18, he developed two estimates for an indemnity payment – one “with crushing Germany” and one “without crushing Germany.” He recommended the lower one – the one “without crushing Germany” – not because he had any particular sympathy for the conquered enemy but because,…

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May 10, 2012, 8:38 pm

Growth is better than austerity: on the origins of Bretton Woods.

Paul Krugman often offers his head, talking: I’m going Krugman one better – here‘s my whole person, talking, about the origins of Bretton Woods, at Dartmouth – mere miles from Bretton Woods – last week. I’m terrified of watching it, so I’ve no idea whether it includes the Q&A or not.

April 5, 2012, 5:30 pm

Harry Dexter White’s 1934 recommendations and the origins of Bretton Woods.

On taking office in March 1933, Franklin D. Roosevelt took the dollar off the gold standard. At his first press conference he was cagey about his actions, noting that the US still qualified as a gold standard country in some respects, though noting implicitly that it did not in others, and he stated further, “In other words, what you are coming to now really is a managed currency, the adequateness of which will depend on the conditions of the moment. It may expand one week and it may contract another week. That part is all off the record.” Asked if this were temporary or permanent, he replied, “It ought to be part of the permanent system [-] that is off the record – it ought to be part of the permanent system, so we don’t run into this thing again …”

Within a month or so these off-the-record comments became common understanding: the US gold standard was over. Americans had to turn in…

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March 16, 2012, 3:32 pm

(Poetic) justice for DSK.

Gerard Depardieu will play Dominique Strauss-Kahn because

He is very French: arrogant, smug. He’s playable. I will do it, because I don’t like him.

I think there’s a terrific Gallic vindictiveness in that last line.

March 6, 2012, 12:04 pm

On the origin of Bretton Woods before the gold avalanche or the war.

The general line on the Bretton Woods system is that it originated as a result of the American desire to protect the massive gold holdings the US accumulated during the 1930s, or that it was supposed to prevent the competitive devaluations of the 1930s, or that it was the product of the war.1

Still, it looks like the basic idea actually emerged from the US going off gold in 1933 and an attempt to figure out what it should do next. In 1934, Harry Dexter White noted you could derive benefits from a fixed exchange rate (easier trade) and from a flexible exchange rate (without having to worry about the exchange rate, you’d be free to use monetary policy to fight off a downturn).

But, White said,

There remains a further possibility in monetary standards. The independence of action with regard to domestic monetary policy may be combined with the maintenance of exchanges that do not…

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February 24, 2012, 7:11 am

Reading the Bretton Woods debates.

As one Telegraph blog says,

Students of economic history are in for a treat. An official studying deep in the bowels of the US Treasury library has recently uncovered a prize of truly startling proportions – an 800 page plus transcript of the Bretton Woods conference in July 1944, the meeting of nations which established the foundations of today’s international monetary system. … Those who have seen it say it is hard to point to any outright revelation about the talks, in which for Britain, the economist John Maynard Keynes was a leading player. But the level of intellectual debate is said to have been extraordinarily impressive, with exactly the same arguments as to voting rights and undue Western influence at the IMF and World Bank as exist today. The Indian delegation is said to have been particularly outspoken, despite the fact that India was still then a colony of the UK.

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February 9, 2012, 8:55 am

Bretton Woods: not the gold standard.

In a WSJ op-ed called “Forty Years of Paper Money,” Detlev Schlichter, a supporter of the gold standard, begins thus:

Forty years ago today, U.S. President Richard Nixon closed the gold window and ushered in, for the first time in human history, a global system of unconstrained paper money under full control of the state.

Now, with that title, that lede, and Schlichter’s very stern opinions about paper money, you’d think that the paper money era began right then, forty years ago. But as Schlichter himself says in his very next sentence,

It is not that prior to August 15, 1971, there was a gold standard. Far from it. Most countries had severed any direct link between their currencies and gold many years earlier.

Right. So the shift to a paper money system didn’t begin with Nixon. And the monetary thing that existed before Nixon’s intervention – the monetary thing that was not, per…

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December 11, 2011, 12:22 pm

Knowing your parents well is important.

Me: Hey, want to watch this DVD about World War II?

11 y.o. son: Maybe.

Me: What do you mean, “maybe”? It’s World War II!

