|Editor(s):||Lamoreaux, Naomi |
Published by EH.Net (December 2019)
Naomi Lamoreaux and Ian Shapiro, editors, The Bretton Woods Agreements: Together with Scholarly Commentaries and Essential Historical Documents. New Haven: Yale University Press, 2019. xii + 496 pp. $29.50 (paperback), ISBN: 978-0-300-23679-8.
Reviewed for EH.Net by Kirsten Wandschneider, Department of Economics, Occidental College.
In times where countries are retreating to isolation and international cooperation is on the wane, this collection of essays and historical documents on the Bretton Woods system, edited by Naomi Lamoreaux and Ian Shapiro (both Yale University) serves as an important reminder of the challenges, and rewards of international economic cooperation. The book follows previous titles in the series “Basic Documents in World Politics” edited by Ian Shapiro and coauthors, which reissues foundational texts in world politics. The current title consists of a collection of key documents on the Bretton Woods agreements, paired with twelve academic articles written by scholars in the field that situate the texts in the context of today’s international monetary order.
The historical documents compiled in this volume include not only the International Monetary Fund (IMF) articles of agreement, the White Plan, the Keynes Plan and the French Plan, but also the Australian Employment Agreement, the Final Act as well as key speeches and debates surrounding the Bretton Woods system. An extensive glossary of key terms makes the volume accessible to newcomers in the field.
The articles in this book are grouped into four themes, ranging from the historical context in which the Bretton Woods system emerged, to its conception, a discussion of alternative visions of a post World War II monetary order, and a discussion of its dissolution and legacy. They incorporate a broad range of perspectives that summarize the current state of knowledge and interpretation of the Bretton Woods documents, but also raise questions and potentially map a future research agenda.
In the first essay, Jeffrey Frieden lays out the historical context for the Bretton Woods system, drawing on both the success of the classical gold standard and the challenges of the interwar years. Frieden also introduces the key figures that played a critical role in the Bretton Woods negotiations. The two most important delegations — the U.S. and the UK delegations, represented by Harry Dexter White and John Maynard Keynes — had fundamentally different visions for the Bretton Woods system. They stemmed from their countries’ status of being the most prominent surplus and the largest debtor country at the end of the war. Keynes’s and White’s disagreement mostly centered on the role of the IMF: the U.S. was concerned that the IMF would be too generous in its international support, while British feared that the IMF would be too insistent on restrictive economic policies. However, the bargaining power was firmly on the side of the U.S. There was considerable agreement on the role of the World Bank.
The next chapter, by Barry Eichengreen, focuses on the pegged but flexible exchange rates that were at the heart of the Bretton Woods System. It explores the question of why the creators of the Bretton Woods system maintained a role for gold at the center of the system, and did not contemplate alternate agreements. This is especially puzzling, given that Keynes had already termed gold as a “barbarous relic” two decades prior, and policy makers at the time were aware of the deflationary challenges introduced by the inflexibility of the gold supply. Likewise, Robert Triffin recognized flaws in the system as early as 1947, but was not able to articulate an alternative. Eichengreen considers these remaining ties to gold the “original sin” of Bretton Woods (p. 38), which ultimately brought about the demise of the system.
In Chapter 3, Douglas Irwin further explores why the case of floating exchange rates was not taken seriously as a model for the Bretton Woods system. While the classical gold standard had been unique in delivering both external stability in the form of fixed exchange rates and internal stability in terms of stable domestic prices, the dilemma between these two expanded to the classical trilemma in the interwar years. Experience with floating rates had been limited to the years immediately after World War I — which were characterized by hyperinflation and instability — and the mid 1930s immediately after the abandonment of the gold exchange standard by Great Britain. Both periods had left their scars that rendered flexible rates not a viable alternative. Recognizing the need to set domestic policies, policy makers favored fixed but adjustable rates with exchange controls.
The next three chapters deepen the reader’s understanding of the debates as well as the constraints set by contemporary political and economic conditions around the inception of the Bretton Woods system. In chapter 4, James Boughton highlights the similarities of both the Keynes and the White plans for Bretton Woods. He characterizes both plans as essentially “Keynesian” since they affirmed a reconstruction of a cooperative international monetary order. However, they differed in their motivations for achieving this goal: Keynes’s vision for Bretton Woods focused on providing deficit countries with funds to rebuild while restricting surplus countries from amassing reserves. In contrast, White’s motivation for the restoration of multilateral trade and finance stemmed from the objective of constraining Britain from using restrictive practices to gain trade advantages.
