The Magazine

Out of the Woods

The rise and fall of a monetary regime.

Aug 26, 2013, Vol. 18, No. 47 • By KEVIN R. KOSAR
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The Battle of Bretton Woods sets forth in smooth prose and concise detail an authoritative narrative of the who-what-when-why of the great monetary conference of some 70 years ago. It is jam-packed with heady discussions of balance of payments, exchange rates, supranational currency, monetary reform, and tariffs.

Harry Dexter White, John Maynard Keynes, 1946

Harry Dexter White, John Maynard Keynes, 1946

For this reader, Benn Steil’s extensively endnoted study holds another appeal: It shows how politics works and how policy gets made. The picture is a messy and not especially attractive one, and the outcome of this conference, at least, was anything but foretold. Circumstance, happenstance, power, personalities, and other factors were all part of the contentious political scrum that was the Bretton Woods Conference, and, as such, The Battle of Bretton Woods is a forceful rebuke to the blockheads who construe politics as a moralistic or conspiratorial enterprise. 

That the Bretton Woods Conference occurred is somewhat surprising. Its origins lie, in large part, with “the improbable rise” of Harry Dexter White. A squat, bald man with an often-abrasive manner, White came from petit bourgeois roots. He was born in Boston in 1892 to Lithuanian Jewish parents. As a young adult, he began college, and then took time off to work in his father’s hardware business. He joined the Army and eventually got his bachelor’s degree at age 30. 

White spent the next decade obtaining a doctorate and working as an itinerant economics professor, and he might well have remained an obscure academic but for a bit of luck. A fellow economist hooked White up to do some short-term contract work for the U.S. Treasury in 1934. White seized the opportunity and quickly made himself an indispensable aide to Treasury Secretary Henry Morgenthau. 

The timing was fortuitous. The gold-standard system was falling apart, and the United States and Western Europe were pursuing economically ruinous tariffs and currency devaluations to claw out of the Depression. The world economic system was a wreck. White’s dissertation subject and intellectual obsession was exchange rates: He had a vision for a new American-led international economic system, and he pursued it ruthlessly from his perch at the Treasury.

White’s machinations and a series of chance political events culminated in Bretton Woods, a meeting of 700-plus representatives from 44 nations at a shuttered resort in New Hampshire in July 1944. It was an acrimonious gathering: Nations quarreled, and White’s Treasury Department squabbled with Cordell Hull’s Department of State. Negotiations often ran around the clock. 

The fundamental bone of contention was philosophical and practical: What are different currencies worth relative to one another? White’s answer was that rates should be fixed by an international monetary system, with currency values tied to the dollar and backed by gold. This new economic order would be managed through international institutions led by Americans. White’s plan aimed to grow trade and foster economic development by stabilizing exchange rates and ending beggar-thy-neighbor economic policies. 

Not surprisingly, representatives from other countries had different ideas. The most formidable challenger was John Maynard Keynes, who had his own monetary plan. Of course, Keynes was everything White was not—well-bred, famous, and eloquent—and, as Britain’s man at Bretton Woods, he fought to shore up his war-shattered nation’s position. Keynes advocated an international monetary regime that would preserve the preeminent position of the sterling system and continue British imperial trade preferences.  

He held a losing hand, however: Britain was going broke battling the Germans and needed massive American aid. White and his American colleagues were brutal in negotiations, demanding free trade and the end to the closed British trading empire. Keynes cried out, “Why do you persecute us like this?” 

With pluck, steely nerves, and relentless effort, White jawboned and hard-bargained the world’s first international monetary agreement, which was signed on July 22, 1944, three weeks after the delegates had arrived at Bretton Woods. Bulldozed, an exhausted Keynes capitulated to American demands and then returned to London to sell the new economic order to his countrymen. Within a year, the agreement cleared Congress, thanks in part to White’s adroit testimony and the Treasury’s public relations campaign.

As a peculiar twist to the story, while Harry Dexter White was fighting to establish an American-dominated economic order, he was in cahoots with the Communists. Benn Steil provides indisputable evidence that White was one of “a surprising number of American government officials who would never have considered themselves disloyal to the United States, [yet] provided covert assistance to the Soviets.” White took gifts from the Communists and gave them sensitive information in return. To be sure, for all his brilliance, White was utterly delusional about the Soviet Union. He contended that, “contrary to popular opinion, the right of a person to worship as he please has never been abrogated in Russia.” And he saw the future just as well: “Russia is the first instance of a socialist economy in action. And it works!” White imagined that the Kremlin had no territorial ambitions and would be a good partner to America. 

White died in 1948; his Bretton Woods system staggered for a few decades, and then collapsed. Like many government regulatory regimes, it was outstripped by dynamic economic forces and self-interested behavior. Richard Nixon put the nail in the coffin in 1971, when he ceased allowing nations to trade their dollars for gold. Fixed exchange rates were no more. 

Aspects of White’s plan do remain alive, most conspicuously in the forms of the World Bank and the International Monetary Fund. So the question recurs: What are currencies worth today relative to one another? If we’re fortunate, Benn Steil will deliver a follow-up study that explains the workings of our surreal world of fiat money and floating exchange rates set by international markets. 

Kevin R. Kosar is the author, most recently, of Ronald Reagan and Education Policy