Bretton Woods

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order

by Benn Steil  · 14 May 2013  · 710pp  · 164,527 words

White: the facund, servant-reared scion of Cambridge academics, and the brash, dogged technocrat raised in working-class Boston by Lithuanian Jewish immigrants. Keynes at Bretton Woods was the first-ever international celebrity economist. The American media could not get enough of the barbed, eloquent Englishman, who was both revered and reviled

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White spat out in one particularly heated session, “to produce something which Your Highness can understand.”7 White’s role as the chief architect of Bretton Woods, where he outmaneuvered his far more brilliant but willfully ingenuous British counterpart, marks him as an unrelenting nationalist, seeking to extract every advantage out of

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for conferencing, far from the oppressive summer heat and busy wartime gloominess of Washington. Yet whereas better-known coastal spots might have done as nicely, Bretton Woods offered an attractive political amenity. It was to be found in a state whose Republican senator, Charles Tobey, a redoubtable opponent of international organizations, faced

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international unit.”73 Congress would never accept this. Unitas was now dead. But Keynes made one suggestion that ultimately passed muster in Washington and at Bretton Woods. After White rejected the idea of calling the Stabilization Fund the “International Monetary Union,” arguing that Congress would hate the word “Union,” Keynes offered “International

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be three stages: the preconference drafting committee meetings in mid-June, to be held in Atlantic City; an enormous multiweek conference starting July 1 at Bretton Woods; and a postconference ratification process in all participating countries’ legislatures. This was hardly the model that Keynes envisioned, which was to be a tightly controlled

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, wherever that is, waiting for us,” Morgenthau announced, ending the meeting.140 “The broadcasting companies … made arrangements for a broadcast at the end of the Bretton Woods Conference, with White explaining what we had accomplished,” Bernstein recalled many years later, but “Morgenthau did not let White make that broadcast.” The Secretary told

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Acheson, September 1945. (George Skadding/Time & Life Pictures/Getty Images) 7B. U.S. delegation members Frederick Vinson and Edward E. Brown in conversation at the Bretton Woods conference, July 1944. (Alfred Eisenstaedt/Time & Life Pictures/Getty Images) 8A. J. M. Keynes, flanked by Soviet delegation head M. S. Stepanov (left) and

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U.S. delegation head Henry Morgenthau, Jr. (right), addressing delegates at the Bretton Woods conference, July 1944. (© Bettmann/CORBIS) 8B. H. D. White (center), flanked by British economists and delegation members Lionel Robbins (left) and Dennis H. Robertson (right

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), at the Bretton Woods conference, July 1944. (Courtesy of the International Monetary Fund) 9. J. M. Keynes (center), flanked by Soviet delegation head M. S. Stepanov (left) and Yugoslav

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, July 1944. (Hulton Archive/Getty Images) 10. U.S. delegation head and conference chairman Henry Morgenthau, Jr., and J. M. Keynes in conversation at the Bretton Woods conference, July 1944. (Alfred Eisenstaedt/Time & Life Pictures/Getty Images) 11. British Prime Minister Winston Churchill and President Roosevelt meeting at Wolfe’s Cove railroad

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its financial independence, Keynes was now buffeted by a ferocious blowback from London. He had conceded to the Americans on highly sensitive areas ranging from Bretton Woods transitional rights to sterling convertibility to trade preferences to creditor priorities. Exhausted and surely conscious of his personal legacy as a diplomat and a coauthor

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first conversation we had with our British friends several years ago, when early drafts were being considered.… Throughout the discussions at Atlantic City, throughout the Bretton Woods discussions their views have [been] the same.” The British have always wanted an “International Clearing Union [in which] the greater emphasis should be upon the

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tense multilateral discussions, the United States now took up the battle stance that Keynes and the British had adopted, and Harry White resolutely opposed, at Bretton Woods: surplus countries should be forced to reduce their surplus positions. Congressmen even demanded that the formerly hated scarce-currency clause be invoked against countries such

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in favor of replacing monopoly central banks with competitive private currency issuers.30 Not surprisingly, Triffin’s, Rueff’s, and Hayek’s radical alternatives to Bretton Woods—international money, a revived gold standard, and private money competition—were not congenial to governments, particularly that of the United States. But Friedman’s monetarist

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global trade discrimination to balance its bilateral trade than to stockpile other fiat currencies. The United States had sought to eliminate such discrimination permanently through Bretton Woods. The creditor-debtor relationship between China and the United States today is very different from that between the United States and Britain in the 1940s

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unavoidable. Former U.S. Secretary of State Henry Kissinger, for one, believes that such a destructive dynamic is avoidable, but nonetheless deeply worrying.47 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

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Acheson, Dean (1893–1971). American lawyer and statesman. Secretary of state, 1949–53. A highly intelligent patrician Anglophile, he represented the State Department at the Bretton Woods Conference, where he was the chief American delegate on Keynes’s World Bank Commission. Adler, Solomon (“Sol”) (1909–1994). American economist. Department of the Treasury

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and national service, 1940–45; foreign secretary, 1945–51. Beyen, Johan Willem (1897–1976). Dutch banker and civil servant. Leader of the Dutch delegation at Bretton Woods. President of the Bank for International Settlements, 1937–39. Bidault, Georges (1899–1983). French politician. President, Provisional Government, 1946; foreign minister, 1947–48; prime minister

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–36; ambassador to France, 1936–40. Burgess, Randolph (1889–1978). American banker and diplomat. Represented the interests of the New York banking community during the Bretton Woods negotiations. Opposed the IMF blueprint as unsound. Bykov, Colonel Boris. Soviet Military Intelligence (GRU) agent. Whittaker Chambers claims to have introduced him to White in

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White. Chechulin, Nikolai Fyodorovich (1908–1955). Russian banker. Vice-chairman of the board of the State Bank, 1940–55. Member of the Russian delegation at Bretton Woods. Cherwell, Lord (Frederick Alexander Lindemann) (1886–1957). German-born British physicist. As head of the prime minister’s statistical office, he was one of Churchill

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the American loan negotiations in 1945. Eccles, Marriner (1890–1977). American banker. Chairman of the Federal Reserve, 1934–48. Member of the American delegation at Bretton Woods. Tussled with White over his deference to Russian demands at the conference. Eden, Anthony (1897–1977). British Conservative politician. Foreign secretary, 1935–38, 1940–45

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). German economist and government official. Reich minister of economics, 1937–45; president of the Reichsbank, 1939–45. A staunch nationalist and anticommunist, he blasted the Bretton Woods monetary plans as a sop to the Soviets. Tried as a war criminal at Nuremburg. Glasser, Harold (1905–1992). American economist. Department of the Treasury

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, businessman, and government official. Premier of the Republic, 1938–39. A larger-than-life character who claimed descent from Confucius. Headed the Chinese delegation at Bretton Woods. Law, (Andrew) Bonar (1858–1923). British Conservative politician. Chancellor of the exchequer, 1916–19; prime minister, 1922–23. A rare Tory ally of Keynes. Law

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uncooperative approach of the Russian delegation. Molotov, Vyacheslav (1890–1986). Russian diplomat. Minister of foreign affairs, 1939–49, 1953–56. Kept the Soviet delegates at Bretton Woods on the tightest possible leash, forbidding them from making the slightest concessions without authorization from Moscow. He painted any measure of Soviet cooperation as a

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depended on him for advancement and wider influence. Newcomer, Mabel (1892–1983). American economist. A Vassar professor, she was the only female American delegate at Bretton Woods. Nixon, Richard (1913–1994). American politician. President, 1969–74. As a member of the House Un-American Activities Committee, sparred with White in his August

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the Treasury, 1934–39. Opie, Redvers (1900–1984). British economist. Counselor and economic adviser, British Embassy, Washington, 1939–46. Member of the British delegation at Bretton Woods. Pasvolsky, Leo (1893–1953). Russian Ukrainian-born American economist. Special assistant to the secretary of state, 1936–38, 1939–46. Heavily involved in economic planning

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dollar as a global surrogate for gold. Ronald, Nigel (1894–1973). British diplomat. Assistant undersecretary of state, 1942–47. Member of the British delegation at Bretton Woods. Roosevelt, Franklin Delano (FDR) (1882–1945). American politician. President, 1933–45. Keynes admired Roosevelt for his bold economic policy interventions. Like Churchill, however, FDR had

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, Frederick Cleveland (1884–1956). American doctor and politician. Republican congressman for Ohio, 1939–51. Member of the House Committee on Banking and Currency. Opposed the Bretton Woods agreements. Spence, Brent (1874–1967). American politician. Democratic congressman for Kentucky, 1931–63; chairman of the House Committee on Banking and Currency, 1943–47, 1949

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Senate Committee on Banking and Currency, 1937–47. A prominent New Deal and pro-labor progressive, close to FDR. Member of the American delegation at Bretton Woods. Waley, Sir David (Sigismund David Schloss) (1887–1962). British civil servant. Under-secretary, Treasury, 1939–46. Prescient with regard to the problems American monetary

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principle of fixed (but adjustable) exchange rates. Wolcott, Jesse (1893–1969). American politician. Republican congressman for Michigan, 1931–57. Member of the American delegation at Bretton Woods. Wood, Sir (Howard) Kingsley (1881–1943). British Conservative politician. Chancellor of the exchequer, 1940–43. Woolton, Lord (Frederick James Marquis) (1883–1964). British businessman and

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Conservative politician. Chairman of the Conservative Party, 1946–55. Opposed Bretton Woods, saying that it meant Britain “surrendering [its just rights] to the power of the dollar, because those responsible for the affairs of this country do

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White.” Journal of the History of Economic Thought 26:179–195. Bourneuf, Alice. July 6, 1944. Notes on Bretton Woods Conference. Bretton Woods Conference Collection, International Monetary Fund, Box 15. ———. July 13, 1944. Notes on Bretton Woods Conference. Bretton Woods Conference Collection, International Monetary Fund, Box 15. Bureau of Economic Analysis. Aug. 2010. GDP and Other Major NIPA

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.pdf. Chambers, Whittaker. 1952. Witness. New York: Random House. ———. Dec. 2, 1953. “The Herring and the Thing.” Look. Chicago Tribune. June 12, 1944. “Babes in Bretton Woods.” ———. July 2, 1944. “Among Those Absent.” ———. July. 3 1944. “White Admits Bankers Fight Money Scheme.” ———. July 7, 1944. “Front Views & Profiles.” ———. July 9, 1944. “Good

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. The Monetary Conservative: Jacques Rueff and Twentieth-Century Free Market Thought. Dekalb: Northern Illinois Press. Christian Science Monitor. July 1, 1944. “Monetary World Looks to Bretton Woods Parley.” ———. July 3, 1944. “Money Experts Start on Draft of World Plan.” ———. July 6, 1944. “Money Parley Pace Is Slowed; Fund Transactions Major Topic.” ———. July

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. 2009. “Micro, Macro, and Strategic Choices in International Trade Invoicing.” CEPR Discussion Paper No. 7534. London: Centre for Economic Policy Research. Goldenweiser, Emanuel. Goldenweiser Papers, Bretton Woods Conference, Library of Congress. Goodhart, Charles, and P.J.R. Delargy. 1998. “Financial Crises: Plus ça Change, plus c’est la Même Chose.” International Finance

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/cofer/eng/index.htm. ———. 2012. International Financial Statistics Database. Available at http://elibrary-data.imf.org/DataExplorer.aspx. James, Harold. 1996. International Monetary Cooperation since Bretton Woods. New York: Oxford University Press. Karpov, Vladimir. Jan. 21, 2000. “Notes from the Archive.” Independent Military Review. Moscow. Kennan, George F. 1946. Telegram from George

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: The Clearing Union. Cambridge: Cambridge University Press. ———. 1980. The Collected Writings of John Maynard Keynes: Volume XXVI, Activities 1943–46: Shaping the Post-war World: Bretton Woods and Reparation. Cambridge: Cambridge University Press. ———. 1980. The Collected Writings of John Maynard Keynes: Volume XXVII, Activities 1940–46: Shaping the Post-war World: Employment

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Secretary of the Treasury. New York: Skyhorse Publishing. Lindbergh, Charles Augustus. May 19, 1940. “The Air Defense of America.” Speech. Lippmann, Walter. July 13, 1944. “Bretton Woods and Senator Taft.” Washington Post. London Chamber of Commerce. 1942. Report on General Principles of a Post-war Economy. MacMillan, Margaret. 2003. Paris 1919: Six

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. Meltzer, Allan H. 2003. A History of the Federal Reserve, Volume 1: 1913–1951. Chicago: University of Chicago Press. Mikesell, Raymond F. 1951. “Negotiating at Bretton Woods, 1944.” In Negotiating with the Russians, ed. Raymond Dennett and Joseph E. Johnson. Boston: World Peace Foundation. Morgenthau, Henry, Jr. The Morgenthau Diaries. ———. Oct. 25

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Transmitting a Report on the First Year of Lend-Lease Operations. Washington, D.C.: Government Printing Office. Rosenberg, Andrew, and Kurt Schuler (eds.). 2012. The Bretton Woods Transcripts. New York: Center for Financial Stability. Rubin, Robert E. May 26, 1998. “Remarks for Opening Plenary China–U.S. Joint Economic Committee—Eleventh Session

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/Historical%20data%201900-1960.pdf. Utley, Jonathan G. 1985. Going to War with Japan, 1937–1941. Knoxville: University of Tennessee Press. Van Dormael, Armand. 1978. Bretton Woods: Birth of a Monetary System. New York: Holmes and Meier. Vassar Encyclopedia. “Mabel Newcomer.” Available at http://vcencyclopedia.vassar.edu/faculty/prominent-faculty/mabel-newcomer

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Charter and, 14, 119, 121, 127; Austerity, Temptation, and Justice alternatives and, 276–79; beggar-thy-neighbor, 31, 144; Beveridge Plan and, 307; Bretton Woods and, 1 (see also Bretton Woods); Clayton’s European integration plan and, 311–16; deficit spending and, 28–29, 46, 189, 278, 358; deflationary, 24, 46, 48, 76–78

The Globalization Paradox: Democracy and the Future of the World Economy

by Dani Rodrik  · 23 Dec 2010  · 356pp  · 103,944 words

world economy with little social and political support from those it is supposed to help. The first three decades after 1945 were governed by the Bretton Woods compromise, named after the eponymous New Hampshire resort where American, British, and other policy makers from Allied nations gathered in 1944 to design the

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post–World War II economic system. The Bretton Woods regime was a shallow multilateralism that permitted policy makers to focus on domestic social and employment needs while enabling global trade to recover and flourish

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state. Developing countries, for their part, were allowed to pursue their particular growth strategies with limited external restraint. International capital flows remained tightly circumscribed. The Bretton Woods compromise was a roaring success: the industrial countries recovered and became prosperous while most developing nations experienced unprecedented levels of economic growth. The world economy

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flourished as never before. The Bretton Woods monetary regime eventually proved unsustainable as capital became internationally more mobile and as the oil shocks of the 1970s hit the advanced economies hard. This

