Orderly Change: International Monetary Relations since Bretton Woods

Published by EH.NET (September 2008)

David M. Andrews, editor, Orderly Change: International Monetary Relations since Bretton Woods. Ithaca, NY: Cornell University Press, 2008. xii + 245 pp. $50 (cloth), ISBN: 978-0-8014-7399-9.

Reviewed for EH.NET by Lawrence H. Officer, Department of Economics, University of Illinois at Chicago.

Orderly Change (a wonderful title!) is edited by David M. Andrews, Associate Professor of Politics and International Relations at Scripps College. There are nine contributors, including the editor, but a total of twelve chapters. Four of these chapters, plus an introduction, are authored by Andrews. Of the other contributors, three are in the United States, three in Canada, one in the United Kingdom, one in Spain. Looked at in terms of academic field, six contributors are faculty members in political science, government, or international relations, one is a professor of law, and one is in a department of economics and business. It should not be surprising that the volume has a heavily political-science orientation. Orderly Change will be of far greater interest to the historian with a political-economy bent than to the economic historian with a cliometric orientation.

Unlike many other collections of original essays, the editor not only attempts to put all chapters within a common framework but also succeeds in doing so. This framework is respected by all the contributors, who, moreover, observe the practice of referring to one another?s essays. The result is a well-integrated volume.

The framework has three components: the Bretton Woods order, the Bretton Woods system, and orderly change. (Hereafter I will abbreviate Bretton Woods as BW.) A ?system? in this context is the legal and organizational framework underlying international monetary relations. Specifically, the BW system is the adjustable-peg system, which ended in 1973. As Andrews (p. 4) writes: ?the instrumental commitment to fixed-but-adjustable exchange rates (however elastically this undertaking was interpreted) … formed the heart of the Bretton Woods system.?

While the switch to floating exchange rates on the part of most major currencies in 1973 ended the BW system, the BW order continued to exist. The BW order is ?the broad vision of international economic relations that inspired the Bretton Woods agreement? (p. 4). The BW order incorporates two normative propositions: countries should have a high degree of autonomy in national economic policy, and international trade should be fostered so that it expands tremendously. To an economist, of course, it is obvious that these two objectives can just as well conflict as complement each other.

Orderly change connotes ?changes in practice that were in keeping with, and in fact promoted adherence to, the underlying principles of the postwar economic order? (p. 5). Orderly change occurred both during the BW system, as the system adjusted to changing circumstances, and after the BW system ended, as flexible exchange rates provided other mechanisms to foster the BW order.

The entire volume can be described as a diplomatic, institutional, and personnel history against the economics background. In fact, the volume can be viewed as a continuation of Richard N. Gardner?s classic work Sterling-Dollar Diplomacy (Oxford University Press: first edition 1958, second edition 1969). The Andrews book is a nice take on international monetary history from the end of World War II to the turn of the twenty-first century. A history of policy and of economic thought is an additional characteristic of the book. In this context, many of the contributors deserve praise for adroit use of archival evidence.

Detracting from the otherwise well-integrated nature of the volume is lack of a common list of references or even chapter lists of references; all references are in the form of footnotes. Also, the book contains relatively little economic analysis as such. Much more attention is devoted to the economic thought of actors. Extremely disappointing in an otherwise impressive volume is the lack of quantitative techniques or even quantitative information or reference to econometric or empirical studies. Another defect is that nothing is written about trade in energy (oil, OPEC, natural-gas pipelines, ?oil politics?) and no reference to an ?absorption? interpretation of the U.S. payments deficit (the United States consuming, broadly defined, more than it produces).

I continue this review by making brief comments about each chapter. In an essay on ?Bretton Woods, System and Order,? Andrews outlines three major subsystems of the BW system: the Treasury system (1945-1947), involving tough terms imposed by the United States for extending official credit; the Marshall system (1947-1958), reflecting exchange-rate realignments and positive U.S. support for its Allies; and the Kennedy system (1960-1971), characterized by exchange-rate stability and defense of the gold value of the dollar. There is the paradox of ?turbulent transitions? between these ?stable systems.? Andrews also considers the argument that the current international monetary system is analogous to the BW system, with East Asia, especially China, taking the place of Western Europe. The firm (albeit changing) organization of international monetary affairs in the postwar period, which characterized the BW system in general, was in contrast to the ad hoc and fragile nature of the trading (GATT) system.

In another impressive essay, Andrews examines ?Trade and Money in the Roosevelt Administration,? on the way to the BW Agreement. My one issue with Andrews concerns his view that the International Trade Organization treaty failed in Congress because of concessions to the British. Andrews does not explain why the United States had to make concessions on trade to the British ? given the disparity in relative power of the two countries. After all, White?s views greatly dominated those of Keynes in establishing the International Monetary Fund.

