I do hope the title of this riveting read does not put off readers who mistake Benn Steil’s latest work for an arcane discussion of exchange rates, the gold standard and the stuff of debates in commons rooms. This book is more than that, much more. It is a tale of a battle of titans and of a war between nations, each intent on establishing the economic architecture that would ensure its postwar economic domination of world finance. America, led by Harry Dexter White, sought to wrest control of the international monetary and trading systems from London and imperialism, while a bankrupt Britain, led by John Maynard Keynes, fought to preserve London as the world’s premier financial centre, sterling as a significant currency, and the empire, with its locked-in markets for British exports.
In July 1944, representatives of 44 nations gathered in the little New Hampshire town of Bretton Woods to design what Steil describes as “a global monetary system to be managed by an international body.” Forty-three of these nations, including most notably Britain, were somewhere between props and pawns for White, the US Treasury official who had structured the conference so that there could be only one outcome: the adoption of the White Plan to have two American-dominated institutions, the International Monetary Fund (IMF) and the World Bank, that would establish the dollar as the world’s reserve currency. As Steil puts it, “White wanted to make the US dollar, and only the US dollar, synonymous with gold, which would give the US government a virtual free hand to set interest rates and other monetary conditions at will, not just for the United States, but for the world.”
After stints at Columbia and Stanford, White, the son of poor Lithuanian Jewish immigrants, had ended up as a young man at Harvard, where he demonstrated brilliance in the analysis of international monetary systems. In government he rose steadily to become the key adviser to Franklin D Roosevelt’s treasury secretary, Henry Morgenthau, a Roosevelt buddy whose virtues did not include a mind for economic analysis, forcing him to rely heavily on White.
White set out to construct a system that would wrest power from Britain, for which his ultimate boss, FDR, had a “genuine loathing,” according to Steil. Overly ambitious, blunt, sardonic, White was also a Russian spy, passing documents to Moscow via a variety of handlers. Like Roosevelt, White saw the British empire as a construct to reserve key markets for British goods, impeding an export-led recovery from the Great Depression. To White, Russia was the wave of the future. “Russia is the first instance of a socialist economy in action. And it works!” he enthused in a never-published memo. No surprise that he should favour (actually, create) the 1944 Morgenthau Plan to deindustrialise Germany and seek to impoverish Britain, leaving the way clear for a Russian-American alliance to dominate Europe.
Keynes, his most formidable intellectual opponent, fought to prevent White from constructing an economic architecture that would force a postwar, indebted Britain into the permanent position of “begging like Fala,” to borrow from an exasperated Churchill’s reference to FDR’s pet scottie. Keynes failed to derail White, a failure that, Steil says, Keynes’s ego required him to cover up by claiming victory at Bretton Woods.
According to Steil, Keynes was “congenitally undiplomatic” and played a bad hand badly, irritating American negotiators with his penchant for demonstrating their intellectual inferiority and tending “to pick the wrong fights.” Steil is a bit too hard on Keynes, whose bargaining position was weakened by Britain’s failure to repay its Great War debts, and his country’s desperate need for Lend-Lease aid. A bankrupt supplicant facing a monopolist of the world’s acceptable cash holds bad cards indeed.
As Steil recognises, “Morgenthau, White and [secretary of state Cordell] Hull would for years use Lend-Lease to press the British relentlessly for financial and trade concessions that would eliminate Britain as an economic and political rival in the postwar landscape.” But it must be said that Steil’s view that Keynes made a serious error by not recommending that Britain refuse to sign on to Bretton Woods, and instead negotiate a commercial loan with bankers eager to lend it up to $5bn, is worth pondering.
Such a loan was the road not taken, and at the end of 1945 the Attlee government signed on the dotted line after robust debates in both houses of parliament. The Bretton Woods agreement survived until President Nixon unilaterally terminated the convertibility of dollars into gold on August 15, 1971, but the institutions it constructed, the IMF and the World Bank, remain in place.
As Steil makes clear, this was a clash of men from different backgrounds, with different world views—in one corner, the “rabbi… the very gritty Jewish type,” to use Keynes’s descriptive of White, who had elbowed his way to the pinnacle of policy-making power; in the other the brilliant Eton- and Cambridge-educated son of distinguished parents, “his Highness” as White would call him, who moved effortlessly into the corridors of power in Whitehall.
This is not the place to relate the post-Bretton Woods history of monetary policy, which Steil does superbly. Despite Nixon’s scuttling of Bretton Woods, the dollar retains its status as the world’s reserve currency. The final instalment of Britain’s Second World War debt was repaid in 2006. Given the recent devaluation of sterling, which White sought to make impossible and Keynes sought to retain as a recession-fighting tool, my guess is that his lordship is permitting himself a bit of a belated gloat.