THE BATTLE OF BRETTON WOODS

Ben Steil

Sub-title: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order - Princeton Univ Press, Princeton, 447 pgs., index, references, end notes, cast of characters

The content is much more than only the Conference at Bretton Woods that created the post -WWII world economic system. The author also wrote an essay in the 29 July 2014 issue of WSJ "The Myth of Bretton Woods" in which he relates that conference to the present. The author shows the inseparable connection of politics and economics. And this is no where more tightly one than in the international sphere in which foreign affairs means foreign political/economic affairs. But underlying this is that foreign affairs stem from domestic affairs so that means domestic politics and economics linked together are the foundation for all.

Reviewer Comments - I wish I had this book 50 years ago, when I was teaching. The author confirms knowledge I had then plus provides a very great deal more valuable information. For instance, I knew Harry White had been a Soviet Agent, but I thought that meant he was spying and providing inside formation to the Soviet Union. Well, he was, but much more significant was his power within the US Treasury to promote government policies favorable to the USSR and detrimental to Great Britain. Among his most significant results was the outcome he engineered for the Bretton Woods' Conference. I knew generally about the US-UK Lend -Lease program, but believed it was much more of an equal deal in which the US graciously helped the UK, but Steil shows it was at every turn a process in which the US sought and obtained dominance over the UK for the post war period. I knew quite a bit about Lord Keynes' economic theories and pre-WWII influence but not about his hard battle at Bretton Woods. I well understood the role of powerful leaders in shaping history and their private motivations based on ego and dominance. But this book provides wonderful specific examples throughout. Much detail is also included on many of the other key actors.

Introduction: - The author notes the current discussion of the international monetary system created at the Bretton Woods conference. The system collapsed in 1971 when President Nixon stopped the USG from exchanging dollars for gold, a fundamental part of the system. The present chaos in the international finance system has generated some discussion about a possible establishment of a new "Bretton Woods' type structure. He thinks not. The book is about what actually went on before, during and after that conference. Rather than being a unified and friendly effort by the United States government and the British government it was a serious battle in which the US took advantage of every bit of its power as the world leading creditor nation with massive gold reserve and British weakness from being a huge debtor suffering from financial disaster resulting from the war to undermine British imperial status and financial status. The central combatants were Harry Dexter White, an official in the US treasury and Soviet agent, on one side and John Maynard Keynes, already the most famous revolutionary economist, on the other.

The World Comes to the White Mountains - In 6 pages the author provides some background on the conference location and the international delegations from 44 nations. He focuses on the American Secretary of Treasury Henry Morgenthau and British leader, Lord Keynes.

The Improbable Rise of Harry White - The chapter is a brief biography of Harry White stressing the process by which he became a Soviet Agent. The reader sees an example of 'contingency' in action in the 'improbable' way in which White rose over nearly 20 years from a confluence of his own ambition and the ignorance of some and manipulation of others to become the principle architect of the outcome of the Bretton Woods Conference. And he had a hand in much more New Deal financial policy. The author includes details of White's involvement in the Silverman spy (agent) circle and the role of Whittaker Chambers and Elizabeth Bentley in exposing him, plus the definitive information from the later Venona Intercepts. White continually advocated policies designed to further Soviet interests, but was not a Marxist in public economic writing. Sometimes the memos advocating government financial policy that he wrote came directly from Soviet agents. He was however, a strong Keynesian in economic theory and strong "New Dealer" in public policy matters. He was the actual brains and author behind much of the government policy Treasury Secretary Morgenthau proposed. In addition to advocating measure favorable to future Soviet interests he strongly pressed for Draconic measures against Germany, Italy and Japan. And he joined Morgenthau and Roosevelt and the progressive internationalists in seeking the destruction of empires, especially the British Empire. It was on that issue that he waged conflict with Keynes.

Maynard Keynes and the Monetary Menace - In this chapter the author provides a fine summary of Lord Keynes' academic and government career from World War One on.

"The Most Unsordid Act" - The title comes from Churchill's comment about the American creation of the "Lend-Lease" policy and program to support Great Britain beginning while the US was not yet officially in World War Two. But the author's description of the program indicates that it was anything but 'unsordid'. The author notes that American public opinion was strongly opposed to the was and especially American involvement. He shows that FDR, however, early recognized the ultimate German objectives for world domination and the critical necessity to preserve Great Britain until American could rearm and prepare. The problem was how to do this. "Lend-Lease" was conceived as a program that could pass public muster, especially in Congress. Lord Keynes was the front man for the British Treasury in seeking the best possible conditions. Morgenthau (with White providing much detail) was the lead of the American side. Mr. Steil shows that the post war international financial environment was in everyone's mind. The British wanted to preserve their imperial relationships while recognizing that their financial situation would be dire. The Americans knew this well and sought to use American power to dismantle the British Empire.

