New orders
Robert Skide!sky
Bretton Woods: The Birth of a Monetary SYstem Armand Van Dormael (Macmillan £12)
This is the first account of the creation of the International Monetary Fund written from original sources — mainly the National Archives in Washington, and the Treasury Papers at the Public Records Office in London. Mr Van Dormael, a Belgian lawyer who, we are told, 'made a career in international commerce', has been content to tell the story clearly and sensibly as it emerges from these records. He does not try to assess the merits of the arguments, or consider how they related to the actual Problems which faced the world after the war. This is a defect of the book, but one Which has its compensating advantages. For 0ne realises yet again how little relevance the issues which passionately engage men at the time generally have to the subsequent course of events.
There are two reasons for this. The first is that the questions over which politicians fight most fiercely usually arise from their °wn transient political needs, rather than from any disinterested view of what needs to be done. 'Political' issues and 'real' issues thus often have no relationship to each Other. Secondly, it is impossible to predict the future. The immediate postwar problem turned out to be reconstruction, not stabilisation. Some foresaw this, most did not. Also within a few years, a dollar shortage Was replaced by a dollar glut. Thus the situation with which the IMF was designed to deal never occurred. Yet Keynes killed himself in the attempt to get the Fund established in a form acceptable to Britain. His penultimate heart attack was brought on by a squabble over directors' salaries. Keynes's first thoughts on the postwar economy bore a striking resemblance to Walther Funk's 'New Order', proclaimed On 25 July 1940, to which they were a response. Keynes wanted a European /Commonwealth trading and monetary unit which would discriminate against American goods as long as the Americans continued to accumulate gold. Only in this way could Britain avoid being tied to a deflationary system, as had hapPened in the 1920s. Article VII of the Lend-Lease Agreement, by which the USA insisted on non-discrimination in trade after the war (that is, the scrapping of the Ottawa
Preference system and the sterling area) put Paid to this plan. Keynes's Clearing Union Proposal was a response to the challenge of 'Mr Hull's lunatic proposals' as he called them. Non-discrimination would be possible only if the Americans provided Britain with sufficient dollars to buy essential imports; dollars which Britain could not earn in the highly protected American market. The plan for a world central bank providing debtors with automatic overdraft facilities out of the surpluses of creditors was designed to ensure this transfer of resources without political strings. The Americans, seeking to expand their markets after the war, independently drew up a similar scheme, but one much less favourable to Britain. This was Harry Dexter White's plan for an International Monetary Fund to supply a much smaller sum of short-term credits to deficit countries according to quotas based on their subscribed capital. In return, members of the Fund were to commit themselves to fixed exchange rates and an end to exchange controls on current transactions. It was the White Plan which triumphed at Bretton Woods in 1944. The major concession Keynes won , was the 'scarce currency clause' which permitted discrimination against a country whose currency was declared 'scarce' because it ran a persistent balance of payments surplus: a clause which proved entirely inoperative.
From the British point of view, the main question is whether Keynes conceded too much. There were many who said so at the time, notably the economist Hubert Henderson. There were two main criticisms. The first was that a 'balance in trade' should precede, and was the only secure guarantee of, a 'balance in money'. This required retention, for a long period, of the preferences and exchange controls which Britain had developed in the preceeding ten years. Secondly, it was argued that reconstruction must precede stabilisation. The danger was that Britain would find itself committed to convertibility and nondiscrimination before it had recovered a viable competitive position. And this in fact happened. The US reconstruction loan which Keynes negotiated in 1946 was tied to acceptance of Bretton Woods and early convertibility. The subsequent run on the pound in 1947 destroyed the first attempt to implement Bretton Woods almost as soon as it had started.
Why did Keynes ignore these wellfounded objections? Lord Balogh has argued that it was because of the new company he was keeping at the Treasury: James Meade and Lionel Robbins had replaced the teneficient influence' of Richard Kahn and Joan Robinson. There is something in this. Keynes saw in the coming Anglo-American victory a unique chance to establish an 'ideal system' which would reconcile internationalism with national well-being; and this to some extent blinded him to Britain's immediate problems. Also he genuinely underestimated the over whelming (though temporary) competitive power of the United States. But none of this seems central. Given the US commitment to the 'open door', its determination to keep the financial means of promoting it in its own hands, Britain's dependence on the United States for fighting the war, and the wartime promises of a better life, Keynes and the British government had no option but to fall in with the American plan. It was expecting too much to fight a war with American money to preserve an economic system which discriminated against American goods. Little though most people recognised it at the time, the fundamental decision to live in an American-controlled world had been taken much earlier — in 1939-40 when Britain went to war with Germany and rejected the possibility of a negotiated peace. All the rest is futile regrets, if regrets they are.
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