on 13 April 2013
Do you ever get the feeling that great historical events rarely happened how you initially presumed that they did? This book certainly exploded a few fundamental preconceptions I had about Bretton Woods, and Keynes' role in it. A must read for all interested in international economics and currency issues.
The Bretton Woods conference during the end of WWII is frequently referenced by progressive economists in reverential tones, and often held up as a useful example to be followed of forward looking international economic cooperation. The conference supposedly marks the point when the dark days of selfish 1930s national competitive deflation policies and destructive national trade balancing policies were overcome, and the enlightened path towards the international economic common good was set out. But, like good books should, the author Benn Steil challenges some of these lazy generalisations:
* While Keynes undoubtedly influenced the overarching economic theory regarding the benefits of international cooperation to boost and stabilise aggregate demand, much of the outcome of BW, especially the future centrality of the American dollar, hinges on the determined power brokering, deal-crafting and deft underhand conference managing of Mr Harry Dexter White. An interesting and dubious character as Steil reveals.
* Part of the accepted conventional wisdom has always been that Keynes went into the conference with a weak hand, and America had from the start wanted to use the war to replace British Imperialism with American led free trade. However the impression provided by this book is that Keynes was to a certain extent not beaten, but duped in these negotiations, though when the extent of White's slight of hand finally was revealed, Keynes surprisingly does not draw much attention to this central blunder, as if to limit the damage to his own reputation. There are also a few other examples in the book where Keynes seems to insist on spinning a private capitulation into a public victory. It pains me very much to say it, but with the picture Steil paints, it is possible to imagine someone with less prestigious baggage and less of a towering reputation at stake, as being a better negotiator for Britain than Keynes. (But this does not take away the credit that must go to Keynes for setting the background macroeconomic theory foundations which fathered the conference).
* Interestingly Steil reveals that, at this point when Britain was on her knees financially, there was in fact a no strings private loan being offered by New York bankers, as an alternative to the US Treasury BW route. As Steil notes, this non Treasury option was still compatible with the possibility of returning to a progressive BW type of international meeting at a later date, when a less grossly uneven balance in negotiating power would have existed.
* Left wing commentators hold up Bretton Woods as ushering in a quarter of a century of prosperity, but the reality Steil partly reveals is that:- Many of its tenants were dwarfed by the more progressive and Communist threat motivated Marshall plan a few years later; Making the dollar central to the worlds financial system quickly ran into trouble; Some of the dimensions of BW only came fully operational in 1961, therefore 10 not 25years could be interpreted as its true reign:
"The quarter-century period from 1945-1971 is typically referred to as 'the Bretton Woods era,' yet the monetary regime called for in the agreements could not be said to have become operative until 1961, the year in which the first nine European countries, plus Peru and Saudi Arabia, formally adopted the convertibility commitments required by IMF Article VIII ..." p 332.
* On a few aspects, arguably Keynes was right and BW was wrong. As America quickly found, there was an inherent conflict between a country's national currency being both the worlds reserve currency and freely convertible for gold, which, in a modern expanding world, the country in question had to buy more and more of to keep in reserve to back up this pledge. (Triffin dilemma, p333) The current US - China dynamic, which Steil refers to towards the end of the book, is the obvious significance for today, and, with China not having a viable international currency, the bancor and clearing union idea now get renewed interest. Also the foundational principle Keynes held, that creditor countries should be made to shoulder the effort of maintaining international equilibrium, is something the Americans have, as Steil notes, come around to agreeing with, now the creditor is the other party.
Being a massive fan and avid reader of Keynes, I was on a certain level upset to understand how he was cajoled and out manoeuvred. In conceiving the great forces acting on his self identity and sense of legacy, (given that he was still only human and his previous success and public notoriety had built him up to such a massive extent), I could almost feel the tumultuous personal conflict and strain delivered upon him, ... which eventually of course helped to kill him aged just 62. Knowing that he was to die soon after, for me gave the book a feeling of pathos and empathy. Most great economists are never placed in a position where they have to get their hands so dirty with the real world to such an extent. An analogy could be to compare the Bretton Woods conference to the making of a Hollywood film. Keynes not only came up with the concept for the film and co-wrote it, but also starred in it. Like a famous actor who had fulfilled all three roles, it is no wonder he would have been emotionally invested in its success, a bit blind to its flaws, and defensive and sensitive to any criticism of his baby. But he had been relatively powerless to control key parts of the final edit, because in the end, Harry White was in the Director's chair and it was an American movie. The deft exercise of national power undercover of seeming international legitimacy practised by White is a key theme the book coveys well, and parallels with the WTO or the Washington consensus of the 1990s came strongly to mind for me. I suppose as they say, you should; 'start as you mean to go on.'
As Bretton Woods is referred to so often and is such a key point in economic history, this book is invaluable in pointing out what it was, and what it was not. Timely is an over used word in book reviews, but this book does draw timely attention to THE big international China - US imbalance issue, which one could imagine Keynes would also have wished to highlight were he alive today. A highly recommended serious read.
Update October 2013
Since reading more about Keynes' contributions during this period, I have changed my mind a bit. There was never any question that anyone else but Keynes would have headed the British negotiations, as even if someone else was inserted as the figurehead, his towering abilities and status would have ran the British side from behind the scenes anyway. I still rate this book highly, but I now think Steil exaggerates the weaknesses of Keynes against his favour. Like many people who throw seemingly uncontrollable tantrums, Keynes did so with an instinctive awareness of when he had the goodwill, influence and power to carry it off. I also think Steil miss emphasises a bit what part of Britain's disadvantage was down to the personalities involved, and what was down to the clearly asymmetric power relationship between the two countries. Keynes was, it seems to me, on the whole more of a knowing realistic and pragmatic good loser, rather than being a temperamental and naive liability.
The extract below contains two comments from his BW delegation colleagues which the editors of Keynes' collected works, (volume XXVI, p112) chose to include:
"Keynes's role during the Conference was the subject of comments from two members of the Delegation. Professor Robbins recorded in his dairy:
At the end Keynes capped the proceedings by one of his most felicitous speeches, and the Delegates paid tribute by rising and applauding again and again. In a way, this is one of the greatest triumphs of his life. Scrupulously obedient to his instructions, battling against fatigue and weakness, he has thoroughly dominated the Conference...
R.H. Brand wrote to Sir Richard Hopkins:
I hope you will think the Conference was a success. I must tell you that Keynes was without doubt quite the dominant figure. He certainly is an astonishing man. Frail in body but will-power and mental brilliance and flexibility enough for 10. I feel like the stupid boy in school in his company. He got thro' much more real work than any of us."