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The Summit and Forgotten Foundations of Bretton Woods

Author(s):Conway, Ed
Helleiner, Eric
Reviewer(s):Schuler, Kurt

Published by EH.Net (July 2014)

Ed Conway, The Summit: The Biggest Battle of the Second World War, Fought Behind Closed Doors. London: Little, Brown, 2014. xxvi + 454 pp. £25 (hardcover), ISBN: 978-1-4055-2930-3.

and

Eric Helleiner, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order. Ithaca, NY: Cornell University Press, 2014. xii + 304 pp. $40 (hardcover), ISBN: 978-0-8014-5275-8.

Reviewed for EH.Net by Kurt Schuler, Center for Financial Stability.

Two books have appeared just in time for the seventieth anniversary of the Bretton Woods conference. Edmund Conway’s The Summit is a popular account of the conference by a financial journalist, while Eric Helleiner’s Forgotten Foundations of Bretton Woods is a political scientist’s examination of a little explored angle of the conference: the role of what we now call emerging market countries.

Conway, economics editor of the British cable television channel Sky News, set out to write an overview incorporating material that has come to light since Armand van Dormael’s 1978 book Bretton Woods: Birth of a Monetary System. (Benn Steil’s The Battle of Bretton Woods [2013] is an interpretation of the conference according to a master theme rather than an overall account, as I will explain later.)[1] We now have additional reminiscences by delegates; declassified archival material such as the Venona files detailing Soviet espionage in the ranks of U.S. Treasury officials; and full transcripts of many committee meetings at the conference.

Conway writes in a lively style. (Example: “As far as [Keynes] was concerned, the [International Monetary] Fund should be regarded as a kind of economic health spa. There should be no stigma associated with going to it for help: all countries should be entitled — nay, encouraged — to do so at some point. For White, however, the Fund was Accident and Emergency — countries should only be wheeled in if close to complete economic collapse” p. 171.) In addition, he has done some original research that will ensure a niche for his book in the scholarly literature. For example, in the Russian archives he found a number of documents that illustrate Soviet perceptions of Bretton Woods. The Soviet Union was active and often obstreperous at the Bretton Woods conference. It signed the Bretton Woods agreements but later decided not to join the International Monetary Fund and the International Bank for Reconstruction and Development (World Bank), in part because it did not want to divulge the economic data required of IMF members.

Because the book is intended for readers who may know nothing of Bretton Woods, many of you reading this review can comfortably skip the early chapters, which provide background, and start with the British delegation’s ocean voyage to America. Conway vividly conveys the atmosphere both of the voyage and of the Atlantic City conference that preceded Bretton Woods and developed the drafts from which the Bretton Woods delegates worked.

At the heart of The Summit is of course the account of the Bretton Woods conference itself. (The title, by the way, is a triple reference to Bretton Woods as an important international gathering, a high point in economic diplomacy, and a location within sight of the highest peak in the northeastern United States.) Conway devotes a substantial chapter to each of the three weeks of the conference. He gives an overall idea of the course of negotiations and, again, of the atmosphere in which delegates worked, but omits minute details that are more appropriate to books aimed at narrower audiences.

The final chapters describe the later life of the Bretton Woods agreements, beginning with controversies on the way to their ratification in the United States and in Britain. In the United States some experts got worked up about the agreements, but as Conway relates, the public was apathetic; with World War II still raging, the subject was too abstruse to arouse passion. In Britain, the country’s largest newspaper fiercely criticized the agreements, but the enormous parliamentary majority of the new Labour Party government meant that it could pass into law anything it wanted.

Throughout the book Conway focuses on the personality traits of the players. Economists and political scientists often write as if impersonal interests dominate and personalities make little difference; journalists, diplomats, and historians know better. As a case in point, the turnover of lower-level officials after Harry Truman succeeded Franklin Roosevelt as president quickly led to changes in actual or prospective policies, including abandonment of the Morgenthau Plan to reduce Germany to an economic backwater after the war and the idea of locating the IMF and World Bank in New York rather than Washington. Conway’s book will not be, and is not intended to be, the authoritative academic account of Bretton Woods, but it is a useful addition to previous accounts.

Eric Helleiner, a professor of political science at the University of Waterloo (Canada), calls into question the prominent line of thinking about Bretton Woods that it was an American, and to a lesser extent a British, production, with other countries having little impact. Benn Steil is in this vein, interpreting Bretton Woods as a nearly unvarnished exercise in power politics. Steil focuses on the animosity of many American officials toward Britain and the ways in which they tried to use Bretton Woods and the Lend-Lease negotiations to diminish British postwar influence. Steil shares the view Keynes privately expressed, which likened the delegates from most other countries at Bretton Woods, particularly those from the poorer countries — what  we would now call emerging markets — as denizens of a “monkey house,” raucous and useless.

Helleiner’s library and archival research incorporate sources previously absent from English-language scholarship on Bretton Woods. His writing lacks Conway’s journalistic panache but conveys clearly ideas that other social scientists would have clotted with needless jargon. Helleiner finds antecedents to Bretton Woods, incidents at the conference, and events afterwards to indicate greater importance for the emerging markets than has hitherto been acknowledged.