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in particular. But as we shall see, these were countries that chose to play the globalization game not by the new rules, but by Bretton Woods rules. Instead of opening themselves unconditionally to international trade and finance, they pursued mixed strategies with a heavy dose of state intervention to diversify their

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agree that such an economics is possible and think better of economics (even if not of economists) by the end of this book. 4 Bretton Woods, GATT, and the WTO Trade in a Politicized World Trade policy is politically contentious because it has important domestic distributional consequences and because it generates

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economy with a new economic philosophy and created two new international organizations: the International Monetary Fund and the World Bank. The deal struck at Bretton Woods would govern the world economy for the first three decades following World War II. Long after the regime became undone during the 1970s and 1980s

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, the term “Bretton Woods” would remain a wistful reminder of the possibilities of collective deliberation at the global level. Neither Keynes nor White was motivated purely by cosmopolitan considerations

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off a staff economist to work out overnight the economic formula and justification that would produce these shares.2 Yet the agreement that emerged from Bretton Woods transcended narrow national interests and did much more than buttress American economic hegemony. A delicate compromise animated the new regime: allow enough international discipline

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infrastructure for the international economy that would outlast their uncontested hegemony. The institutional embodiment of multilateralism in trade during the fifty years subsequent to the Bretton Woods Conference was the GATT. The GATT was only part of what was originally meant to be a more ambitious organization, the International Trade Organization (

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certain important limits (see below). Transport costs continued to decline. And yet, policy makers displayed a decided lack of ambition in pushing for liberalization under Bretton Woods. Large parts of world trade remained either completely outside multilateral agreements or protected by generous exceptions to the existing agreements. The goal was freer trade

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some areas, not free trade in all. What pushed globalization along instead was the background of economic growth, equity, security, and stability that the Bretton Woods compromise helped prop up. Broad-based growth facilitated globalization because it helped take the sharp edge off the distributional impacts of trade. The choppiness of

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. Thus national policies promoted globalization mostly as a byproduct of widely shared economic growth along with some modest opening up. The success of the Bretton Woods era suggests that healthy national economies make for a bustling world economy, even in the presence of trade controls.6 Consider the long list of

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, albeit within a loose framework of international cooperation. When trade threatened domestic distributional bargains, trade would give way. John Ruggie, the preeminent analyst of the Bretton Woods era, has called this mechanism “the compromise of embedded liberalism.” “Unlike the economic nationalism of the thirties,” Ruggie writes, the regime “would be multilateral

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different nations doing their own thing. In that respect the institution proved spectacularly successful. Viewed this way, we begin to appreciate a key point about Bretton Woods: what purists increasingly viewed as “derogations” from the principles of free trade were in fact instances of regime maintenance. Anti-dumping duties, the MFA,

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different understanding. Along with the onset of financial globalization around 1990, the WTO marks the pursuit of a new kind of globalization that reversed the Bretton Woods priorities: hyperglobalization. Domestic economic management was to become subservient to international trade and finance rather than the other way around. Economic globalization, the international

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have protected poor farmers against a sudden surge of agricultural imports.14 These tensions are inherent in the aggressive push for hyperglobalization that replaced the Bretton Woods consensus and shattered Ruggie’s “embedded liberalism compromise.” Trade officials and technocrats become tone-deaf to other economic and social objectives when the pursuit

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its own. My Harvard colleague Robert Lawrence makes a useful distinction between “shallow” and “deep” versions of global integration.15 Under shallow integration, as in Bretton Woods, the trade regime requires relatively little of domestic policy. Under deep integration, by contrast, the distinction between domestic policy and trade policy disappears; any discretionary

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Broad-based economic growth could help diminish the tensions, but that objective would require locally tailored strategies and the requisite domestic maneuvering room, as under Bretton Woods. As Blinder indicates, we cannot take it for granted that the potential economic benefits of this new wave of globalization will accrue to the many

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had begun to dismantle the controls they maintained over cross-border lending and borrowing, as the advanced countries themselves did following the dissolution of the Bretton Woods regime. Traditionally, domestic residents in these countries had legally not been permitted to take their money out of the country to invest in foreign

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winning his argument. Despite resistance from many developing countries, an IMF interim committee declared that it “is time to add a new chapter to the Bretton Woods agreement.” Private capital flows had become much more important to the global economy, and the committee expressed its view that “an increasingly open and

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trade agreements to renounce capital controls. This signaled a momentous transformation in policy beliefs. We need to return to the original Bretton Woods agreement to appreciate its full significance. The Bretton Woods Consensus on Capital Controls It would be difficult to overstate the strength of the consensus in favor of capital controls in

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money’ varieties, will be desirable for most countries not only in the years immediately ahead but also in the long run as well.”11 The Bretton Woods arrangements fully reflected this consensus. As Keynes himself would make clear, the agreement gave every government the “explicit right to control all capital movements”

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of the policies pursued elsewhere. This global leveling of policy was unacceptable in view of Keynes’s desire (widely shared by other architects of the Bretton Woods regime) to put domestic economic and social goals ahead of the global economy. There was an alternative to capital controls. Countries might opt for

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trade required higher transaction costs in international finance—in other words, capital controls. Free capital mobility was out and capital controls were in. The Bretton Woods regime championed the principle that national economies needed management to ensure full employment and adequate growth. This in turn required that they have sufficient “policy

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ounce. Even though all other countries could in principle devalue their currencies, the system relied on the United States never doing so itself. The Bretton Woods regime depended on what came to be called the “dollar-exchange standard.” What if the United States faced a conflict between its domestic requirements and

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. This fateful decision, taken on August 15, 1971, sealed the fate of the global regime of fixed exchange rates, the monetary cornerstone of the Bretton Woods regime. Once again, the domestic economy had triumphed over the needs of the global economy. In subsequent years there were various attempts to establish new

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currency parities, but none proved durable. The move to floating currencies was officially sanctioned in 1973. The Dissolution of the Bretton Woods Consensus The success of the Bretton Woods regime contained the seeds of its undermining. As world trade and finance expanded, the “policy space” that the existing controls afforded shrank

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of liberalization and the benefits of capital mobility. Just as in trade, an agenda of deep integration centered on free capital mobility would replace the Bretton Woods compromise. The 1960s were the heyday of Keynesian ideas on economic management. The oil shocks and the stagflation of the 1970s—which confronted advanced

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became orthodoxy had become heresy once again. When Financial Markets Misbehave With fixed exchange rates and capital controls gone, two key planks of the original Bretton Woods consensus had been shelved. In the years that followed, international financial markets would exert significant influence on the conduct of economic policy. At the

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to remain stable. Britain had two major devaluations between 1945 and 1973 (in 1949 and 1967), but these were aimed at removing what in the Bretton Woods regime were called “fundamental disequilibria,” and were followed by periods of stability in foreign currency markets. The post-1973 floating experience looks like something

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champions of the last three decades, just as those of the immediate postwar decades, were countries such as China that played the globalization game by Bretton-Woods rules rather than deep integration rules. They maintained capital controls, kept foreign finance at bay, and used their policy space for domestic economic management

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a perfect world, and caution dictates that we not let financial markets run wild. Let us return to James Tobin, one of the earliest post–Bretton Woods advocates of capital controls within the economics establishment. Before he floated his proposal to tax international currency transactions, Tobin carefully considered the hedgehogs’ ideal

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by national policy makers—in addition to improved international regulatory standards designed, among other things, to penalize excessive leverage. We cannot return to the Bretton Woods regime, but we can still learn a lot from that experience. The compromise that energized the world economy in the aftermath of World War II

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difficult to diversify out of agriculture and other traditional products otherwise. China (like South Korea and Taiwan before it) played the globalization game by Bretton Woods rules rather than the post-1990 rules of deep integration. The Diversification Imperative You become what you produce. That is the inevitable fate of nations

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up the slack. But more on this in the next chapter. The only remaining option sacrifices hyperglobalization. The Bretton Woods regime did this, which is why I have called it the Bretton Woods compromise. The Bretton Woods–GATT regime allowed countries to dance to their own tune as long as they removed a number of border

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unprecedented economic growth rates until the late 1970s under import-substitution policies that insulated their economies from the world economy. As we saw, the Bretton Woods compromise was largely abandoned in the 1980s as the liberalization of capital flows gathered speed and trade agreements began to reach behind national borders. The

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at the national level. More restrained forms of globalization need not embrace the assumptions inherent in deep integration. By placing limits on globalization, the Bretton Woods regime allowed the world economy and national democracies to flourish side by side. Once we accept restraints on globalization, we can in fact go one

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narrowly technical areas and encompass broader social purposes? Yes, says John Ruggie, the Harvard scholar who coined the term “embedded liberalism” to describe the Bretton Woods regime. Ruggie agrees that transnational networks have undermined the traditional model of governance based on nation states. To right this imbalance, he argues, we need

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. The postwar model required keeping the international economy at bay because it was built for and operated at the level of nation states. Thus the Bretton Woods– GATT regime established a “shallow” form of international economic integration, with controls on international capital flows, partial trade liberalization, and plenty of exceptions for

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globalization while explicitly recognizing the virtues of national diversity and the centrality of national governance. What we need, in effect, is an updating of the Bretton Woods compromise for the twenty-first century. This updating must recognize the realities of the day: trade is substantially free, the genie of financial globalization

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national institutions. Relying on nation states to provide the essential governance functions of the world economy does not mean we should abandon international rules. The Bretton Woods regime, after all, did have clear rules, even though they were limited in scope and depth. A completely decentralized free-for-all would not

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international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.” 2 Raymond Mikesell, The Bretton Woods Debates: A Memoir (Princeton: Princeton Dept. of Economics, International Finance Section, Essays in International Finance, no. 192, 1994). 3 John Ruggie has called this

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Fifty-eighth Annual Meeting of the American Economic Association (May 1946), p. 687. 12 John Maynard Keynes, “Activities 1941–1946: Shaping the Post-war World, Bretton Woods and Reparations,” in D. Moggridge, ed., The Collected Writings of John Maynard Keynes, Vol. 26 (Cambridge: Cambridge University Press, 1980), p. 17. 13 Abdelal,

Stolen: How to Save the World From Financialisation

by Grace Blakeley  · 9 Sep 2019  · 263pp  · 80,594 words

to us to bring that new world into being. CHAPTER ONE THE GOLDEN AGE OF CAPITALISM In 1944, the great and the good met in Bretton Woods, New Hampshire, to discuss rebuilding the world economy in the wake of the bloodiest war in history.1 The American delegation, led by Harry Dexter

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better — the splendour and superiority of the American way was to be shown at every turn. It is somewhat ironic that the decadent crowd at Bretton Woods came up with an agreement that would hold back the re-emergence of the gilded age of the inter-war years

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. Bretton Woods was meant to prevent the outbreak of not only another world war, but also another Wall Street Crash. Keynes argued forcefully that doing so would

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from the first half of the twentieth century on the back foot, which made reining in the parasitic rentier class easier. Whilst the negotiators at Bretton Woods were undoubtedly concerned with securing the profitability of their domestic banking industry — not least the emerging power of Wall Street — just one banker was invited

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capital mobility served to hem in those powerful pools of capital that had wreaked such havoc in the global economy in the period before 1929. Bretton Woods was a significant step forward in reining in the rentier class. But Keynes didn’t get everything he wanted. He was hindered in his battle

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US gained the “exorbitant privilege” of controlling the world’s reserve currency.5 In other words, as well as constraining international finance, Bretton Woods also institutionalised American imperialism.6 The Bretton Woods conference marked the dawning of a new era for the global economy. Europe set about the long processes of post-war reconstruction

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’s newest superpower profited handsomely.7 Trade flows increased after the years of autarky during the war, and a new age of globalisation began. Whilst Bretton Woods provided the international framework for this economic renewal, it was at the level of national economic policy that the transition from pre-war laissez-faire

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significant influence on economic policy in the post-war period. The destruction of the war, the increasing size of the state, and the arrival of Bretton Woods led to something of a rebalancing in the power of labour relative to capital within the states of the global North.9 The rising political

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in US banks were able to put their dollars in London instead. London’s Eurodollar markets grew substantially as a result. The Eurodollar markets undermined Bretton Woods by creating a global system of unregulated capital flows.13 Those investors holding dollars — pretty much everyone, given the use of the dollar as the

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Eurodollar markets gave the City of London a new lease of life. But the growth of the Eurodollar markets wasn’t the only threat to Bretton Woods that emerged in the 1970s. The increase in international trade that took place in the post-war period benefitted some countries more than others. US

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the 1970s. The combination of the emergence of the Eurodollar markets and the rise of the multinational corporation were beginning to place serious strain on Bretton Woods. But it was the US government — not the banks — that dealt the final blow to the system that it had helped to create. With the

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were far too many dollars in circulation to keep up the pretence, in 1971 Nixon announced that dollars would no longer be convertible to gold. Bretton Woods was finally over. Many expected a sharp devaluation of the dollar at this point, but this didn’t happen. In fact, the dollar — strong as

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used as the global reserve currency, even in the absence of any link with gold. Finally, the real foundations Bretton Woods had been exposed: American imperial power. The gold peg established at Bretton Woods was not the source of the dollar’s value; the source of its value was a collective agreement that dollars

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, the power of the US Treasury was finally unleashed, with consequences that would not be felt for three and a half decades. The end of Bretton Woods represented a profound transformation in the international monetary system. Absent any link with gold or any other commodity, money became nothing more than a promise

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. Private banks were also now free to create currency on their behalf in the form of credit, constrained only by domestic regulation. The collapse of Bretton Woods represented the final step away from a system of commodity money, which has been the norm for most of human history, and towards fiat and

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of money. The implications of this change would be far more profound than anyone could have seen at the time.16 With the demise of Bretton Woods, capital was finally released from its cage. Many countries continued to maintain capital controls and strict financial regulation. But the glut of dollars that had

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emerged at the international level needed somewhere to go. Meanwhile, the capital that had been stored up within states like the UK under Bretton Woods was desperate to be released into the global economy. It pushed and strained against the continued existence of capital controls, finding ever more ingenious ways

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the remnants of the post-war order finally to fall. The Political Consequences of Social Democracy Just as Bretton Woods was collapsing, the social democratic model was starting to show signs of strain.17 Bretton Woods created a global economy, with global corporations, global supply chains, and global competition. Eventually, the system became a

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against the dollar until, in 1976, sterling below $2 for the first time.19 In this context, one might have thought that the end of Bretton Woods would be good for British capitalists. Freed from the overvalued exchange rate, manufacturers would now finally be able to compete internationally once again. But decades

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was muted during the early years due to the investment and aid being sent by the US and the increase in global trade facilitated by Bretton Woods. But when things started getting tough — when inflation increased and competition from abroad began to erode profits — these tensions exploded onto the national stage. It

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under pressure, only one thing determined who got the gains from growth: who had the power. Thanks to rising capital mobility and the breakdown of Bretton Woods, the balance of power between capital and labour had changed by the 1970s. Capitalists could threaten to up and leave if they didn’t like