The Best -Laid Plans of White and Keynes - Mr. Steil describes Secretary Morgenthau's conception of the role of government. He was an ardent New Dealer with the conviction that government must control the greedy private sector financiers and central banks. He believed the US to be the emerging superpower that would set the world right - that is, an international financial system that would eliminate empires and establish full economic cooperation and nondiscrimination. Among other things this meant the end of the British system - the sterling block that featured special trading among the empire's members. White was only too eager to develop the specific policies that would bring this about, which he left to Harry White to establish. More broadly they wanted to prevent individual governments from devaluing their currencies or instituting exchange controls.

Whitewash - Mr. Steil begins: "For Harry White, the war represented a unique opportunity to entrench the dollar as the world's money." Among other uses, he insisted that the American and allied armies use dollars throughout. He also prepared plans for use of dollars in the post-war era. As part of this he pushed for an international conference at which he could create the financial system that would insure the central role of the American dollar. His memo to Secretary Morgenthau was detailed in describing both the mechanism of such a conference and its objective. Morgenthau judged it as 'a masterly job'. Morgenthau then had to obtain FDR's approval. Meanwhile White went to another Soviet agent, Lauchlin Currie, to enlist him in the coming battle with a negatively-minded State Department. Mr. Steil continues with description of the extensive bureaucratic in-fighting between Treasury and State. A central issue was that State was much more supportive of including the British, while White wanted as little opportunity for Keynes to participate as possible. The conference preparations extended over two years from 1942 into 1944. From the dates one can see that both US and UK governments were focusing on the post-war 'new world order' before World War Two was half over. And that economics - financial organization and policy - was a central concern. It was already apparent that the United States would be the world's dominant creditor and financial power, while the United Kingdom would be the largest debtor and its status as a world power would be in jeopardy. All this Mr. Steil describes and analyzes in great detail.

History is Made - This is the central chapter of the book. Mr. Steil sets the stage: "June 1944 was a momentous month. American troops reached the center of Rome on June 4. The following evening, British infantrymen landed by gliders in France, six miles north of Caen, by midnight, June 6, 155,000 American, British, and Canadian troops were ashore in Normandy." He continues with a summary of other military actions. He shifts to preparations in New Hampshire and Harry White's thoughts. He recognized that successful creation of his new world financial order would require approval of Congress, and that would require public support from the media and influential people. It would also require deft handling of the British, especially Lord Keynes. And while White was (behind the scenes) the actual creator of both conference and its agenda, Keynes was the dominant public statesman in the world media. Steil provides a practically hour-by-hour narrative of the very complex maneuvering of the many individuals and the conflicting agendas of their institutions. The reader becomes aware (if not before) of the multiple levels at which power and domination are sought and exercised. Steil writes: "Important issues related to the future of the dollar and gold came up in several guises over the first two weeks." In previous chapters he has described the role of gold in the financial system before World War II. Governments are faced with a fundamental conflict between their domestic political-economic policies involving the value of their currencies and their efforts to maintain the value of the currency in the international financial system. And gold has played a major role in this conflict. The fundamental purpose of the Conference was to insure creation of a new international financial system that could resolve this conflict. In this the views of the various governments, especially that of the US and UK, over the roles of gold and dollar were central. The reader learns that the reality of what went on at Bretton Woods was rather different from the myth presented to the public. Among other things we learn about White's support of Soviet demands, which although they were accepted, did not result in his expectation that the Soviet Union would ultimately join IMF and World Bank.