In a later chapter, Andrews explores the origins of the Kennedy system. He prefers that terminology rather than the conventional term ?heyday of Bretton Woods.? His analysis makes no reference to the analytical work of this reviewer and Thomas D. Willett on foreign demand for dollars and this reviewer?s subsequent econometric study of reserve-asset preferences in the ?crisis zone? (see references in Lawrence H. Officer, Pricing Theory, Financing of International Organisations and Monetary History, Routledge, 2007, p. 307).

Perhaps the most intriguing contribution is that of Anastasia Xenias on ?Wartime Financial Diplomacy and the Transition to the Treasury System.? She concentrates on the U.S. tough financial stance. Very persuasively, she shows that U.S. policy aimed as much at reducing the economic strength of the British Empire as at influencing the international policy of the Soviet Union. The reader is left with an unanswered question: If the United States had been gentler in terms for lending to the USSR, could the Cold War have been avoided?

Jeffrey M. Chwieroth examines the roles of the IMF and World Bank during the Treasury and Marshall systems. New to monetary historians is his finding that ?it was the IBRD that provided critical balance-of-payments loans that helped bridge the financing gap in Western Europe prior to the provision of Marshall Plan aid? (p. 53). Eric Helleiner treats Canada?s floating rate of 1950-1962. As is common to many chapters, his viewpoint is a history of policy and of economic thought of policy-makers ? as well as of private policy-interested groups (bankers). The Canadian experience is viewed as a forerunner of the generalized, albeit managed, floating that would occur in the 1970s. However, the experience is clearly contrary to the movement of exchange-rate regimes in the opposite direction that also was to occur, especially formation of the euro area.

The Kennedy Round and other U.S. policies to solve the U.S. payments imbalance are analyzed by Lucia Coppolaro, who concludes: ?The Kennedy Round liberalized world trade, but U.S. plans to increase the U.S. trade surplus were frustrated? (p. 138). In a provocative essay, Wesley W. Widmaier examines U.S. incomes policies in the context of its commitment to fixed exchange rates during 1953-1974. The chapter incorporates a nice history of economic thought, including the views of John Maynard Keynes. The economist in me would have liked the author also to state the case against incomes policies (creation of suppressed inflationary forces, inefficient pattern of relative prices, etc.).

Hubert Zimmerman studies West German monetary policy in the context of the transition to flexible exchange rates, over 1969-1973. He concentrates on the domestic, political aspects of exchange-rate policy. E. Richard Gold provides a chapter on the legal foundations of the U.S. dollar in 1933-34 and 1971-78. The chapter is disappointing. The author claims to explore the relationship between private law and individual beliefs and behavior toward money (in context of the dollar and its value in terms of, and exchangeability for, gold), but fails to do so adequately.

Luis W. Pauly focuses on the evolution of IMF surveillance, which began in 1973. In perhaps the most perceptive comment in the book, he cuts to the chase as follows: ?Under the surface, however, they [U.S.-France negotiations] were about what international monetary struggles are always about ? power and differing perceptions of fairness in the distribution of adjustment burdens? (p. 198). In a similar vein, he writes: ?In a world of states, markets channel national power? (p. 202). So true!!

In the concluding chapter, Andrews, quite appropriately, pays homage to Richard Gardner?s ?magisterial study of the Anglo-American negotiations for the economic framework of the postwar world? (p. 211). He then observes that: ?Trade liberalization actually flourished once the fixed-rate element of the Bretton Woods system was abandoned, and the underlying economic order established at Bretton Woods ? composed of dual commitments to trade liberalization and national economic autonomy ? endured? (p. 214). However, even while acknowledging that world trading order has widened and deepened, he is concerned that further ?orderly change? may be difficult to achieve. Reasons include the ?Orwellian features? of Russia and China, the euro rivaling the dollar, the danger of regional economic blocs (each with its own system and order?), and the danger that ?monetary relations are unlikely to play the same supportive role with respect to trade liberalization in the future that they have in the past? (p. 215).

All in all, Orderly Change is a most impressive integrated collection of essays. One wishes there were more economics, more quantitative analysis (the entire volume contains only two tables and three figures), and at least some quantitative empirical evidence to support the analysis ? but the volume is what it is. And, for what it is, the volume makes a clear contribution to knowledge.

Lawrence H. Officer is Professor of Economics at the University of Illinois at Chicago. He is co-founder and Director of Research at MeasuringWorth.com, and also a strong supporter of EH.NET. His most recent books are Between the Dollar-Sterling Gold Points: Exchange Rates, Parities and Market Behavior, 1791-1931 (Cambridge University Press, paperback reissue 2007) and Pricing Theory, Financing of International Organisations and Monetary History (Routledge, 2007). Officer?s next book will be Two Centuries of Compensation for U.S. Production Workers in Manufacturing (Palgrave Macmillan, 2009).