“DOWNTON ABBEY” has tapped our inner Anglophile on a wide front. But Americans were not so besotted with Britain in the first half of the 20th century, when it was a powerhouse of international trade. Until World War II, Britain ran international finance to its liking, and Americans were thirsting to chop it down to size. We need to understand that to grasp the importance of the Bretton Woods monetary conference.
Representatives of some 44 nations gathered in July 1944 at Bretton Woods, a resort spot in New Hampshire, to hammer out a world monetary system, replacing the gold standard that had failed so woefully. But only two nations mattered: Britain and the United States.
In “The Battle of Bretton Woods” (Princeton University Press, $29.95), Benn Steil, a senior fellow and director of international economics at the Council on Foreign Relations, describes that effort from its roots and projects its effect on today’s conflicts among the dollar, the euro and the Chinese renminbi. Although America’s global dominance has long since melted away, no substitute is yet strong enough to shove the dollar aside, in part because of Bretton Woods.
Britain entered the conference exhausted and broke, crippled by the war. It desperately needed flexible exchange rates to rekindle its vital exports to pay for the imports it required to live. It clung to a privileged access to trading with its empire, one-fourth of the Earth’s land and people.
America was unscathed at home and far stronger in 1945 than in 1941. Owner of the bulk of the world’s gold bullion, a stunning 20,000 metric tons, the United States wanted to emerge from World War II with fixed conversion rates assured by a dollar tied to gold. And it went without saying that it was bent on becoming the globe’s financial capital.
Representing America at Bretton Woods was Harry Dexter White, an economics professor who had joined the Treasury as an adviser in 1934. By dint of intellect and hard work, he became grudgingly accepted as its ranking expert on international finance. He labored as the brains buttressing the Treasury Secretary, Henry Morgenthau, who described himself as “just a farmer,” albeit a close gentleman-farmer friend of Franklin D. Roosevelt. Morgenthau presided at Bretton Woods but White ran the show.
Dr. Steil presents evidence that White was also an informant for the Soviet Union, a starry-eyed admirer of what he saw as its remarkable economic success. For years, Dr. Steil says, White provided documents to the Soviets and favored their side in policy debates. In 1948, White fended off the House Un-American Activities Committee, denying that he was a Communist. A more adverse light was shed on his activities when wartime codes were broken years after his death. Dr. Steil is more convinced of the espionage claims surrounding White than some historians who see his actions as more innocent. There is no sign that his interest in the Soviets affected his work at Bretton Woods.
Taking Britain’s part at the 1944 conference was the celebrated John Maynard Keynes, who knew full well that war had reduced Britain to a hapless debtor, obliged to accept whatever the United States offered. The book confirms that Keynes was an intellectual giant with flawless intuition for finance, but it also exposes his caustic criticisms of lesser men and his tin ear for workaday diplomacy. The Americans considered him too bright for his britches and bottled him up at every opportunity.
White had prepared so well that the actual conference was well-orchestrated, everything the Americans wanted. “Now the advantage is ours here, and I personally think we should take it,” Morgenthau said to White, who fully agreed. As White said, “If the advantage was theirs, they would take it.”
The Americans wanted free trade and open markets; they feared postwar inflation. Bretton Woods helped by providing for stable but convertible currencies, tied within limits to the dollar and ultimately to gold. It also created the International Monetary Fund, a money pool from which nations with trade deficits could borrow to satisfy international accounts. And it set up what became the World Bank, initially focused on rebuilding Europe, and later on the developing world. Britain lost out on looser exchange rates, and its imperial trade preferences were doomed.
On item after item, Keynes found a stone wall. What Dr. Steil calls his “most tangible legacy” from Bretton Woods was pathetic. Norway moved to abolish the Bank for International Settlements for cooperating with the Nazis, a motion that Keynes vehemently opposed. The delegates eventually agreed that the bank would be “liquidated at the earliest possible moment.” The bank is still in business today.
Keynes ended up having to play an impossible hand. In 1945, he was left to sell Parliament on accepting arrangements that he had exhausted himself resisting. Four months later, he was dead. History later vindicated his advocacy of flexible exchange rates. The Bretton Woods system, not fully in effect till 1961, died only a decade later when President Richard M. Nixon ended the gold standard. The United States was running such large international deficits, paying out so many dollars, that not even Fort Knox had enough gold.
“The Battle of Bretton Woods” should become the gold standard on its topic. The details are addictive. But be warned: the book is dense. Every skirmish, every exchange — and the book gets into hundreds of thems — was presumably meaningful to the participants. But while some episodes mattered much, many did not. The author is no Robert Caro, who in his multivolume biography of Lyndon B. Johnson delves into minute details but also explains their larger significance.
Perhaps that is what is missing here — an unmistakable voice, a sense that this rich history is told by one mind. Mr. Caro is known for working on his own, with the assistance of his wife. In his acknowledgments, Dr. Steil thanks 10 research assistants and an advisory panel of 18 luminaries. The book sometimes reads like a succession of brilliant but loosely connected graduate seminar papers — an assemblage, a very fine one, but an assemblage nevertheless.