Begging Like Fala - "No sooner had the delegations departed Bretton Woods than controversy erupted between the British and the Americans over the meaning of what had been signed." Steil continues, "'We, all of us, had to sign, of course, before we had had a chance of reading through a clean and consecutive copy of the document,' Keynes offered by way of explanation five months later." The remarks of Nancy Pelosi in the Congress about the Obamacare legislation come immediately to mind. In the case of Bretton Woods, the cause of this was due to White's organizational structure purposely designed for this result. He established a general conference assembly of all country delegates to rubber stamp a final product. But there were two subordinate major committees for the IMF fund and World Bank. Under these were multiple sub-committees in which 'experts' prepared drafts. The approval processes that moved detailed specifics up through channels were controlled by White's operatives. The final composite document was written at the last minute while the delegations were being hussled out of the hotel to meet a deadline. A central issue was the ambiguous terminology in which : "In particular, the designation of the U. S. dollar as the only "gold-covetable currency' had at a stroke remade the old gold-exchange standard into a dollar standard - one that would endure to the present day, surviving even the shedding of the gold anchor in 1971." The terminology was slipped in by White in full knowledge that it would never have been accepted if it had come to a vote in conference. Of course an intentional purpose of this was to destroy the sterling block - that is the internal financial credit system of the British empire. "'The clauses that sent Keynes into a tizzy, related to member-government obligations to support convertibility of their currencies at a fixed rate'" . "The substance of Keynes's concern was that Britain might be forced to intervene in the currency markets in some way, or barred from intervening in another, such that it would ultimately be unable to control outflows of gold or dollars." Of course Keynes was right. Keynes fought hard but White refused to consider any amendment.
The narrative and analysis in the chapter turns to the links between the financial system of Bretton Woods and the the final years of the Lend-Lease program and then to the more attention being focused by American and British governments on what to do with Germany after the war. Initially, White's influence remained strong. But when President Truman succeeded FDR both Morgenthau and White fell from grace. Their plan to destroy Germany, eliminating its industry and reducing it to an agricultural economy was not accepted. But a final example of White's pro-Soviet influence came on the issue of creating of the special U.S. currency to be used in occupation Germany. The U. S Government Printing Office prepared the engraved plates. The concept was that the U.S. would print the paper currency and would supply a sum to the Soviet government for its use in its area. But White successfully demanded (at the instruction of Soviet agents) that the Soviet government be given a duplicate set of the actual engraved plates. The result, naturally, was that the Soviet government printed millions of dollars which passed through the German economy for redemption by real U.S. dollars, thus netting several hundred dollars of profit to the Russians. Meanwhile the U.S. government extracted every ounce of financial advantage it could from Great Britain from shutting down Lend-Lease early when World War II ended unexpectedly early after Japanese surrender.

Out with the Old Order, In with the New - Here Steil returns to the subject of White's Soviet connections by discussing Whittaker Chambers' revalations back in 1939. Soon after that, Elizabeth Bentley spilled the facts to the FBI. After initial FBI indifference, it became more interested. Bentley fingered over 80 Soviet agents in the U.S. Government. Steil provides much detail on what the FBI learned. He writes: "White was an enormously valuable resource because he had access to virtually all the Treasury department's confidential material, as well as secret information the Treasury received from other departments., White was also willing and able to pull strings to help other agents in difficulty, such as Silvermaster himself when he was accused of 'very probably' being a Soviet agent in 1942, and again in 1944. In 1946 President Truman nominated White to be the American executive director of the IMF. Fortunately, at that point FBI director Hoover prepared a report on White. With White's nomination already approved by the Senate committed, Truman had to come up with a way to cancel it in public. Meanwhile, Keynes was faced with the disturbing news, the American insistence that both World Bank and IMF would be located in Washington D.C. More critically, the British and American concepts about what the IMF's functions and powers would be were very different, with the American's wanting a much more powerful IMF exercising New Deal type controls over all its member states. The role, in tern, was reflected in the question of salaries for its executives, with the Americans demanding very substantial sums. More complexity is shown with discussion of British- American considerations over policy in the Middle East - Egypt and especially Jewish- Arab conflict in Palestine. While Truman had replaced FDR, Attlee soon replaced Churchill - a much more fundamental shift in government policy ensued. Like it or not, the end of the British Empire was already taking place and with it also the end of the sterling block. Steil notes: "The dream of reestablishing sterling as a world currency was shattered." Next, Steil describes the Marshall Plan. again, reality is more complex than what the general public's belief is. Its approval owed a lot to hard work by Mr. Will Clayton. Steil notes that, following a brief role in 1947, "The fund then went back into virtual hibernation." This is the theme of his recent article in Wall Street Journal. Also, "White's hopes for a postwar Soviet American alliance, outlined in an earlier sharply worded unpublished essay condemning American and Western hypocrisy toward Russia, were by this time in tatters." The remainder of the chapter consists first of White's grand jury summons and subsequent testimony before the House Un-American activities Committee. Then Steil brings in the by now well-known Venona Project and the KGB files opened in the 1990's.

Epilogue - In a few pages Mr. Steil describes the sudden and large shift in American foreign and financial policy when confrontation with the Soviet Union became its center piece. First, the American government was shocked when it learned the reality of the near financial collapse of Great Britain. The White - Morgenthau policy presumption was that Great Britain would be a serious rival to the US in the American plan to create the new international financial system. Steil writes, "The Bretton Woods saga unfurled at a unique crossroads in modern history. An ascendant anticolonial superpower, the United States, used its economic leverage over an insolvent allied imperial power, Great Britain, to set the terms of which the latter would cede its dwindling dominion over the rules and norms of foreign trade and finance. Britain cooperated because the overriding aim of survival seemed to dictate the course. The monetary architecture that Harry White designed, and powered through an international gathering of dollar-starved allies, ultimately fell, its critics agree, of its own contradictions. " He is not very optimistic for the future.

Cast if Characters - A very useful listing of brief identifications of many individuals involved, many of whom are rather obscure.