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collapse of the post-war consensus as anyone else. They had spent decades working at the global level, trying to unpick the regulations that underpinned Bretton Woods, but the national social democratic settlement looked stable in comparison. The Seventies changed everything. With the US state having dealt the final blow to

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Bretton Woods, the neoliberals felt emboldened. They knew that this spelled the beginning of the end for capital controls. Rising capital mobility would stand them in good

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by much deeper shifts in the way the global economy works. It is hard to imagine how shareholders wouldn’t have used the collapse of Bretton Woods and the rise of financial globalisation to increase their power, even if the political struggles that took place within different states determined how much their

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who gets what.30 The mass-scale channelling of people’s savings into stock markets via pension funds and insurance funds after the end of Bretton Woods and the financial deregulation by the 1980s allowed institutional investors and wealthy individuals from around the world to channel money into the UK’s stock

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in place of a class of powerful workers. The rise of debt-fuelled growth was facilitated by developments at the international level. The demise of Bretton Woods meant that the state no longer had an exchange rate target, which it met by controlling the amount of currency in circulation.6 This represented

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into or out of a country would have made it all but impossible for governments to maintain the exchange rate pegs at the heart of Bretton Woods. But with the removal of restrictions on capital mobility and the rise of the institutional investor, this all changed. Suddenly, a decision on the part

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to socialism”. He could not have picked a more inopportune moment to advance such an agenda. International finance had been emboldened by the death of Bretton Woods and the birth of neoliberalism in the US and the UK — investors were not about to allow one of the world’s largest economies to

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explains the unique depth and breadth of the crisis, as well as much of what has taken place since. Financial Globalisation With the collapse of Bretton Woods and the removal of restrictions on capital mobility, capital was now free to flood into nearly every corner of the globe, giving rise to a

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provided their ailing domestic banks with much needed capital. They rushed to implement stimulus programmes, cut interest rates, and launched the biggest monetary experiment since Bretton Woods in the form of quantitative easing. Those countries not in control of their own monetary policy found themselves facing the wrath of the bond markets

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The Golden Age of Capitalism 1 This account draws on: Conway, E. (2016) The Summit: Bretton Woods, 1944: J. M. Keynes and the Reshaping of the Global Economy, Cambridge: Pegasus; Steil, B. (2014) The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White and the Making of a New World Order, USA: Princeton

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(1997) British Politics Since 1945: The Rise, Fall and Rebirth of Consensus, Hoboken: Wiley; Helleiner, E (1994) States and the reemergence of global finance: From Bretton woods to the 1990s, New York: Cornell University Press; Duménil and Levy (2004) 10 See, e.g., Addison (1975); Dutton (1997); Duménil and Levy (2004); Boyer

Paper Promises

by Philip Coggan  · 1 Dec 2011  · 376pp  · 109,092 words

CHOICES THE EURO Chapter 7 - Blowing Bubbles FORTY YEARS OF BUBBLES THE MINSKY EFFECT THE SUB-PRIME BOOM BUBBLES, PAPER MONEY AND THE END OF BRETTON WOODS WHACK-A-MOLE DISGUISED INFLATION Chapter 8 - Riding the Gravy Train EFFICIENT-MARKET THEORY REGULATION THE BIGGER, THE BETTER A CHANGE OF ATTITUDE Chapter 9

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allowed me to develop my own interpretation of events. Special mention should be given to Richard Duncan, whose books suggested the idea that the post-Bretton Woods era and asset inflation were intimately related. In researching this book, I have been lucky to work for such an understanding employer as the Economist

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on creditors were rejected by the Americans, a decision that the US may be starting to regret, given China’s financial power. The collapse of Bretton Woods in the 1970s seemed to favour the debtor countries, not the creditors. Countries were now free to depreciate their currencies on a regular basis. Many

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hundred years have revolved around changes in exchange-rate systems, from the abandonment, re-adoption and then re-abandonment of the gold standard, through the Bretton Woods agreement of 1944 and its failure in the early 1970s, to the creation of the European Exchange Rate Mechanism, which was followed by the adoption

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globe. But, as we shall see, they were at times forced to adjust interest rates to defend the standard, regardless of domestic economic conditions. Under Bretton Woods, exchange rates were fixed, interest rates were set domestically, but capital did not flow freely. This stopped speculators from exploiting interest rate differentials between countries

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follows this approach, managing its exchange rate within tight bands and limiting the scope for foreigners to build up renminbi holdings. Since the failure of Bretton Woods, developed countries have stopped trying to fix their exchange rates, allowing them to let capital flow freely and to set their own interest rates. At

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comprising fixed percentages of the dollar, pound, yen and various European currencies. But the SDR was not to be used seriously until well after the Bretton Woods era was past.) Under Keynes’s plan, a country with a persistent deficit would run up against its overdraft limit, and would devalue its currency

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circulation, nor could private investors convert their bank notes into bullion. Only other central banks had that privilege with the US Federal Reserve. The original Bretton Woods agreement tried to avoid another problem associated with the gold standard – it recognized the right of nations to devalue their currencies. The idea was to

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They did not want the markets to have the ability to point out when monetary policy was incompatible with the exchange-rate target. Establishing the Bretton Woods system evoked many of the arguments that still rage today. Graham favoured floating exchange rates, but that turned out to be a policy whose time

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the 1960s and 1970s by the Chicago economists Milton Friedman and Robert Lucas. The creation of the euro owes much to the feeling – prevalent at Bretton Woods – that exchange rates should be stable and speculation curbed. And the need to impose obligations on creditor and surplus nations is now an argument used

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enlightened self-interest. By allowing European countries to recover, it created vast markets for US exports and prevented many countries from descending into communism. The Bretton Woods era is still seen by many people as an extraordinary success. This was undoubtedly true of continental Europe, which recovered remarkably quickly from the worst

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period was marked by the constant industrial disputes that caused Britain to be dubbed ‘the sick man of Europe’. For their different reasons, when the Bretton Woods system did break down, Britain and America were far more ready to adopt monetarist and free-market ideas than the Europeans, for whom the social

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as an ‘exorbitant privilege’ granted America, which could print money and receive goods in exchange. This process also created a long-term problem for the Bretton Woods system. The system required foreign countries to have faith in the dollar but it also required the US to print dollars, behaviour that weakened their

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the value of its gold stock.11 The Europeans felt that the US should tailor its economic and financial policies to the requirements of the Bretton Woods system. That would require American politicians to subordinate domestic policies to international needs. But US presidents had to cope not only with public opinion,

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an immensely important development in financial history since it created a financial market outside the control of governments. Capital controls had been imposed in the Bretton Woods system, but rules governing the finance of trade flows were relaxed in 1958. European exporters to the US could build up dollar balances. The

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. The development of the Eurobond market was also an early sign of the international flows of capital that were eventually to help bring down the Bretton Woods system. Money was being transferred across borders and between currencies, and that meant it could switch out of currencies about which investors had doubts.

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up their gold reserves, a sign that the belief in commodity money had not been eradicated. Filippo Cesarino writes that ‘central banks did not see Bretton Woods as a pure dollar standard but rather as a system hinged on the dollar’s convertibility into gold. The steady expansion of official dollar holdings

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policies that promoted expansion, and central banks (with some exceptions such as the Bundesbank) did not counter loose fiscal policy with tighter monetary policy. The Bretton Woods system had worked very well for more than twenty years, delivering economic growth with low unemployment. Arguably, however, fixed exchange rates only played a limited

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move with a 10 per cent surcharge on imports – a blatant attempt to force other countries to revalue their currencies. The Bretton Woods system was over. It could be argued that Bretton Woods was doomed by the attempt to combine fixed exchange rates with a full employment policy. Arguably these two aims were not

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countries all the time. The switch to floating exchange rates in the 1970s was followed by much higher rates of unemployment than had occurred under Bretton Woods, and the monetarists were accused of being callous about the plight of the unemployed because of their obsession with inflation. Another problem was that the

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Promises ‘Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.’ Milton Friedman With the demise of Bretton Woods, money was free of its link to gold, the ‘barbarous relic’ as Keynes had described it. In the ancient battle between creditors and debtors,

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system to last a few years at most. Instead, it has lasted forty. The 1970s were a very turbulent decade. Apart from the abandonment of Bretton Woods, it also saw a battle between two very different visions of how economic policy should be run: Keynesianism and monetarism. The hold of Keynesianism was

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The ‘bond market vigilantes’ would keep errant governments in line, and head off an inflationary rebound. By itself, this was a crucial difference from the Bretton Woods era. Capital controls meant that, until the late 1960s, the markets played a limited role in disciplining governments. Instead, the key role was played by

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plenty of countries had no track record of anti-inflationary success with which to impress sceptical investors. Many developing nations accordingly tried to continue the Bretton Woods system by other means, by pegging their currency to the US dollar. In effect, they were piggybacking on the perceived strength of the world’s

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the adjustment has not occurred. Some countries have been almost permanently in deficit; others in surplus. The US was just edging into trade deficit when Bretton Woods collapsed but it still had the advantage of the assets accumulated during the long period of post-war US strength. But by 1985, foreigners had

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in driving short-term movements of the dollar. The US could run repeated deficits without triggering the kind of crisis that would have occurred under Bretton Woods. Inflation For investors, it makes sense for inflation to be a determining factor in currency markets. Inflation reduces the purchasing power of a currency;

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developments which have occurred since the euro was created. The third motive was to strike a blow against international finance. In the aftermath of the Bretton Woods collapse, European countries made a number of attempts to set up managed exchange-rate systems. The first, known as the snake, was launched alongside

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One answer would have been to adjust economic policy so as to eliminate the difference with other countries. But European nations, like the US under Bretton Woods, wanted both to run expansionary policies and to have stable currencies. A classic example was the Mitterrand government that took office in France in 1981

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standard of living. Most of these booms end badly.’2 FORTY YEARS OF BUBBLES The last forty years of economic history (since the collapse of Bretton Woods) have been remarkable. Not only have they seen an explosion in debt and in money creation, unprecedented swings in exchange rates and the massive growth

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profits were limitless. The mania only collapsed when it was clear that many lines lacked sufficient passengers to make them profitable. However, the end of Bretton Woods released the remaining brake on the system. There was no limit to the amount of money and credit that could be created. Countries no longer

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a year, while the debt-to-GDP ratio has soared to more than 300%.20 To sum up, something fundamental changed after 1971, when the Bretton Woods system collapsed. Floating exchange rates allowed larger trade deficits and greater international capital movements. In turn, this allowed the financial sector to grow as a

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are the new American oligarchy – a group that gains political power because of its economic power.’ Simon Johnson and James Kwak, 13 Bankers The post-Bretton Woods era has not just produced bubbles. It has also been accompanied by another remarkable development – the phenomenal growth of the financial sector. As we read

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outside world for help. In the 1980s and 1990s, sovereign debt crises forced governments to turn to the International Monetary Fund. The demise of the Bretton Woods system had caused the fund to remake itself as an emergency provider of finance to the developing world. These loans often carried strict conditions that

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European countries moved over to a welfare-state model, followed at a slower pace by the US, through Lyndon Johnson’s Great Society reforms. The Bretton Woods system of fixed exchange rates just about worked for twenty-five years, dependent on the control of capital flows and that international investors had confidence

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convertibility was abandoned. It changed in the 1930s’ Depression as countries went off the gold standard. And it happened again in the 1970s as the Bretton Woods system collapsed. The system breaks down either because the debtors cannot, or will not, meet their obligations, or because creditors fear they are not being

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attempt to reduce the income of creditors by cutting the bond yield.2 Creditors have been dicing with danger ever since the breakdown of the Bretton Woods system. After 1971, countries were free to depreciate their currencies at will. Many duly did so. Nations also ran budget and trade deficits for

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a medium of exchange. But before we dismiss all the ideas for reform, we should remember that the world operates under what some call a Bretton Woods II regime, with the Americans buying Chinese goods and the Chinese supplying the finance. The implication of this process is everlasting US trade deficits and

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and outright default is almost unthinkable. But governments did manage to reduce their debt burdens after the Second World War, under the auspices of the Bretton Woods system. In a March 2011 paper, Carmen Reinhart and Belen Sbrancia argue that the success of this debt-reduction programme was down to ‘financial repression

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more flexible exchange rate. How would such a managed exchange-rate system work? After all, it eventually proved impossible to keep exchange rates pegged under Bretton Woods. But the system did work for a quarter of a century. If an exchange-rate peg gives speculators a tempting target, the answer will be

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system next week or next year. After the gold standard collapsed in the early 1930s, it took another decade, and a world war, before Bretton Woods was agreed. Bretton Woods collapsed in 1971, but order was not really restored to the financial system until the 1980s. However, eventually, if Chinese power grows as fast

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the Great Depression 1919 – 1939, Oxford, 1995 and Globalizing Capital: A History of the International Monetary System, Princeton, 2008. 6 Filippo Cesarino, Monetary Theory and Bretton Woods: The Construction of an International Monetary Order, Cambridge, 2006. 7 J. K. Galbraith, Money: Whence It Came, Where It Went, 2nd edn, London, 1995.

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Fetters: The Gold Standard and the Great Depression 1919 – 1939, Oxford, 1995. 9 Keynes, Economic Consequences of Mr Churchill. 10 Filippo Cesarino, Monetary Theory and Bretton Woods: The Construction of an International Monetary Order, Cambridge, 2006. 11 Richard Duncan, The Corruption of Capitalism, Hong Kong, 2009. 12 Barry Eichengreen and Peter Temin

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Bank and Europeans the IMF. 12 Carmen Reinhart and Belen Sbrancia, ‘The Liquidation of Government Debt’, NBER Working Paper 16893, March 2011. 13 Russell Napier, ‘Bretton Woods on Speed’, CLSA research note, November 2010. Bibliography Some suggestions for further reading: Acharya, Viral and Richardson, Matthew, eds, Restoring Financial Stability: How to Repair

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in the Zero Era, London, 1996. Calder, Lendol, Financing the American Dream: A Cultural History of American Debt, Princeton, 1999. Cesarino, Filippo, Monetary Theory and Bretton Woods: The Construction of an International Monetary Order, Cambridge, 2006. Chapman, Meyrick, Don’t Be Fooled Again: Lessons in the Good, Bad and Unpredictable Behaviour of

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of the South Sea Bubble, London, 1960. Davies, Glyn, A History of Money: From Ancient Times to the Present Day, Cardiff, 2002. Dormael, Armand van, Bretton Woods: Birth of a Monetary System, New York, 1978. Duncan, Richard, The Dollar Crisis, rev. edn, New York, 2005. —The Corruption of Capitalism, Hong Kong,

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von Black Death Black Monday black swan Blackstone Blair, Tony Blum, Léon BMW Bodencreditanstalt Bohemia Bolsheviks Bonnet, Georges Bootle, Roger Brady, Nicholas Brady bonds Brazil Bretton Woods system Brodsky, Paul Brooke, Rupert Brown, Gordon Bruning, Heinrich Brutus Bryan, William Jennings bubbles budget deficits budget surplus building societies Buiter, Willem Bundesbank Burns, Arthur

Unfinished Business

by Tamim Bayoumi  · 405pp  · 109,114 words

economic instability—and also to World War II. By contrast, the more radical revamp of the global economic order after World War II at the Bretton Woods conference ushered in a long period of growth and prosperity. The crucial question is whether the response to this crisis is a new Versailles or

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a new Bretton Woods. The first section of this book, “Anatomy of the North Atlantic Financial Crisis”, explains how the North Atlantic financial system became so brittle. There was

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an effort to deepen as well as widen the European Community to create a counterweight to the US dollar. Unlike the earlier gold standard, the Bretton Woods system set up at the end of World War II involved a two-tiered global system, with the dollar pegged to gold and other currencies

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, they agreed that the European currencies would fluctuate in modestly narrower limits against each other than those implied by bands around the dollar in the Bretton Woods system, an extremely modest move to European monetary integration.11 These new bands were supposed to be put in place in June 1971, but this

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of a European Monetary Cooperation Fund to support this move.12 This distinctly half-hearted agreement, however, did not survive the final collapse of the Bretton Woods fixed exchange rate system in 1973. Ultimately, the unwillingness of the French, in particular, to surrender sovereignty over fiscal policy to the European Council torpedoed

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the period from the early 1970s to the mid-1980s plans for monetary union were overshadowed by monetary instability coming from the collapse of the Bretton Woods system of fixed exchange rates. Globally, the main challenges were managing the switch from fixed to floating exchange rates and taming inflation, which rose in

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within 2¼ percent of each other’s central parities, half the amount allowed under the Smithsonian Agreement that attempted to resuscitate the doomed dollar-based Bretton Woods fixed exchange rate system. The snake was also widened to include prospective new members of the Community, with the United Kingdom, Ireland, Denmark, and Sweden

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the 2¼ percent fluctuation margins between European currencies while ending any efforts to stabilize their currencies against the dollar. This marked the moment when the Bretton Woods exchange rate system was replaced by a global float of the major currencies overlaid by attempts to stabilize intra-European exchange rates via the snake

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exchange rate regime). Parities could be altered, in theory after discussion with other partners, although in practice this was often ignored (as in the earlier Bretton Woods exchange rate system). Initially dismissed by some as “a mere crawling peg”, the early years saw relatively frequent changes in parities given major difference in

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the 1930s Great Depression in mind, economic cooperation and the avoidance of negative spillovers from exchange rate devaluations was central to the design of the Bretton Woods exchange rate system. In this system, described in more detail in the next chapter, countries kept their exchange rates fixed against the US dollar, which

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two objectives (full employment and a desirable trade balance). Support for this integrated policy framework started to fray soon after the break-up of the Bretton Woods system in the early 1970s as belief in the active use of fiscal policy waned. This came in large part from a backlash against the

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by an erosion in the belief that policymakers needed to worry about the trade balance. Coming immediately after the financial turmoil of the 1930s, the Bretton Woods system had been sympathetic to government-imposed constraints on the transfer of money across borders. As time went on, however, these constraints started to be

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. Another consequence was that fiscal policy came to be seen as largely ineffective, shifting the focus of policy to central banks. The consensus in the Bretton Woods era that both monetary policy and fiscal policy had a role to play in stabilizing the economy was increasingly replaced by a view that monetary

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financial crises are largely limited to emerging markets and the weakness of their policies. The first of these crises was the break-up of the Bretton Woods fixed exchange rate system in the early 1970s as debt flowed from the United States to Germany and Japan, countries whose economic policies were considered

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the lens of footloose international debt flows that have ebbed and flowed across regions. The Center Cannot Hold: Collapse of the Bretton Woods Fixed Exchange Rate System The collapse of the Bretton Woods fixed exchange rate system in the early 1970s was a watershed event.10 It marked the end of international efforts to

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that replaced it between World Wars had foundered because the parities across currencies were too rigid, creating constraining “golden fetters”.11 In response, the 1944 Bretton Woods conference created a new and more flexible fixed exchange rate system in which countries could adjust their parities in the face of persistent trade deficits

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to limit flows of assets between countries so as to reduce potentially disruptive speculative flows that had bedeviled the interwar gold exchange standard.12 The Bretton Woods system comprised a two-tier exchange rate system in which the dollar was fixed to gold and other currencies were fixed against the dollar. More

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to funds.13 The system became gradually less flexible as the size of international capital flows increased. The neat distinction envisioned by the founders of Bretton Woods between trade-related “current account” transactions and “capital account” transactions in which financial assets were bought and sold became increasingly leaky over time. For example

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old parity continued to be respected for transactions between central banks. The separation of the private and official gold parities sealed the fate of the Bretton Woods system since it took away its underlying logic. The unwillingness of the United States to run the policies necessary to maintain the gold parity undermined

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foreign imports and stopped exchanging gold with foreign central banks. Following four months of negotiations, the major countries agreed to a major overhaul of the Bretton Woods system at the Smithsonian Conference in Washington. The dollar was devalued by 8 percent against gold, the currencies of the other major countries were revalued

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to the Deutsche mark and the yen, Germany and her European partners floated their currencies against the dollar and the Bretton Woods fixed exchange rate system finally expired. The felling of the Bretton Woods system came from the unwillingness of the United States to subordinate its domestic priorities to the need to maintain a

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American debt crisis came from the need to recycle oil producers’ rising holdings of dollars to new borrowers.15 Soon after the collapse of the Bretton Woods system in 1973 came the 1974 quadrupling of the price of oil, followed by a further doubling in 1979. Since oil was priced in dollars

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international debt pendulum was swinging back to the advanced countries. The Outskirts Cannot Hold: The European Exchange Rate Mechanism Crisis After the collapse of the Bretton Woods fixed exchange rate system, the European Economic Community (EEC, later the European Union) tried to maintain fixed exchange rates across its membership even as the

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. The initial arrangement to foster exchange rate stability was the European snake, set up in 1971 as part of the failed attempt to salvage the Bretton Woods system at the doomed Smithsonian Conference.20 The conference agreed to widen the band of fluctuations around dollar parities from 1 to 2¼ percent. This

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, Belgium, and Luxembourg) with Germany was often referred to by the even less appealing tag of “the worm”. These animals survived the collapse of the Bretton Woods system. However, faced with the financial turbulence of the 1970s and the fact that most of the onus to maintain the parity was on the

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was not made public as Schmidt explained that its disclosure would have ended any chances of an agreement at the European level.22 As with Bretton Woods, the ERM gradually hardened and realignments became less common. With the system becoming less flexible and more politicized, investors became less worried about unexpected changes

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of US or Germany policies that helped precipitate the Latin American and ERM meltdowns, respectively, or the multiple speculative attacks at the end of the Bretton Woods system. As in earlier crises, financial markets gave few warnings signs of growing imbalances. Instead of the gradual building of investor concerns about the region

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: The North Atlantic Crisis In many respects the 2008 North Atlantic crisis was an amalgam of these earlier experiences. As in the case of the Bretton Woods break-up, unsustainable imbalances in the United States (in this case driven by private financial flows) led to global disruptions. In the

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Bretton Woods episode, these disruptions were limited because of the controls on private capital flows so that most of the losses were on holdings of dollar reserves.

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cases where banks deliberately financed a crisis on the assumption that they would be bailed out. Banks were not important drivers of the collapse of Bretton Woods or the ERM crises. Bank flows played a more important role in the Asia crisis, but excessive optimism about future growth seems to be a

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Figure 45 at the end of this chapter reports the results for every major country involved in each crisis.29 In the case of the Bretton Woods break-up (the earliest of the advanced country crises) the misery index for the United States is just one, implying a reduction in spending of

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the Latin American crisis, rising to over 30 for the subsequent Asian crisis. This is over thirty times the shock to spending created by the Bretton Woods break-up on the United States, with half of the fall in spending being borne by the crisis countries. It is easy to understand why

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to emerging markets are offset by their smaller weight within the world economy. The impact on global spending rises steadily from around ¼ percent for the Bretton Woods crisis of the late 1960s/early 1970s to 1 percent by the time of the Asia crisis of the late 1990s. It then jumps massively

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composition of debt seems less important, as the relative role of bank and bond finance varies widely. In the case of the break-up of Bretton Woods and the Latin American debt crisis, most of the flows came from banks. By contrast, for the ERM crisis, bond and bank outflows were of

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, where rapid inflows followed by even faster outflows have driven a regular cycle of ever larger international crises, starting with the break-up of the Bretton Woods fixed exchange rate system in the early 1970s and culminating in the North Atlantic crisis almost forty years later. Finally, while some of the flaws

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.Bergsten and Green (2016). 9.IMF (2012b) paragraph 18 and references therein. 10.Garber (1993) contains a more detailed description of the collapse of the Bretton Woods system. 11.Eichengreen (1992). 12.Eichengreen (2008) contains a description of the evolution of capital market regulation over time. 13.Skidelsky (2001). 14.The

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Bretton Woods system came to maturity in 1960 after the termination of the European Payments Union (EPU), an arrangement that curtailed even current account transactions because of

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of the crisis that argues that banks lent on the expectations of a bail-out. 27.A partial exception may be the break-up of Bretton Woods, since its likely demise was in the words of one commentator “one of the most accurately and generally predicted of major economic events”, Garber (1993

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terms. However, the misery index still provides an intuitive measure of the size of a crisis. 29.The United States for the break-up of Bretton Woods, Mexico and Brazil for the Latin American crisis, the United Kingdom, Italy, and France for the ERM, Thailand, Malaysia, Indonesia, and South Korea in the

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Multipolarity, Peterson Institute for International Economics, Washington DC, 2012. Garber (1993): Peter Garber, “The Collapse of the Bretton Woods Fixed Exchange Rate System”, in Michael D. Bordo and Barry Eichengreen (eds), A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, Chicago University Press, Chicago, 1993. Geithner (2014): Timothy F. Geithner, Stress

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Asset Value calculation, (i) BNP Paribas ABS EONIA, (i) BNP Paribas ABS EURIBOR, (i) Brandt, Willy, (i) Brazil debts, (i) exchange rate collapse (1999), (i) Bretton Woods break-up of system, (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) conference, (i), (ii), (iii) fixed exchange rate system, (i), (ii), (iii) and monetary

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), (ii) on supervision of investment banking groups, (i) see also European Economic Community Evian, Switzerland, (i) Exchange Rate Mechanism (ERM) Balladur proposes reforms, (i) and Bretton Woods fixed exchange rate system, (i), (ii), (iii), (iv) crisis (1992-3), (i), (ii), (iii), (iv), (v) and Delors Committee, (i), (ii) and German reunification, (i

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, (i) currency as international standard, (i) currency union in, (i), (ii), (iii) debt outflows, (i) deregulation, (i), (ii) devaluation, (i) effect of break-up of Bretton Woods on, (i) effect of post-crisis changes, (i), (ii) Euro area lends to, (i), (ii) European universal banks in, (i), (ii) favors larger bank capital

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt

by Kwasi Kwarteng  · 12 May 2014  · 632pp  · 159,454 words

and specialist field, that of monetary history. Currency arrangements – the gold standard, which tied the value of a currency to a fixed amount of gold, Bretton Woods, the Smithsonian Agreement of 1971 – have been brokered in the aftermath, or have collapsed under the pressure, of war. It is fiscal policy – the

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belligerents faced an enormous burden of public debt. Yet, rather to the surprise of many politicians at the time, the monetary arrangements established by the Bretton Woods Agreement of 1944 still put gold at the centre of the system. This time it would be the dollar, and not the pound sterling, which

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‘continental’ paper money, were followed by periods of relative order, exemplified by the gold standard. In much the same way, the relative order of the Bretton Woods arrangements, which lasted almost three decades, followed the disorder of the 1920s and 1930s. It could be argued that the post-1971 settlement, in which

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at any rate, a thinker and writer of real quality, in the form of John Maynard Keynes, had lent an intellectual respectability to them. 10 Bretton Woods Bretton Woods is a phrase which denotes an entire era in the monetary management of the world’s economy. If the inter-war period can be called

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Dexter White, was composed of tough, legally trained bureaucrats who would not be bamboozled by the world-famous Englishman. Of course, by 1944, when the Bretton Woods conference took place, Keynes was at the height of his prestige. The advent of the coalition government in 1940 had swept away Conservatives like Neville

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an ‘inter-Allied stabilization fund’ which, in Morgenthau’s words, ‘should provide the basis for postwar international monetary arrangements’.6 The actual final outcome of Bretton Woods was, to many radicals who did not want to get back to the 1930s, surprisingly conservative. There were respects in which it differed from the

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old pre-war gold standard, but the Bretton Woods Agreement did, to a certain extent, preserve the fetish of gold worship. According to a modern economic historian of the era, there were three distinct

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areas in which the Bretton Woods settlement was different from the operation of the gold standard in its classical form. Firstly, instead of each currency being directly convertible to gold, currencies

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meant that the exchange rates of each currency were pegged indirectly to gold. The peg to the dollar was adjustable when what the negotiators at Bretton Woods called ‘fundamental disequilibrium’ took place. Secondly, capital controls were allowed to limit movements of international capital. The third new element was a new institution,

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but significantly less than the US$26 billion envisaged by Keynes.12 It was not only in the United States, however, that sceptics about the Bretton Woods arrangement arose. The link to gold had irked a number of people in Westminster. One British politician who expressed himself vociferously against the agreement was

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attached to gold and more enamoured with his own idea of Bancor. To Boothby, the White and Keynes plans were ‘irreconcilable’. The ‘agreement reached at Bretton Woods was achieved only because the original Keynes plan was totally abandoned’. Boothby described the Agreement as not even ‘a victory on points for White’. Keynes

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the other way round. Keynes observed in his speech that times had changed. ‘Public opinion is now converted to a new model . . . of domestic policy.’ Bretton Woods reflected this shift of opinion. It is ‘above all as providing an international framework for the new ideas and the new techniques associated with the

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the parliamentarians who had ‘dishonestly’ raised the ‘bugbear of gold’. The debate which took place in the House of Commons in May 1944 on the Bretton Woods proposals was, in Keynes’s view, ‘as disappointing as it could be’. The ‘discussion was certainly not one which did credit to the mother

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the liquidation of the British Empire.’22 Regardless of the motivations of the Americans, the relative strength of the two countries’ position was obvious. The Bretton Woods Agreement reflected White’s scheme rather than Keynes’s ‘not because it was technically superior, but because the Americans had the power’.23 Behind the

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as had occurred ‘between 1894–6 and 1867–8, before any appreciable revival of activity is felt’.33 Despite the remonstrations of Hawtrey and others, Bretton Woods was not a radical departure from the principles of the old finance. The gold link was maintained, much to the surprise of many. The desire

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and capital caused by the war, the economic response of the international community was, as Boothby and others had noticed, one of tepid conservatism. The Bretton Woods system relied, of course, on the United States dollar, but it had not abandoned the link to gold. It marked ‘a set of constitutional rules

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at the time of the Agreement believed would characterize flexible exchange rates. An element of stability was desirable to promote trade.34 More remarkably perhaps, Bretton Woods reflected a degree of international co-operation which had been manifestly lacking in the international politics of the first part of the twentieth century. In

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the economic field’. ‘Surely’, he continued, ‘it is a considerable thing for the experts of so many nations to have agreed’ to the settlement at Bretton Woods.35 To Camille Gutt, the Belgian politician who would serve as the first Managing Director of the International Monetary Fund, international co-operation in the

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monetary field,’ he wrote. This was because the ‘idea of money has always been allied to that of national sovereignty’.36 The wider significance of Bretton Woods was in its relative success as an effort of co-ordinated international statesmanship. Although it had the stamp of international co-operation, however, it was

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been located in Washington, the capital of the dominant military and economic nation in the world. The dollar was the basis of the monetary system. Bretton Woods may have marked a turning point in international co-operation, but it was, at the same time, an emphatic symbol and proof of the

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the House Banking and Currency Committee in May 1946, he declared himself ‘unequivocally in favour of the British loan’. To him, the whole point of Bretton Woods was that it provided a solution to the ‘British postwar balance of payments problem’. Without assistance in the form of the loan, Martin did not

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Bank [the World Bank] could take over’.11 The British loan was necessary for Britain to purchase American goods. If it failed, Martin argued, the ‘Bretton Woods program’ would fall ‘of its own weight’, and ‘the prospect of repayment of loans already made’ would be ‘substantially lessened’.12 The details of the

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of US government securities which would develop at the end of the twentieth century. The conservatism of the American banking sector was not that surprising. Bretton Woods itself had been, as we have already observed, a lesson in conservative statecraft. As the Canadian economist Jacob Viner noticed when commenting on the objections

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of English critics, ‘the program for postwar international economic relations which is contained in the provisions of the Bretton Woods agreements [and in] the Anglo-American loan agreement . . . reverts to nineteenth-century doctrines and practices for its inspiration’. Viner, a classical liberal, felt that

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like Humphrey and Martin who bore responsibility for the economic policies of the United States in the 1950s. Contrary to common perception, backed by the Bretton Woods Agreement’s connection of the dollar to gold, the 1950s marked an era of conservative approaches to budgets and currency. It was not a decade

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World War; its sudden collpase had an equally global impact. GETTY IMAGES The resort where the global financial system was repaired. The agreement reached at Bretton Woods would last more than a quarter of a century from 1944 to 1971. © BETTMANN/CORBIS Once again, the demands of war forced governments to print

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would often mean that companies unlucky enough not to be favoured simply could not borrow money. The loan market was ‘often in disequilibrium’.44 The Bretton Woods settlement and its institutions were crucially important for Japan. The General Agreement on Tariffs and Trade, or GATT for short, signed in 1947, was

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a stable framework for Japanese economic development. This was achieved through the years of direct rule by SCAP, the reforms of Joseph Dodge and the Bretton Woods system itself. 14 Imperial Retreat American leadership had effectively reconstructed both Germany and Japan. Meanwhile the economic climate in the United States itself began to

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47 His instincts on the international stage were strongly nationalistic, which rather undermined the spirit of international co-operation, under American leadership, which had characterized Bretton Woods. His nationalistic poses also chimed well with Nixon’s views of himself as a ‘tough guy’, a man of action and decisiveness. Connally’s assertiveness

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” of the US Treasury and insist on trading their dollars for gold’ was something which Nixon was beginning to reconsider.50 The ‘death watch for Bretton Woods’ had begun. On 3 May, the German Finance Minister Karl Schiller set off market concern by hinting at the ‘revaluation of the mark’. In

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the United States Constitution. It had been suspended as a consequence of the Civil War, and then resumed. It had now finally been broken. The Bretton Woods Agreement, which had been predicated on a conversion of dollars into gold at the fixed rate of US$35 an ounce, had been unilaterally terminated

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World War II economic system and replaced it with what former German Chancellor Helmut Schmidt . . . called a “a floating non-system”’.61 The end of Bretton Woods was noted as a significant event at the time. In 1972, Henry Brandon, the Washington correspondent of the British Sunday Times newspaper, observed that devaluation

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Nixon claimed that the compact constituted the ‘greatest monetary agreement in the history of the world’. The Smithsonian Agreement had settled on a dollar standard, ‘Bretton Woods without the gold’.3 According to Paul Volcker, who served as Chairman of the Federal Reserve from 1979 to 1987, the two years during which

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was always explicitly recognized that the undertaking by the Europeans to create a common currency was an attempt to recreate the lost stability of the Bretton Woods system, which itself harked back to the pre-1914 gold standard. The Werner Report had sketched out a path to economic and monetary union

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the benefits of stability as opposed to the free-floating exchange rates which had been a feature of global currency markets since the collapse of Bretton Woods: ‘A stable yuan is of vital significance to the global economic development and the stability of the international monetary system.’43 The consequence of

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finalized in three weeks from 1 to 22 July 1944. Such combined and purposeful action seemed to elude international policymakers in the years after 2008. Bretton Woods not only set up the IMF and World Bank. It also inaugurated a new currency regime. As far as currencies were concerned in the period

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the eurozone, given that European monetary union itself was an attempt to restore stability to Europe’s currency in the aftermath of the collapse of Bretton Woods in the early 1970s. Richard Nixon’s closing of the ‘gold window’ therefore had profound consequences. Paper money indisputably contributed to an excess of

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7. 38Clarke, Keynes, p. 76. 39Ibid., p. 168. 40John Maynard Keynes, A Treatise on Money, 2 vols, London, 1930, vol. 2, p. 149. Chapter 10: Bretton Woods 1Peter Clarke, Keynes: The Twentieth Century’s Most Influential Economist, London, 2009, p. 81. 2Lionel Robbins quoted in Roy Harrod, The Life of John Maynard

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1968, p. 316. 4Harrod, John Maynard Keynes, p. 536. 5Stanley W. Black, A Levite among the Priests: Edward M. Bernstein and the Origins of the Bretton Woods System, Boulder, CO, 1991, pp. 39, 44. Bernstein’s comments were derived from a series of interviews he gave in Washington in November 1983. 6David

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, Exorbitant Privilege: The Rise and Fall of the Dollar, Oxford, 2011, p. 47. 13DNB, ‘Robert Boothby’. 14Robert Boothby, Goods or Gold? The Meaning of the Bretton Woods Agreement, London, 1944, pp. 4–5. 15Ibid., p. 7. 16John Maynard Keynes, letter to the Economist, 29 July 1944, in Collected Writings, vol. 26,

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Position and Prospects of Gold’, Economic Journal, vol. 50, no. 198–9 (June–September 1940), pp. 207–23, at pp. 207–8. 21R. G. Hawtrey, Bretton Woods for Better or Worse, London, 1946, p. 25. 22Robert Skidelsky, John Maynard Keynes: Fighting for Britain, 1937–1946, London, 2000, p. xx. 23Ibid., p. xxi

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2005, p. 23. 35John Maynard Keynes, letter to Lord Addison, 16 May 1944, in Collected Writings, vol. 26, p. 6. 36Camille Gutt, ‘Les Accords de Bretton Woods et les institutions qui en sont issues’, Recueil de Cours, Académie de Droit International, The Hague, 1948, p. 75. Chapter 11: Pax Americana 1Alfred Sloan

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blogs.ft.com/economists, 6 April 2008. Guardian, ‘G20 Summit Marks Largest Such Gathering in a Decade’, 14 November 2008. Gutt, Camille, ‘Les Accords de Bretton Woods et les institutions qui en sont issues’, Recueil de Cours, Académie de Droit International, The Hague, 1948. Hamilton, James D., ‘Monetary Factors in the Great

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), Oxford Dictionary of Economics, Oxford, 2009 (1st edn 1997). Black, Stanley W., A Levite among the Priests: Edward M. Bernstein and the Origins of the Bretton Woods System, Boulder, CO, 1991. Blake, Robert, Disraeli, London, 1966. Bodin, Jean, Response to the Paradoxes of Malestroit, trans. and ed. Henry Tudor and R.

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of the United States, from 1774 to 1789, 3 vols, New York, 1969 (1st edn 1879). Boothby, Robert, Goods or Gold? The Meaning of the Bretton Woods Agreement, London, 1944. Bovard, James, The Bush Betrayal, New York, 2004. Boyle, Andrew, Montagu Norman: A Biography, London, 1967. Braham, Lawrence J., Zhu Rongji

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, The Presidency of the European Commission under Jacques Delors: The Politics of Shared Leadership, Basingstoke, 1999. Endres, Anthony M., Great Architects of International Finance: The Bretton Woods Era, Abingdon, 2005. Feavearyear, Sir Albert, The Pound Sterling: A History of English Money, Oxford, 1931. Feis, Herbert, Europe: The World’s Banker, 1870–

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Civil War, Princeton, 1970. Harris, S. E., The Assignats, Cambridge, MA, 1930. Harrod, Roy, The Life of John Maynard Keynes, London, 1951. Hawtrey, R. G., Bretton Woods for Better or Worse, London, 1946. Heckscher, Eli, Mercantilism, 2 vols, 1st English edn, London, 1935. Helfferich, Karl, Der Weltkrieg, 2 vols, Berlin, 1919. Hemming

The Global Minotaur

by Yanis Varoufakis and Paul Mason  · 4 Jul 2015  · 394pp  · 85,734 words

around a single axis, the dollar? In 1944, the New Dealers’ anxieties led to the famous Bretton Woods conference. The idea of designing a new global order was not so much grandiose as essential. At Bretton Woods a new monetary framework was designed, acknowledging the dollar’s centrality but also taking steps to create

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that preparatory phase, the United States had to put together the essential pieces of the jigsaw puzzle of the Global Plan, of which Bretton Woods was an important piece. Bretton Woods While the war was still raging in Europe and the Pacific, in July 1944, 730 delegates converged on the plush Mount Washington Hotel

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located in the New Hampshire town of Bretton Woods. Over three weeks of intensive negotiations, they hammered out the nature and institutions of the post-war global monetary order. They did not come to

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Bretton Woods spontaneously, but at the behest of President Roosevelt, whose New Deal administration was determined to win the peace, after having almost lost the war against

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propagandist, to the lawyer, to the statesman – even, I think, to the prophet and to the soothsayer. Two of the institutions that were designed at Bretton Woods are still with us and still in the news. One is the International Monetary Fund (IMF), the other the International Bank for Reconstruction and Development

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Global Plan and the beginning of the Global Minotaur’s reign. This was the new exchange rate regime that came to be known as the ‘Bretton Woods system’ – a system of fixed exchange rates, with the dollar at its heart. The main idea was that each currency would be locked to the

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in place, a currency union is bound to succumb to tectonic shifts, which eventually cause great cracks to form before finally the union shatters. At Bretton Woods, where the whole post-war order was being blueprinted, Keynes was a concerned man. He knew that, just like the pre-war Gold Standard, an

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, we should note that trade deficits usually go hand in hand with governments that are also in deficit. Suppose a crisis occurred anywhere in the Bretton Woods system. The fall in demand would trickle down to the deficit countries. And then all hell would break loose. Once the crisis began, whether in

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, unable to increase public expenditure itself, will seek ways to ‘import’ demand from abroad. Keynes surmised that it would purposely violate the rules of the Bretton Woods system. Why? The ‘system’ requires that, in order to counter the tendency of the currency to fall during the debt–deflationary crisis, the government should

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only way to counter the recession, would have every incentive to do precisely the opposite – to hoard its dollar reserves and instead to approach the Bretton Woods system’s administrators, begging them to allow the currency to be devalued. Box 3.1 Surplus recycling mechanisms: capitalism’s sine qua non Surplus recycling

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private US companies. But before long it had developed into something bigger and supposedly better. To give Bretton Woods a strong backbone, the New Dealers were determined to support the dollar by creating, within the Bretton Woods fixed exchange system, at least two additional strong currencies that would act as shock absorbers in case

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idea was to find ways to absorb such shocks until Washington managed to reverse the downturn in its own backyard. Without these supporting pillars, the Bretton Woods system, they feared, would be too precariously balanced. However, strong currencies cannot be willed into existence. They must be underpinned by heavy industry, as well

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of policy planning staff at the State Department and renowned ‘prophet’ of Soviet containment • Dean Acheson, leading light in all major post-war designs (the Bretton Woods agreement, the Marshall Plan, the prosecution of the Cold War, etc.) and secretary of state from 1949 onwards. No one had any inkling of the

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an almost pastoral state from which they would never again be able to launch an industrial-scale war. Indeed, Harry White, the US representative at Bretton Woods, had advocated the effective removal of Germany’s industry, forcing German living standards down to those of the country’s less-developed neighbours. In 1946

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, so that they could buy selected high-value-added American goods (e.g. aeroplanes, armaments, construction equipment). Stabilizing global capitalism was essential to maintain the Bretton Woods system and to enhance US prosperity and power. With this in mind, US administrators took audacious steps to create zones for the Deutschmark and the

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heel The Global Plan unravelled because of a major design flaw in its original architecture. John Maynard Keynes had spotted the flaw during the 1944 Bretton Woods conference but was overruled by the Americans. What was it? It was the lack of any automated global surplus recycling mechanism (GSRM) that would keep

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the end of the 1960s, many governments began to worry that their own positions (which were interlocked with the dollar in the context of the Bretton Woods system) were being undermined. By early 1971, liabilities exceeded $70 billion, while the US government possessed only $12 billion of gold with which to back

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forced to increase the volume of their own currencies in order to keep their exchange rate constant against the dollar, as was stipulated by the Bretton Woods system. This is the basis for the European charge against the United States that, by pursuing the Vietnam War, it was exporting inflation to the

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not avoid going into a vicious tailspin. On 29 November 1967, the British government devalued the pound sterling by 14 per cent, well outside the Bretton Woods 1 per cent limit, triggering a crisis and forcing the United States government to use up to 20 per cent of its entire gold reserves

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Georges Pompidou ordered a destroyer to sail to New Jersey to redeem US dollars for gold held at Fort Knox, as was his right under Bretton Woods! A few days later, the British government of Edward Heath issued a similar request (though without employing the Royal Navy), demanding gold equivalent to $3

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rushed in where angels fear to tread! President Nixon was absolutely livid. Four days later, on 15 August 1971, he announced the effective end of Bretton Woods: the dollar would no longer be convertible to gold. Thus, the Global Plan unravelled. Interregnum: the 1970s oil crises, stagflation and the rise of interest

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problem! What Connally meant was that, as the dollar was the reserve currency (i.e. the only truly global means of exchange), the end of Bretton Woods was not America’s problem. The Global Plan was, of course, designed and implemented to be in the interests of the United States. But once

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1971, in December, Presidents Nixon and Pompidou met in the Azores. Pompidou, eating humble pie over his destroyer antics, pleaded with Nixon to reconstitute the Bretton Woods system, on the basis of fresh fixed exchange rates that would reflect the new ‘realities’. Nixon was unmoved. The Global Plan was dead and buried

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, and a new unruly beast, the Global Minotaur, was to fill its place. Once the fixed exchange rates of the Bretton Woods system collapsed, all prices and rates broke loose. Gold was the first: it jumped from $35 to $38 per ounce, then to $42, and then

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of real commitment the large increases in oil prices? The simple reason is that, just as the Nixon administration did not mourn the end of Bretton Woods, neither did it care to prevent OPEC from pushing the price of oil higher. For these hikes were not inconsistent with the administration’s very

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abandonment of the Global Plan comes from the horse’s mouth. In 1978, Paul Volcker, the man who was among the first to recommend that Bretton Woods should be discarded, addressed an audience of students and staff at Warwick University. Not long after that speech, President Carter appointed him chairman of the

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simply because of capital controls – that is, restrictions on how much cash one could convert to dollars or other currencies at any one time. Once Bretton Woods was no longer, the psychological shock occasioned by the idea that currencies would soon be allowed to float freely created a stampede toward the dollar

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of more than a century of rising living standards was never in dispute. Things changed in the 1970s. The fear inspired by the collapse of Bretton Woods, the hike in oil prices and the impending loss of the Vietnam War polarized society and created a playing field on which the strong could

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of US foreign policy around the globe than any military operation the US could ever mount. A most peculiar global surplus recycling mechanism At the Bretton Woods conference, John Maynard Keynes and Harry Dexter White clashed over the type of GSRM that was best equipped to keep the post-war world economy

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think the latter. In fact, it was the same agenda that lay behind Harry Dexter White’s rejection of Keynes’ International Currency Union proposal at Bretton Woods, in 1944 (see chapter 3). Just as the Americans insisted on preserving their right to run large surpluses under the Global Plan, so Germany demanded

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have an epiphany and, at long last, embrace John Maynard Keynes’s suggestion of an International Currency Union; the very suggestion America rejected in the Bretton Woods conference of 1944. Is this far-fetched? Very much so. But then again, the Crash of 2008 did concentrate some intelligent minds. Before his fall

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-Kahn was referring to was none other than the creation of a multilateral GSRM, just like John Maynard Keynes had proposed in 1944, at the Bretton Woods conference. That is, a surplus recycling scheme that would not rely on some bright officials and the unaccountable financial sector of a single country, as

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to the USA and transferred large amounts of gold to it, a fact that contributed to the US determination to turn the dollar into the Bretton Woods system’s central axis. 6. It was at this point that successive British governments began clutching at straws – namely, the ‘special relationship’, which turned the

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, 35 Bradford and Bingley, 154 Brazil: Crash of 2008, 163; effect of China on, 215, 217, 218, 253; trade with Asia, 215 Bretton Woods conference, 58–61, 62, 64, 254–5 Bretton Woods system, 60, 62, 63, 67, 78, 92–3; end, 94, 95–6 Britain: Crash of 2008, 2, 159; crisis of 1847

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Europa myth, 201 Europe: aftermath of Crash of 2008, 162; bank bail-outs, 203–5; Crash of 2008, 2–3, 12–13, 183; end of Bretton Woods system, 95; eurozone problems, 165; Geithner–Summers Plan, 174–7; oil price rises, 98; unemployment, 164 see also specific countries European Central Bank see ECB

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, 209–11; European banks’ exposure to, 203; formation of, 198, 202; France and, 198; Germany and, 198–201; and Greek crisis, 207 exchange rate system, Bretton Woods, 60, 63, 67 falsifiability, empirical test of, 221 Fannie Mae, 152, 166 Fed, the (Federal Reserve): aftermath of Crash of 2008, 159; Crash of 2008

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, 158 Irwin, John, 97 Japan: aftermath of the Second World War, 68–9; competition with the US, 98, 103; in decline, 186–91; end of Bretton Woods system, 95; financial support for the US, 216; global capital, 115–16; Global Plan, 69, 70, 76–8, 85–6; house prices, 129; labour costs

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, 153 keiretsu system, Japan, 186, 187, 188, 189, 191 Kennan, George, 68, 71 Kennedy, John F., New Frontier social programmes, 83, 84 Keynes, John Maynard: Bretton Woods conference, 59, 60, 62, 109; General Theory, 37; ICU proposal, 60, 66, 90, 109, 254, 255; influence on New Dealers, 81; on investment decisions, 48

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Atlantic Treaty Organization), 76, 253 negative engineering, 110 negative equity 234 neoliberalism, 139, 142; and greed, 10 New Century Financial, 147 New Deal: beginnings, 45; Bretton Woods conference, 57–9; China, 76; Global Plan, 67–71, 68; Japan, 77; President Kennedy, 84; support for the Deutschmark, 74; transfer union, 65 New Dealers

The Making of Global Capitalism

by Leo Panitch and Sam Gindin  · 8 Oct 2012  · 823pp  · 206,070 words

Grand Truce with Capital PART II: THE PROJECT FOR A GLOBAL CAPITALISM 3. Planning the New American Empire Internationalizing the New Deal The Path to Bretton Woods Laying the Domestic Foundations 4. Launching Global Capitalism Evolving the Marshall Plan The American Rescue of European Capitalism “The Rest of the World” PART III

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: THE TRANSITION TO GLOBAL CAPITALISM 5. The Contradictions of Success Internationalizing Production Internationalizing Finance Detaching from Bretton Woods 6. Structural Power Through Crisis Class, Profits, and Crisis Transition through Crisis Facing the Crisis Together PART IV: THE REALIZATION OF GLOBAL CAPITALISM 7. Renewing

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conditions for the free movement of capital throughout the world. Precisely because these conditions were so successfully fostered in the advanced capitalist countries during the Bretton Woods era, those years should be understood as “the cradle of the global financial order that eventually emerged.”24 One key feature of this transformation was

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“money changers.”18 It was also significant that the most important planning for the postwar world took place in the Treasury, and led straight to Bretton Woods. In contrast with the State Department—whose “moralistic, pacifist and laissez-faire” orientation to free trade during the 1930s reflected a bureaucracy that, as

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be liberalized on the basis of an international monetary arrangement that would also allow for economic growth and domestic accumulation in other countries. Those planning Bretton Woods could draw on their experience in fashioning the 1936 Tripartite Monetary Agreement between the US, France, and Britain (subsequently joined by Belgium, the Netherlands,

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the broader tasks that the American imperial state was now assuming. The plan Harry Dexter White developed for the Treasury, which laid the foundation for Bretton Woods, was fundamentally predicated on there being “no advantage in achieving a pseudo stability by clinging to restrictive measures that seriously hamper international economic life.”33

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ensuring that, even in the absence of the old gold standard, financial discipline could be imposed on other states. The historic significance of the Bretton Woods Agreement is that it institutionalized the American state’s predominant role in international monetary management as part and parcel of the general acceptance of the

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evolved for the United Nations, especially the composition of the Security Council, still bore significant traces of the old Great Power “spheres of influence,” the Bretton Woods framework was designed to avoid this, and to establish a general system of rules for mediating the international and national economic responsibilities of all states

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could only draw on under much tighter conditions than Keynes’s plan envisaged. The Joint Statement hammered out between the two Treasuries in advance of Bretton Woods was thus largely framed in American terms, securing “discipline” on Britain’s part and “limited liability” on America’s.43 Yet however arduous the

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The Treasury argued that Wall Street’s portrayal of the Fund as a vehicle for capital controls was substantially incorrect. Its official “backgrounder” to the Bretton Woods Agreement emphasized that it “would be incorrect to assume that most capital exports are prohibited under the Fund’s provisions” and that a “careful

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importance of these new capacities for bringing other states into the orbit of the new American empire had already been much in evidence at the Bretton Woods conference itself, where the commission responsible for creating the Fund was chaired and tightly controlled by White. Even though Keynes oversaw the commission and

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Evolving the Marshall Plan As we saw in the previous chapter, the key condition Wall Street had set for calling off Congressional opposition to the Bretton Woods Agreement Act was the creation of the interdepartmental National Advisory Council (NAC) to oversee the making of US international economic policy. And in the

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, as Keynes quickly recognized, “than is usually the case with such Washington Committees.”11 What political economists later called the “embedded liberal” norms of Bretton Woods were little in evidence as US policymakers played the central role in shaping the World Bank and IMF. By insisting on reviewing World Bank loans

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American programs and government agencies “occupy the center of the stage.”13 The fundamental American policy orientation throughout what is often called—somewhat misleadingly—the “Bretton Woods era” was that currency and capital controls should be transitional, not permanent.14 All the essential questions of policy informing the intergovernmental negotiations that defined

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negotiators attached to the 1945 British loan requiring sterling to be made convertible within one year (rather than the five years allowed for in the Bretton Woods negotiations). This was indicative of just how short both Washington and New York initially expected the transitional period for the removal of controls might

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. The Marshall Plan was conceived in this context for quite pragmatic reasons, not because of a new enthusiasm for the normative framework outlined at Bretton Woods.16 A shift in responsibility for the central aspects of international economic policy from the Treasury to the State Department was important here. Whereas the

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dynamic elements inside most European countries. By the time full currency convertibility in Europe was achieved in 1958, it might have been expected that the Bretton Woods framework would finally come into its own in mediating international economic relations in a way that reconciled currency stability with capital mobility, as had always

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the opportunity this gave to internationalize US banking. The vast cross-border flows of private capital this now involved were bound eventually to undermine the Bretton Woods system of fixed exchange rates. And a further, much more profound contradiction had arisen—one that overlapped with and to a considerable extent really

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the time the US in 1971 hesitatingly ended the dollar’s link to gold, it was already clear that neither clinging to nor jettisoning the Bretton Woods system offered a long-term solution to this accumulating set of contradictions. Internationalizing Production The American state’s capacity to assume such a central

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, not only the Chicago School but also many Keynesian economists vociferously opposed this on the grounds that it undermined the liberal international economic order that Bretton Woods had been designed to foster. Writing in the Wall Street Journal, John Kenneth Galbraith declared: “[T]he fruits of great strenuous private efforts and

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as the US Treasury had been central to the establishment of new forums and mechanisms for the international management of the “dollar crisis” within the Bretton Woods framework, so was it now central to that framework’s dismantling. This did not involve withdrawing from the multilateral management of the contradictions and

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your problem.” This glib remark by Nixon’s Treasury secretary, John Connally, to European finance ministers in 1971 shortly after the US effectively ended the Bretton Woods system was immediately belied by the increased attention the US gave to international economic coordination throughout the 1970s. While detaching the dollar from gold decreased

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because it is inevitably linked to a fixed exchange rate system. Gold never really served fully the purpose for which it was intended under the Bretton Woods System—regulator of liquidity, enforcer of discipline. It couldn’t because of its own rigidities, and its international monetary role has been dying from

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favor of the temporary use of capital controls were in fact the most conservative and monetarist and the least oriented to the guiding principles of Bretton Woods; German Keynesians (above all the social democratic finance minister, Karl Schiller) were at one with US economists like Galbraith and Kindleberger in viewing capital

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key dimension of capitalist strategies for innovation and the construction of competitive advantage. This could especially be seen when, immediately after the collapse of the Bretton Woods system of fixed exchange rates, the Chicago Mercantile Exchange—the world’s central futures market in livestock long after the slaughterhouses were gone from Chicago

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critical to this. Notably, the very settings where senior officials of the advanced capitalist states had met together during the decade-long effort to save Bretton Woods now provided the venues for establishing the legal and institutional framework for floating currencies. The most intimate of these settings were the private dinners attended

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administration’s famous hostility to the IMF and World Bank had contributed to marginalizing their role in the key decisions that determined the fate of Bretton Woods. Yet a more sober appreciation of the utility of the international financial institutions to the making of global capitalism had soon prevailed in Washington.

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was mired in internal stagnation, needs to be understood in the context of the continuing integration of European and American capitalism. The abandonment of the Bretton Woods framework, wherein all European currencies had been fixed in a hub-and-spokes relationship to the dollar, was initially compensated for by the European

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arranged. Its discretionary Exchange Stabilization Fund (ESF), established in 1934, had not only been extensively used for this purpose after the breakdown of the Bretton Woods system in the 1970s; it was also used to pay for the expansion of the Treasury’s responsibilities in the broader management of global capitalism

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Global Society 13: 3 (1999); and “Embedded Liberalism, Disembedded Markets: Re-Conceptualizing the Pax Americana,” New Political Economy 4: 3 (1999). 23 Our argument that Bretton Woods laid the foundation for financial globalization runs counter to the influential interpretation offered in Eric Helleiner, States and the Reemergence of International Finance, Ithaca: Cornell

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Richard Gold, “The Legal Foundations of the US Dollar: 1933–1934 and 1971–1978,” in David M. Andrews, ed., Orderly Change: International Monetary Relations since Bretton Woods, Ithaca: Cornell University Press, 2008, pp. 186–7. 42 As the New York Federal Reserve emphasized in its 1975 Report, whatever the “great difficulties in

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and Robert D. Putnam, Double-Edged Diplomacy: International Bargaining and Domestic Politics, Berkeley: University of California Press, 1993; and John S. Odell, “From London to Bretton Woods: Sources of Change in Bargaining Strategies and Outcomes,” Journal of Public Policy 8: 3/4 (July–December 1988). 15 Arthur I. Bloomfield, Capital Imports and

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Bernstein, a key Treasury official at the time. See Stanley W. Black, A Levite Among the Priests: Edward M. Bernstein and the Origins of the Bretton Woods System, Boulder: Westview Press, 1991, p. 38. Sufficient compromises—however vaguely worded—were agreed that softened the conditions for adjusting exchange rates, accessing the

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Eckes, Search for Solvency, pp. 174–6. 50 As the Congressional vote approached, the Treasury “orchestrated the presentation of written and oral testimony supporting the Bretton Woods agreement from all sectors of American society,” and supplemented this with radio and film spots, pamphlets, and newspaper, magazine and scholarly articles, as well as

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: European Banking in the 1950s,” in Stefano Battilossi and Youssef Cassis, eds., European Banks and the American Challenge: Competition and Cooperation in International Banking under Bretton Woods, New York: OUP, 2002, p. 42. 22 Marcello de Cecco, “The Lender of Last Resort,” CIDEI Working Paper no. 49 (October 1998), p. 4.

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David M. Andrews, “Kennedy’s Gold Pledge and the Return of Central Bank Collaboration,” in David M. Andrews, ed., Orderly Change: International Monetary Relations since Bretton Woods, Ithaca: Cornell University Press, 2008, p. 101. 36 Andrews continues: “On the one hand, as the central banking foxes took increasing charge of the financial

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(May 1973); and Ernest Mandel, Late Capitalism, London: Verso, 1975, esp. Chapter 10. 6 Eric Helleiner in particular has presented the outcome of the Bretton Woods crisis in terms of the American state—well-armed with neoliberal Friedmanite ideas under Nixon and his successors—imposing its free-market will against European

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Personal interview with Paul Volcker, New York, March 2003. 52 See William Glenn Gray, “Floating the System: Germany, the United States, and the Breakdown of Bretton Woods, 1969–73,” Diplomatic History 31: 2, April 2007; and Hubert Zimmerman, “West German Monetary Policy and the Transition to Flexible Exchange Rates, 1969–1973,”

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in David M. Andrews, ed., Orderly Change: International Monetary Relations since Bretton Woods, Ithaca: Cornell University Press, 2008. 53 See John Williamson and Molly Mahar, A Survey of Financial Liberalization, Essays in International Finance, No. 211, Department of

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to Development, New York: Monthly Review, 1993, p. 158. 85 Michael P. Dooley, David Folkerts-Landau and Peter Garber, “An Essay on the Revived Bretton Woods System,” National Bureau of Economic Research, Working Paper 9971, September 2003, p. 2. 86 See Sylvia Maxfield and Ben Ross Schneider, eds., Business and the

…

and M. Mastanduno, eds., US hegemony and International Organizations: The United States and Multilateral Institutions, Oxford and New York: OUP, 2003; and Ruth Felder, “From Bretton Woods to Neoliberal Reforms: The International Financial Institutions and American Power,” in Panitch and Konings, American Empire and the Political Economy of Global Finance. 51 Quoted

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Financial Stability Forum, now called the Board, had its membership expanded to include the G20 countries. See Eric Helleiner and Stefano Pagliari, “Towards a New Bretton Woods? The First G20 Leaders’ Summit and the Regulation of Global Finance,” New Political Economy 14: 2 (June 2009). 66 G20 Declaration, “Summit on Financial

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Mexico, 253–4 protests against, 241, 271 surveillance, 155 and Turkey, 217, 434n7 US dominates, 155, 235, 271,428n37 voting power in, 76 See also Bretton Woods; structural adjustment International Center for the Settlement of Investment Disputes (ICSID), 117, 379n16, 414n42 Interstate Commerce Commission, 32–4 International Trade Organization (ITO), 73, 93

…

, 86, 122, 239, 369n76 and ‘An American Proposal,’ 362n3 and approaching 2007 crisis, 312–14, 439n.46 and Asian Crisis, 18, 247–61, 422n66 and Bretton Woods, 70–80, 366n42, 367n50 and deregulation, 178, 399n75 and the dollar crisis, 123–7, 130–1, 381n37, 382n46, 395n19 Exchange Stabilization Fund (ESF), 250,

Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze  · 31 Jul 2018  · 1,066pp  · 273,703 words

than its status as legal tender. That uncanny fact became literally true for the first time in 1971–1973 with the collapse of the Bretton Woods system. Under the Bretton Woods agreement of 1944, the dollar, as the anchor of the global monetary system, was tied to gold. This was itself, of course, no

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be traced back to the transformation in world economic affairs between the late 1970s and the early 1980s in the wake of the collapse of Bretton Woods. I On October 6, 1979, after an unscheduled meeting of the Federal Reserve’s key interest-rate-setting committee, the Federal Open Market Committee (FOMC

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had expanded to almost 66 percent of households by the 1970s. For home owners on fixed interest, long-term mortgages, the inflation of the post–Bretton Woods era was a windfall. The real value of their loans was eaten up while their interest rates remained fixed. For the banks that lent to

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refinance. Lending for thirty-year terms at fixed rates is a viable business proposition only under the kinds of conditions of stability that prevailed under Bretton Woods between 1945 and 1971. In a new age of flexible monetary arrangements it was dangerously one-sided, especially if the risks were concentrated in small

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The path that led to the supercharged private mortgage industry of the early 2000s was twisted, but it too goes back to the breakdown of Bretton Woods in the 1970s and the unfettering of currencies, prices, interest rates and capital movements that followed. It was not just the savings and loans but

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forty-year deregulatory push. The truly decisive early moves went back to the reemergence of a global capital market in the 1960s, the collapse of Bretton Woods, the deregulation of interest rates and capital flows in the early 1980s.59 It was those moves that unleashed monetary instability and precipitated Volcker’s

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London made a new role for itself as the main hub for offshore global dollar financing. III In the aftermath of World War II, the Bretton Woods monetary system had sought to restrict speculative capital flows. This gave the US Treasury and the Fed controlling roles. The aim was to minimize currency

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, powered by bank leverage, offshore dollars were from the start a disruptive force. They had scant regard for the official value of the dollar under Bretton Woods and it was the pressure this exercised that helped to make the gold peg increasingly untenable. When the final collapse of

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Bretton Woods coincided in 1973 with the surge in OPEC dollar revenue, the rush of offshore money through London’s eurodollar accounts became a flood. By the

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considerations as by economics.1 As far as the euro is concerned, the story again goes back to the early 1970s and the collapse of Bretton Woods. Between 1945 and 1971, the Europeans did not have to worry about intra-European currency issues. The dollar tied to the gold reserve in Fort

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the weakest banks liquidity assistance was to court disaster. So from 2007 the Fed repurposed an instrument that was first developed in the age of Bretton Woods. To manage the fixed currency system in the 1960s the central banks had developed a system of so-called currency swap lines that allowed the

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Sarkozy declared ahead of the G20 summit, “I am leaving tomorrow for Washington to explain that the dollar—which after the Second World War under Bretton Woods was the only currency in the world—can no longer claim to be the only currency in the world. What was true in 1945 cannot

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Sarkozy could have been more out of touch with reality. By the early twenty-first century, the dollar’s dominance did not rest on the Bretton Woods Agreement of 1944 or the institutions, like the IMF, that issued from it. The foundation of the global dollar was the private banking and financial

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about what’s good for everyone. We can get all the relevant people together and think up what people are calling a second Bretton Woods system, like the first Bretton Woods convention did.”47 Chapter 11 G20 China’s stimulus benefited all its trading partners, from Australia to Brazil.1 Across the world the

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secretary Larry Summers and Canadian prime minister Paul Martin. Their vision was to create a forum for global governance that was more representative than the Bretton Woods institutions, such as the IMF and the World Bank, but not so unmanageable as the United Nations. Twenty members seemed like a round number. As

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blighted the decade that followed. Brown was determined to avoid that fate. Instead, London did its best to sell the 2009 G20 as a new Bretton Woods.29 With an eye to the history books, Brown and his staff consulted with experts on FDR and the New Deal. Biographies of John Maynard

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go to the G20, on March 23 the Chinese central bank chairman, Zhou Xiaochuan, surprised the world by launching his own call for a new Bretton Woods.33 The Chinese had been at the original meeting in 1944 and they knew their economic history.34 As far as Zhou was concerned, it

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so spectacularly. After all, it was Beijing that had pegged its currency against the dollar since the 1990s, creating what some economists had already dubbed “Bretton Woods 2.”35 The conventional reading in Washington was that China was free riding at America’s expense. But that would be to view the situation

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, he agreed with his boss. A strong dollar should remain as the anchor of the world economy. Perhaps not surprisingly, China’s vision of a Bretton Woods 2 did not make it onto Gordon Brown’s G20 agenda. Nor, however, would the reality of the situation since the autumn of 2008 be

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the swap line system, was backstopping the liquidity of the entire global banking system. If the London G20 was truly to have been a second Bretton Woods, the dollar-based banking system, the swap lines and the Fed’s new role as global liquidity provider would have been at the center of

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swap-lines story stayed buried on the interior pages of the Financial Times and the Wall Street Journal.48 There was no fanfare, no new Bretton Woods Conference. There was also no congressional or parliamentary approval. These were administrative measures. But they were also far more than that. Five years on from

…

new role as an “anchor of globalization.”1 Eight years earlier the governor of PBoC had made headlines around the world by proposing a new Bretton Woods. That intervention staked China’s claim to be a major voice in global economic governance. In 2017 Xi no longer needed to break down the

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-20012002-/. 26. M. Wolf, Fixing Global Finance (Baltimore: Johns Hopkins University Press, 2008). 27. M. P. Dooley, D. Folkerts Landau and P. Garber, “The Revived Bretton Woods System,” International Journal of Finance & Economics 9 (2004), 307–313. 28. D. A. Steinberg, “Why Has China Accumulated Such Large Foreign Reserves?,” in The Great

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Federal Reserve, 2005, https://www.kansascityfed.org/publicat/sympos/2005/pdf/GD5_2005.pdf. 59. E. Helleiner, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Ithaca, NY: Cornell University Press, 1996). 60. D. Rosato, “Confessions of a Former Real Estate Bull,” CNN Money, January 6, 2009. 61

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Damage of Offshore Banking and Tax Havens (New York: St. Martin’s Press, 2012). 18. E. Helleiner, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Ithaca, NY: Cornell University Press, 1996). 19. J. Green, “Anglo-American Development, the Euromarkets, and the Deeper Origins of Neoliberal Deregulation,” Review

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23, 2009, http://www.pbc.gov.cn/english/130724/2842945/index.html. 34. J. Zhongxia, “The Chinese Delegation at the 1944 Bretton Woods Conference: Reflections for 2015,” https://www.omfif.org/media/1067515/chinese-reflections-on-bretton-woods-by-jin-zhongxia.pdf. 35. M. P. Dooley, D. Folkerts-Landau and P. Garber, “The Revived

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Bretton Woods System,” International Journal of Finance and Economics 9, no. 4 (October 2004), 307–313. 36. On the China rebalancing effort, see B

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bonuses, Wall Street, 292–93, 306 Bosnia and Herzegovina, 232 Bowles, Erskine, 583 Bradford & Bingley, 184 Brazil, 32, 475, 477, 601 Breitbart, 459 Bretton Woods agreement of 1944, 11 Bretton Woods system, 80 dollar pegged to gold in, 11 euro and, 92 mortgage loan stability and, 45 Brexit, 544–61 Bank of England stimulus

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Funding LLC, 75 Cheney, Dick, 36 China, 4, 30–32, 118, 137, 600–607, 609, 611 allows currency to appreciate, 39–40 calls for new Bretton Woods arrangement, 266–68 consumption-boosting measures, 246–47 domestic investment of, 242 Eurogroup-Syriza debt restructuring confrontation and, 524 exchange rate 32, 33–34, 601

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-based financial system, 218–19 fixed exchange rate system and, 32–35, 39 Nixon abandons gold peg, 1971, 11, 44, 92 pegged to gold, in Bretton Woods system, 11 Sino-American trade imbalance and fears of collapse of, 32–41 dollar-funding shortage for European banks, 8, 154–55, 203–6 Dombrovskis

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Furman, Jason, 461, 524 G20, 261–75 Basel III regime and, 311–13 Cannes meeting, 2011, 409–11, 412–14 China’s call for new Bretton Woods arrangement, 266–68 creation of, 261–62 discretionary fiscal response of, 273–75 fiscal consolidation and, 354 London summit, 266–72, 287, 289 Los Cabos

Money: 5,000 Years of Debt and Power

by Michel Aglietta  · 23 Oct 2018  · 665pp  · 146,542 words

the principles, the norms and the conditions of acceptability of two international systems: namely, the gold standard, which lasted for four decades, and the Bretton Woods system, which lasted for two. We will examine the endogenous conditions for these systems’ deterioration and ultimate destruction. The lesson that can be drawn from

…

s financial institutions to continue to dominate international relations. Here, we will analyse the evolution of international monetary relations after the 1971 disappearance of the Bretton Woods system and the 1976 Jamaica Accords. We will analyse these developments as a form of degenerated system, known as the dollar semi-standard. This

…

. This historical detour should also enable us to find some bearings for the era of financial globalisation that has followed the disappearance of the Bretton Woods system. If we do not have accepted rules, is there a system or not? Does the dominant role set for the dollar in the

…

Bretton Woods system endure today? If so, how? In this era, international relations have been affected by something of an Unidentified Flying Object in the monetary landscape

…

around a rule of convertibility. This accompanied the first process of financial globalisation, before ultimately coming up against World War One. The other was the Bretton Woods system, which was a heavily institutionalised international system. Contemporaneous with the rise of the labour society, it specified the dollar as the key currency

…

fluctuation in the basic balance meant that Britain did not accumulate long-term structural debt. This was totally at odds with the US situation under Bretton Woods, and indeed in the period of the imbalances of the 1980s and 2000s. Remaining constantly in long-term surplus, Britain had short-term creditors

…

, each of which was attached to its own currency zone. This was, therefore, a three-currency system with a common means of settlement. THE BRETTON WOODS SYSTEM: COORDINATION VIA THE INSTITUTIONALISED HEGEMONY OF THE DOLLAR The end of World War Two saw new arrangements for international monetary relations inspired by the

…

procedures under the aegis of a consultation forum set up for this very purpose: the International Monetary Fund (IMF). The IMF was created at the Bretton Woods conference as a common subsidiary of the member countries’ governments. It had three responsibilities: to be the guardian of mutually accepted rules; to provide

…

financial aid for the accepted adjustments; and to drive debates on monetary questions. The Bretton Woods accords of July 1944 came at the end of long and complex negotiations. Indeed, these talks saw a clash between two visions for the future

…

two shared convictions made possible the approach that resulted in the creation of the IMF. This was an institutional heritage that lasted even beyond the Bretton Woods system itself. The Difficult Compromise Underlying the IMF’s Creation11 At the beginning of this chapter, we saw the general obstacle that international money

…

committee for this purpose. In the end, reaching a compromise required an increase in the amount that was being shared out. The global conference at Bretton Woods was nonetheless one of a kind, in the sense that it did indeed produce results. None of the previous conferences, from Paris in 1865

…

an expression of the situation of US dominance at the end of the war. There lay the seeds for problems that would later haunt the Bretton Woods system, when the European economies’ restored competitiveness made it possible to re-establish current account convertibility from 1958 onwards. In the absence of a

…

, made monetary expansion in the rest of the world subject to monetary expansion in the United States. The Period of Preconvertibility (1947–58) The Bretton Woods system went through two periods, 1947–58 and 1958–71, separated by the re-establishment of convertibility in Europe. The first sub-period was dominated

…

of large-scale military spending in the United States gave fresh impulse to industrial production in Europe. At the end of the 1950s, the Bretton Woods system was finally in working order. It had to confront the two problems that any international monetary system must resolve if it is to be

…

and it has to assure that balances of payments are adjusted so as to balance out the offer and demand across the different currencies. The Bretton Woods system functioned in conformity with its statutes for a relatively short period, from 1958 to 1971, because it failed to deal with these two problems

…

thus proved unable to adapt to the transformations of the world economy. Global Monetary Expansion and the Triffin Dilemma The problem that would undermine the Bretton Woods system was the permanent deficit in the US capital balance. Up until the end of the 1960s, the United States maintained an average annual

…

). Figure 7.2 Global inflationary growth driven by US money creation (1958–71) Table 7.9. portrays the monetary asymmetry mechanism produced by the Bretton Woods system under US monetary hegemony. Table 7.9 Asymmetrical effect of foreign central bank intervention on foreign exchange markets Operation USA Rest of World Fed

…

+ T$ Total – – – – + T$ + RW – – It is necessary now to study the consequences of an intervention by a foreign central bank, following the rules of the Bretton Woods system. Such an intervention was expressed in an acquisition of surplus dollars on the foreign exchange market, at the prevalent exchange rate. The intervention portrayed

…

no responsibility over the private price of gold. However, speculation on gold was symptomatic of the concern over the dollar’s pivotal role in the Bretton Woods rules. Thus, the US government reacted in two ways. Firstly, in 1960, it formed a network for swaps between central banks, by means of

…

this consultation represented a failure that would ultimately sweep away the whole system. Within just four years after the devaluation of the pound sterling, the Bretton Woods system would itself disappear. Gold speculation ran riot, and the Gold Pool was left powerless to resist. It was closed in March 1968, leaving

…

the ideas in Keynes’s plan, the reform sought to construct a system of symmetrical adjustments in order to remedy the rigid aspects of the Bretton Woods system. It was necessary to develop rules that could deal with imbalances before they began to accumulate. The Americans proposed making reserves an indicator

…

did allow the IMF to take on a new role as a mentor for indebted developing countries. The true winners of the destruction of the Bretton Woods system were the international investment banks, who were able to arbitrate between currencies and throw themselves into credit distribution policies at the international level,

…

of the IMF’s adaptation to the new roles that resulted from the Jamaica Accords. Table 7.10 portrays the evolution of these roles after Bretton Woods, and the role that the IMF could have played if anything had come of the reform project studied by the C20.19 Table 7.

…

10 Development of the IMF’s roles Mutual assistance fund for currents running temporary deficits (Bretton Woods) Agency issuing an international monetary asset (C20) Financial intermediary for development (Washington Consensus) International lender of last resort (new structure) Structure of the monetary

…

Settlements (BIS). The financial cycle resulting from the new global credit dynamic has profoundly transformed the macroeconomy in relation to what it was under the Bretton Woods system. The financial cycle has a much longer duration than the decision-making horizon of market participants and policymakers. This cycle extends beyond their

…

dual problem of the international liquidity supply and the adjustment of balances of payments – an incapacity which manifested itself in the global inflation under the Bretton Woods system – took the form of a cycle in the dollar. This was a highly disruptive phenomenon that propagated the financial crisis at the global

…

level. The International Monetary System as a Dollar Semi-Standard After the fall of Bretton Woods, countries could freely choose their own exchange regimes. That meant that a country could allow its currency to float according to supply and demand,

…

self-referential logic at work within private actions. This logic emerges from the mimetic character of competing exporters’ behaviour. Even since the disappearance of the Bretton Woods system, the dollar has remained very stable as a proportion of exchange reserves over time. This illustrates the crucial importance that ultimate liquidity has for

…

IV. What is international money? A look across history has not provided the answer. From the Delian League to the international gold standard and the Bretton Woods system, there have been numerous attempts to provide greater legitimacy to arrangements between multiple currencies each legitimised by its own foundational sovereignty. Yet these attempts

…

of international exchange, as we saw with specific reference to the dollar in Chapter 7. International monetary regimes are created by voluntary associations among states. Bretton Woods was a peculiar regime that aimed to create elements of international law and international institutions (the IMF, the World Bank) distinct from the associated countries

…

countries to exporter countries. Yet this rule of international monetary circulation is violated by the international use of national currencies. As we saw with the Bretton Woods system, the total international means of payment may not line up with the needs of the international circulation of goods and services. Indeed, the

…

monetary policies (C). We can say that the IMS is coherent if countries with convertible currencies choose to situate themselves within the same diamond. The Bretton Woods system is close to the line AB (fixed exchanges), with a staggered pattern of capital controls: these are low for the United States, high

…

segment BC by accepting greater capital mobility and thus floating exchanges. The major Western countries did this in the 1970s after the disappearance of the Bretton Woods system; Japan did so in the 1980s; and China did so after 2005. The European countries also followed this trend, albeit only as a

…

if the conditions are no longer the same as those that motivated the creation of the institutions concerned. Thus, the institutions created at Bretton Woods survived beyond the Bretton Woods system itself; they adapted by developing their functions. What we still have to do is to get a sense of prospects for the

…

play a major role in making the IMF the authority that organises international monetary coordination, which it had to abandon after the disappearance of the Bretton Woods system. Since the multi-currency system is structured by monetary regions, the representation of individual eurozone countries must give way to the representation of

…

in which there is an increasingly diversified set of interdependencies, as regions previously on the edges of the international game now converge with it. Bretton Woods lasted for a quarter of a century because negotiations could make use of an institutional framework that had been legitimised by treaty. But the system

…

regime. Such a regime articulates principles, rules and procedures for maintaining permanent coordination.17 Its principles are those of multilateral exchange that emerged from the Bretton Woods framework. In the twenty-first century, these principles include the recognition of the need to produce global public goods. These principles legitimise both cooperation as

…

and supervise the channels through which financial fragility is transmitted. The IMF must rediscover its central role in international monetary governance, in the spirit of Bretton Woods. For an IMS with More Symmetrical Adjustments Transforming international monetary relations in the direction of an institutionalised cooperation framework is one of the necessary responses

…

the euro and the yuan, could expand their field of attraction if the structural problems of China and the eurozone could be properly overcome. At Bretton Woods, the United States’ political and monetary domination prevented the formation of a system able to deal with the problems of adjusting balances of payments

…

of reference current balances. This method would consist of adopting and adapting the work the C20 carried out in its abortive attempt to reform the Bretton Woods system.19 This method consists of estimating the investment requirements necessary to sustaining the capital growth compatible with the long-term trajectory of countries’

…

majority necessary to take decisions that alter the Fund’s statutes. This qualified majority level currently stands at 87.5 percent. This was calculated at Bretton Woods in order to allow the United States to arrogate a blocking-minority vote to itself, allowing it alone to veto decisions. This arrangement is

…

Economics, vol. 96, no. 2, 1981, pp. 207–222. 2 For a wide retrospective of views on the Bretton Woods system and its extensions, see the collective work edited by Thierry Walfaren, Bretton Woods. Mélanges pour un cinquantenaire, Paris: Association d’Économie Financière, 1994. 3 Michel Aglietta, La Fin des devises-clés, Paris

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Studies in International Finance, no. 45, 1979. 11 On Keynes and White’s rival expectations and conceptions, and the difficult reconciliation that led to the Bretton Woods accords, see Michel Aglietta and Sandra Moatti, Le FMI. De l’ordre monétaire aux désordres financiers, Paris: Economica, 2000. 12 John Maynard Keynes, ‘Proposals

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: Alternative Views and Historical Experience’, Federal Reserve Bank of Richmond Economic Review, January–February. Bordo, Michael and Barry Eichengreen (eds) (1993), A Retrospective on the Bretton Woods System, Chicago: University of Chicago Press. Borio, Claudio (2014), ‘The financial cycle and macroeconomics: What have we learnt?’, Journal of Banking and Finance, vol.

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et le cirque. Sociologie historique d’un pluralisme politique, Paris: Seuil. Vilar, Pierre (1974), Or et monnaie dans l’histoire, Paris: Flammarion. Walfaren, Thierry (1994), Bretton Woods. Mélanges pour un cinquantenaire, Paris: Association d’Économie Financière. Walras, Leon (2010) Elements of Pure Economics, or The Theory of Social Wealth, London: Routledge. Warnier

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Bodin, Jean, 115 bond crisis (1994), 237 Braudel, Fernand, 83, 84, 120–1, 135, 145 Brazil crisis (1999), 243 Brender, Anton, 162n6 Breton, Stéphanie, 68 Bretton Woods system, 286, 296, 302, 311–29, 348, 350, 352–3, 386, 387, 389, 390, 391 bronze money, 98, 192 Bryan, William Jennings, 217n13 Bundesbank,

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Pax Technica: How the Internet of Things May Set Us Free or Lock Us Up

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How I Became a Quant: Insights From 25 of Wall Street's Elite

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Seventeen Contradictions and the End of Capitalism

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Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet

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Planet of Slums

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Milton Friedman: A Biography

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Multitude: War and Democracy in the Age of Empire

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Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet

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How Asia Works

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The Fourth Revolution: The Global Race to Reinvent the State

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Growth: From Microorganisms to Megacities

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Exponential: How Accelerating Technology Is Leaving Us Behind and What to Do About It

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Fault Lines: How Hidden Fractures Still Threaten the World Economy

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Global Financial Crisis

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Hit Refresh: The Quest to Rediscover Microsoft's Soul and Imagine a Better Future for Everyone

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The Next Factory of the World: How Chinese Investment Is Reshaping Africa

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Nixonland: The Rise of a President and the Fracturing of America

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Protocol: how control exists after decentralization

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The Vanishing Neighbor: The Transformation of American Community

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A Short History of Progress

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Capitalism: A Ghost Story

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To Serve God and Wal-Mart: The Making of Christian Free Enterprise

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The Tragedy of Great Power Politics

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Post Wall: Rebuilding the World After 1989

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Shutdown: How COVID Shook the World's Economy

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MacroWikinomics: Rebooting Business and the World

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Markets, State, and People: Economics for Public Policy

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Growth: A Reckoning

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Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better

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Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives

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After Tamerlane: The Global History of Empire Since 1405

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The Art of Corporate Success: The Story of Schlumberger

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Superclass: The Global Power Elite and the World They Are Making

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Shocks, Crises, and False Alarms: How to Assess True Macroeconomic Risk

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Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe

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The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good

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The China Mission: George Marshall's Unfinished War, 1945-1947

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Half In, Half Out: Prime Ministers on Europe

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Crude Volatility: The History and the Future of Boom-Bust Oil Prices

by Robert McNally  · 17 Jan 2017  · 436pp  · 114,278 words

It's Our Turn to Eat

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Last Train to Paradise: Henry Flagler and the Spectacular Rise and Fall of the Railroad That Crossed an Ocean

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Britain's Europe: A Thousand Years of Conflict and Cooperation

by Brendan Simms  · 27 Apr 2016  · 380pp  · 116,919 words

Nothing Is True and Everything Is Possible: The Surreal Heart of the New Russia

by Peter Pomerantsev  · 11 Nov 2014  · 251pp  · 80,243 words

Termites of the State: Why Complexity Leads to Inequality

by Vito Tanzi  · 28 Dec 2017

A Fiery Peace in a Cold War: Bernard Schriever and the Ultimate Weapon

by Neil Sheehan  · 21 Sep 2009  · 589pp  · 197,971 words

End This Depression Now!

by Paul Krugman  · 30 Apr 2012  · 267pp  · 71,123 words

Portfolio Design: A Modern Approach to Asset Allocation

by R. Marston  · 29 Mar 2011  · 363pp  · 28,546 words

Zbig: The Life of Zbigniew Brzezinski, America's Great Power Prophet

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The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street

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Cogs and Monsters: What Economics Is, and What It Should Be

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Hegemony or Survival: America's Quest for Global Dominance

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Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else

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The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer

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Sabotage: The Financial System's Nasty Business

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The New Nomads: How the Migration Revolution Is Making the World a Better Place

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Greater: Britain After the Storm

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Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies

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1946: The Making of the Modern World

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The End of Growth: Adapting to Our New Economic Reality

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The Cost of Inequality: Why Economic Equality Is Essential for Recovery

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Zero-Sum Future: American Power in an Age of Anxiety

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The Data Detective: Ten Easy Rules to Make Sense of Statistics

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Automation and the Future of Work

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The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society

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Empty Vessel: The Story of the Global Economy in One Barge

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America at the Crossroads: Democracy, Power, and the Neoconservative Legacy

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GDP: A Brief but Affectionate History

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The Hidden Wealth of Nations: The Scourge of Tax Havens

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Big Business: A Love Letter to an American Anti-Hero

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Trading at the Speed of Light: How Ultrafast Algorithms Are Transforming Financial Markets

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The Entrepreneurial State: Debunking Public vs. Private Sector Myths

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India's Long Road

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Ellul, Jacques-The Technological Society-Vintage Books (1964)

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Hedgehogging

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How an Economy Grows and Why It Crashes

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Destined for War: America, China, and Thucydides's Trap

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Lying for Money: How Fraud Makes the World Go Round

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Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics

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In Spite of the Gods: The Rise of Modern India

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Less Is More: How Degrowth Will Save the World

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The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory

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Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America

by Matt Taibbi  · 15 Feb 2010  · 291pp  · 91,783 words

Fully Automated Luxury Communism

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Bullshit Jobs: A Theory

by David Graeber  · 14 May 2018  · 385pp  · 123,168 words

Citizens of London: The Americans Who Stood With Britain in Its Darkest, Finest Hour

by Lynne Olson  · 2 Feb 2010  · 564pp  · 178,408 words

Sacred Economics: Money, Gift, and Society in the Age of Transition

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The Controlled Demolition of the American Empire

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State-Building: Governance and World Order in the 21st Century

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The Four Pillars of Investing: Lessons for Building a Winning Portfolio

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Powers and Prospects

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America's Bank: The Epic Struggle to Create the Federal Reserve

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The Retreat of Western Liberalism

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The New Class War: Saving Democracy From the Metropolitan Elite

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GDP: The World’s Most Powerful Formula and Why It Must Now Change

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Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America

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The Code of Capital: How the Law Creates Wealth and Inequality

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Makers and Takers: The Rise of Finance and the Fall of American Business

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Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino

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Culture and Imperialism

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The Great Divide: Unequal Societies and What We Can Do About Them

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Brexit, No Exit: Why in the End Britain Won't Leave Europe

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In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest

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The Populist Explosion: How the Great Recession Transformed American and European Politics

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Rebel Cities: From the Right to the City to the Urban Revolution

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When They Go Low, We Go High: Speeches That Shape the World – and Why We Need Them

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China's Superbank

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Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe

by Gillian Tett  · 11 May 2009  · 311pp  · 99,699 words

Big Debt Crises

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Market Wizards: Interviews With Top Traders

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The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse

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The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds

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Six Degrees: The Science of a Connected Age

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Big Mistakes: The Best Investors and Their Worst Investments

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Culture of Terrorism

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On Nature and Language

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DarkMarket: Cyberthieves, Cybercops and You

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God's Bankers: A History of Money and Power at the Vatican

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Tailspin: The People and Forces Behind America's Fifty-Year Fall--And Those Fighting to Reverse It

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The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity

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WTF?: What's the Future and Why It's Up to Us

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The Centrist Manifesto

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Does Capitalism Have a Future?

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Magic Internet Money: A Book About Bitcoin

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Hawai'I Becalmed: Economic Lessons of the 1990s

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The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton

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The Global Money Markets

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Why Government Is the Problem

by Milton Friedman  · 1 Feb 1993  · 25pp  · 7,179 words

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

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The New Prophets of Capital

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The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business

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