Chapter 5, by Andrew Bailey, Gordon Bannerman, and Cheryl Schonhardt-Bailey, discusses the parliamentary debates in the UK surrounding Bretton Woods between 1943 and 1945. The British were naturally concerned about a shifting world order and the rising dominance of the United States, but recognized the economic benefits of a renewed international monetary system. They therefore confirmed the policy objectives that motivated Keynes in the negotiations. They also supported the re-affirmation of national discretion with respect to policy regarding the asymmetric adjustment obligation on debtor countries.
Chapter 6, by Michael Graetz and Olivia Briffault, discusses the French commitment to reinstate gold at the center of the international financial system. This chapter emphasizes the Tripartite agreement of 1936 between the U.S., UK and France, which included a commitment to free trade and stable exchange rates, and set the tone for the post-war Bretton Woods negotiations.
The next section of the book, which explores alternative visions and “paths not taken” for the Bretton Woods system raises issues that are least known to financial historians. Chapter 7, by Martin Danton, on nutrition, food, and agriculture extends the perspective on the Bretton Woods monetary order beyond the immediate financial concerns. Its discussion around nutrition emphasizes the need for broader development policy. Even though it did not yield concrete results at Bretton Woods, it set the stage for subsequent international development talks.
In Chapter 8, Selwyn Cornish and Kurt Schuler describe Australia’s full employment proposal, which would have established full employment as an explicit goal of international economic cooperation. Similarly to the previously discussed proposals on food and agriculture, Australia was unsuccessful in making full employment a central issue in the negotiations, but the exploration of what a counterfactual monetary order with such an explicit goal might have looked like proves engaging.
Chapter 9 again emphasizes that despite the common narrative that international development was not the focus of the Bretton Woods discussions, Bretton Woods included conversations about an early commitment to economic development. The creation of the International Bank for Reconstruction and Development (IBRD, later World Bank), while focused on post-war reconstruction was also designed to promote economic development, building on early work by the League of Nations. In fact, White included the focus of a multilateral development aid framework in his original plans for the Bretton Woods system.
The last segment of articles focuses on the operation of the Bretton Woods system, its dissolution, and its legacies for today. In Chapter 10, Michael Bordo describes the operation of the Bretton Woods system, especially the challenges concerning the asymmetries of the adjustment mechanism and the measures taken to support its operation. He also describes the collapse of the system, which eventually led to the establishment of the dollar-based international financial order that in essence has lasted to this day. For Bordo, the continuation of the current system hinges on the Federal Reserve’s ability to credibly commit to low inflation rates, since no other currency currently presents an alternative to the popularity of international dollar reserves.
Frances McCall Rosenbluth and James Sundquist present an international perspective on the collapse of the Bretton Woods system through the lens of Japan in Chapter 11. Fast export-led growth in Japan and a growing trade surplus with the United States, brought growing pressure to devalue the yen, which neither Japanese exporters nor politicians could agree to. Would the end of Bretton Woods have taken a different turn had Japan agreed to earlier revaluation? Rosenbluth and Sundquist pose this question, but consistent with the other chapters in the book conclude that it would have had no fundamental impact.
In Chapter 12, Harold James concludes and synthesizes the academic texts of the book by emphasizing Bretton Woods multiple contexts: the classical gold standard and the interwar experience which shaped its inception, and its post-1971 interpretation. He lauds Bretton Woods — despite its failings — as the only successful example of true multilateralism to establish the world’s monetary order.
This reiterates the key theme of the book: the idea that despite all the disagreements and conflicting interests regarding the structure of the Bretton Woods system, there was overwhelming agreement to build a multilateral international monetary system, and the recognition that such a system would be vital for international peace and economic prosperity.
Kirsten Wandschneider’s research areas include European monetary and financial history, international macroeconomics, and particularly the development of financial institutions and markets, such as the emergence of mortgage markets in eighteenth century Prussia.
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|Subject(s):||Financial Markets, Financial Institutions, and Monetary History|
|Geographic Area(s):||General, International, or Comparative|
|Time Period(s):||20th Century: WWII and post-WWII|