11 y.o. son: Is it the shooting part? Or the talking-and-making-peace part?

November 3, 2011, 10:06 am

How a bill becomes a useful law.

Congressman Brent Spence of Kentucky on how to negotiate when approached with amendments to the Bretton Woods bill in 1945.

I wouldn’t agree to anything…. You see, if we accept something now it puts us just in the same position as if we hadn’t accepted it…. Every amendment we accept kind of weakens us. [W]e might say, ‘Well, we’ll accept them if that’s all the amendments.’ But if we are going to have to fight it out, we just as well fight it out on all of them.

Could someone explain this to the people in the White House, please?

(Emphasis added.)

October 31, 2011, 9:27 am

“We have the history of international finance after the last war, handled by the ‘right people’ with the ‘right safeguards.’ What did we get?”

As a recent post on Metafilter points out, the well-known children’s author and sometime New Yorker cartoonist Syd Hoff had a radical alter ego, a Mr. Redfield who drew cartoons for the Daily Worker. Philip Nel has written about Hoff’s radicalism here and here; apparently, despite being a real-live Stalinist through and through—i.e., ticked at those who bailed on the party after the Hitler-Stalin pact—and a high-profile children’s author, Hoff never got blacklisted.

And his cartoons collected in The Ruling Clawss have a certain topical bite as critiques of what we’re now to call the one percent.

I came across Hoff in my own research because he illustrated a pamphlet supporting Bretton Woods titled Bretton Woods is No Mystery published by Pamphlet Press in 1945. The pamphlet’s author, Joseph Gaer, was a UC Berkeley lecturer who wrote extensively about religion, labor, and…

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October 25, 2011, 9:35 am

“What if?” and “so what?”

Further on the counterfactual issue: we always advise doctoral students and indeed each other that historians should be able to give an elevator pitch for any new project, and that this pitch should always answer the “so what?” question—i.e., you’re writing about the history of the glass-bead game of the Pacific islanders in the 1940s; so what?

“So what?” is of course always a challenge requiring you to counterfactualize twice over: it demands you to say (a) “but for” this event or phenomenon, x important thing would not have occurred and also (b) at a meta or historiographical level, “but for” my research, we cannot understand y important thing.

Believe me, I always worry about these things myself. Writing as I am about Bretton Woods, I get people saying either “That’s great!” and beaming, as if at a slow-learning child who has managed to write his name, or else looking dumbfounded …

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September 6, 2010, 2:26 pm

Keynes's conference and Morgenthau's dream.

Both the American and British chief delegates to the Bretton Woods conference were tall bald men, but there the similarity between them came to an end, and even in respect of their height they stood differently. Henry Morgenthau, Jr., hung on his own frame like a picture crookedly strung on a hook, while John Maynard Keynes wore his stature as comfortably as his tailored suits. Although Keynes was the older man, his powerful new ideas made Morgenthau look ever more like a relic. As Secretary of the Treasury since 1934, Morgenthau had helped engineer the New Deal. But as Keynesianism swept the policymaking landscape, Morgenthau became more old-fashioned, insisting that whatever Keynes might claim about deficit spending, the government ought to try a balanced budget—though between the Depression and the Second World War Morgenthau never presided over one. A cruelly witty Cambridge…

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August 31, 2010, 9:14 am

War on terror floating exchange rates.

So as I read this, a Bretton-Woods–style system of stable exchange rates would be a potent weapon in the war on terror. You identify the countries harboring problematic insurgencies, set your adjustable peg high enough that insurrections can’t operate effectively, and watch the rebellion wither! Is there any problem FDR’s policies can’t help us solve?

Actually, rhetoric like this — pinning hopes for world peace to the Bretton Woods system of stable exchange rates, and thus freer trade and capital flows — was not at all uncommon. As one participant later recollected,

Peace was seen as linked with world prosperity, and prosperity, with free trade, free capital movements, and stable exchange rates.

He goes on to admit, “Although the causality was ambiguous….”1

1Raymond F. Mikesell, “The Bretton Wood Debates: A Memoir,” Essays in International Finance no. 192 (March 1994),…

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August 12, 2010, 3:13 pm

Dean Acheson: funnier than you'd think.

Which may not be a high bar to clear, but still. From Present at the Creation, p. 71.