The opening chapters focus on American attitudes toward emerging markets, documenting how Franklin Roosevelt’s New Deal and his Good Neighbor policy towards Latin America changed the approach of the U.S. government toward international financial issues. U.S. officials became more sympathetic to the concerns of emerging market officials on matters of exchange rate choice, exchange controls, commodity price stabilization, industrial protectionism, and, to a lesser extent, debt default. The remaining chapters discuss Bretton Woods as viewed from the perspective of Latin American, Asian, and Eastern European governments, with a sidebar on how British official attitudes about economic development did or did not fit into the picture.

Helleiner’s implicit claim is that by the time of Bretton Woods, the ideology of the Roosevelt administration, and the experience of the 1930s, made the U.S. government more comfortable with “developmentalist” ideas (my term, not Helleiner’s) than at any time before and possibly since. Helleiner discusses the abortive Inter-American Bank as a dry run for the IMF and especially the World Bank. It was to have been a government-owned multilateral financial institution, with weighted voting, lending both to ease short-term balance of payments problems and to promote long-term economic development. The United States was to have provided the largest share of funds for it, but the U.S. Congress failed to approve the charter, so the project died. An echo of it exists in the Inter-American Development Bank, established in 1959.

Two other important examples of changing U.S. official attitudes toward Latin America were the U.S. government advisory monetary missions to Cuba in 1941-42 and Paraguay in 1943-44. They were much friendlier to developmentalist ideas than the semiofficial U.S. monetary doctor Edwin Kemmerer had been when he had advised many Latin American and other countries in the 1920s. Latin American governments responded favorably to what they saw as greater recognition by the United States of their sovereign dignity. The motives of the United States were not purely disinterested: it wanted to keep Latin America out of the Nazi orbit. U.S. officials were solicitous about involving their Latin American counterparts in their international plans from an early stage, choosing the January 1942 Rio de Janeiro Conference to announce their interest in planning for the postwar financial order.

In return, Latin American governments were generally supportive of the U.S. plans, though they proposed and received some changes to support their interests. At Bretton Woods, they and the other emerging markets secured agreement that the World Bank would focus equally on reconstruction and development, as opposed to its original stronger focus on reconstruction. With regard to the International Monetary Fund agreement, Latin American countries got a provision expected to benefit commodity exporters, instructing the Fund to take into consideration exceptional requirements of borrowing countries. The IMF agreement also was tolerant of the multiple exchange rates that existed in a number of Latin American countries at the time.

(Here I must mention a misconception that pops up in discussions of Latin American countries at Bretton Woods. They were the largest regional bloc, but their influence was less than their numbers. The conference proceeded mostly by consensus, avoiding formal votes on contested issues where possible, because a contested agreement rammed through by majority vote would have jeopardized the support of the United States, the major source of funds. The United States, in turn, could not simply dictate terms because the IMF and World Bank would have lacked legitimacy had they been viewed as little more than fronts for U.S. policies.)

East Asia was represented at Bretton Woods only by China and by the Philippines, the latter still an American colony but scheduled to become independent soon. Helleiner calls attention to Sun Yat-Sen’s book International Development of China, a pioneering effort in what later came to be called development economics. It had a strong influence on subsequent Chinese thinking about economic development and some influence abroad. Before Bretton Woods, China submitted its own plan for the IMF, alongside the British, American, Canadian, and French plans. It has been neglected by most historical accounts, including the IMF’s official history.[2] At Bretton Woods, China got a clause inserted into the World Bank agreement allowing that in special circumstances, the Bank could make loans not tied to specific projects, hence promoting overall development goals.

India’s delegation at Bretton Woods, a mixture of Britons and Indians, effectively represented India’s particular interests even though India was still a British colony. The overall attitude of British officials toward developmentalist ideas was lukewarm, a result in part of Britain’s fragile war finances and the knowledge that resources Britain could command through its empire would be greatly reduced if the colonies were to have more local control of their economic policies. Keynes was more developmentalist than the British consensus. He had, for instance, suggested as early as 1913 that India should have a state-owned central bank with a development focus, and he was critical of the idea, eventually adopted, to establish a currency board in Burma after it separated monetarily from India following World War II.[3]

Delegates from Eastern Europe were, naturally, keenly interested in the IBRD’s reconstruction role, but the Polish delegation appreciated the case for development lending given that Eastern Europe other than Czechoslovakia could be seen as a backward region.

In the final chapter, Helleiner traces the subsequent fate of developmentalist ideas at the IMF and IBRD. The Cold War had the effect that what came to be called the Third World was, as its name implied, low in international status. Today, though, with the Cold War past and emerging markets accounting for roughly half of world output, “echoes of the Bretton Woods development discussions have begun to be heard once again” (p. 276).

Notes:
1. Van Dormael is a retired businessman turned amateur historian, Conway is a journalist, Steil is an economist, and Eric Helleiner is a political scientist. Professional historians are notable by their absence from deep study of Bretton Woods, although Eric Rauchway, a professor at the University of California-Davis, has a forthcoming account.

2. J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, 3 volumes (Washington, D.C.: International Monetary Fund, 1969).

3. The countries whose monetary reforms Helleiner discusses — Paraguay, Cuba, Burma, Ethiopia — have not been known for long-term monetary stability under the central banks that all eventually established. Might they in fact have been better off with more rigid monetary authorities?

Kurt Schuler, an economist, is Senior Fellow in Financial History at the Center for Financial Stability in New York. He is the editor, with Andrew Rosenberg, of The Bretton Woods Transcripts (2012).

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII