Conway Edmund - The summit: Bretton Woods, 1944: J.M. Keynes and the reshaping of the global economy

THE SUMMIT

BRETTON WOODS, 1944

J.M. KEYNES AND THE RESHAPING

OF THE GLOBAL ECONOMY

ED CONWAY

THE SUMMIT

Pegasus Books LLC

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New York, NY 10004

Copyright 2014 by Ed Conway

First Pegasus Books hardcover edition February 2015

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ISBN: 978-1-60598-681-4

ISBN: 978-1-60598-744-6 (e-book)

Distributed by W. W. Norton & Company, Inc.

For my mother, and in memory of my father

Saturday 22 July 1944

It wasnt until dinner was about to be served that the assembled guests realised someone was missing.

The dining hall was already packed with delegates. The majority of them were formally dressed in ties or bow ties, though if you looked closely youd soon notice the bags under their eyes and the slow gait borne of sleep deprivation. Everyone was exhausted. For three weeks they had been negotiating; by turns remonstrating and revelling with each other in the conference rooms, corridors and bars of the hotel. Most had worked through the nights in a desperate bid to close a deal in time.

And this was it: Bretton Woods final act. The closing banquet and plenary session where it would be revealed whether the most ambitious economic negotiations in history had been a success.

For it was far from assured, even with only a couple of hours left, that the conference would end in triumph. The Russians were still refusing to sign. They had spent the past weeks stubbornly contesting the terms under which they would participate. Rumour had it that Stalin himself had ordered his representatives to stand firm against the Americans. The uncertainty had cast a shadow over the event: after three weeks of near-twenty-four-hour working days, which in turn had followed months and years of behind-the-scenes preparation, the conference looked as though it would end in discord.

That said, merely getting this far was an achievement in itself. The worlds leading economic minds had travelled from every corner of the globe, many of them dodging attack on the way. One delegate had even come straight from a prisoner-of-war camp.

The outcome of the war itself was as yet uncertain: British and American troops had landed in Normandy for Operation Over-lord only a few weeks before; in the Pacific, Japan occupied most of the contested territories and had only just lost control of Thailand. Momentum was going the Allies way but even in a best-case scenario, the conflict would not be over for some time.

Moreover, nothing of the scale and ambition of Bretton Woods had been achieved before. The objective was self-consciously grand: to replace the mangled global monetary system responsible for the Great Depression (and, by extension, for the war) with something that worked. No one had ever successfully modified the international monetary system: instead, it had evolved incrementally from the early days of mercantilism to the British Empire-dominated gold standard which collapsed in 1914, through to the flimsy system of currencies and rules erected after the Great Depression in the 1930s. All previous efforts to achieve what the delegates were attempting had failed, without exception.

Devising a comprehensive new system of governing the world economy was challenge enough, even before one stopped to consider whether it could actually be implemented. For a spectre hung over the Bretton Woods conference: that of the peace summit in Paris twenty-five years before. There, in the Hall of Mirrors at Versailles, the worlds leaders had agreed upon a deal which they thought would secure a lasting peace throughout Europe. In the event, it had merely sown the seeds of the Second World War.

Imposing reparations on Germany had served to fuel resentment both in Berlin and among the French and British, who claimed the largest amounts. Nor did the leaders even countenance trying to tackle the broader economic mess left behind by the collapse of the gold standard. To add to the general discord, the Americans had consigned the League of Nations to irrelevance by refusing to join. They had shown scant regard for the sporadic conferences the League sponsored in the interwar period aimed at repairing the world economy.

Here at Bretton Woods, the task was not merely to design an entirely new set of monetary rules, but to show that, for the first time, the US really would engage. Bretton Woods was to be the litmus test of whether twentieth-century internationalism could really work, clearing the path for the foundation of the United Nations the following year.

That, at least, was the official ambition. But had you asked each delegation what they wanted out of the conference, you would have received a host of conflicting answers. For the US, this was the moment to demonstrate their rise to the status of the worlds undisputed superpower. Britains twin aims were to ensure the survival of as much of the Empire as possible while reducing their enormous wartime debts. The Mexicans were desperate that silver would play a part in the worlds new economic system (no prizes for guessing their biggest precious-metal export); the French wanted to be recognised as a sovereign economic state. And the Russians well, by the beginning of the final dinner it looked as if they had turned up purely to sabotage the deal.

For many, the best that could be hoped for from this banquet and closing plenary session was that, somehow, Henry Morgenthau, the US Treasury Secretary, could put a positive spin on the quandary. But some members of his delegation had privately conceded that failure to secure Russian involvement would represent a failure of the conference.

Predictably, the row with the Soviets had centred on money specifically, how much the Russians would contribute to the new system of global economic management. And the mood had soured in the past twenty-four hours as it emerged that, despite their politeness and genuine engagement in the sessions, the Russians were unwilling to budge. To add to the delegates worries, meanwhile, even the Australians, who had seemed to be in favour of the agreement, hadnt been granted permission by Canberra to sign up, with only an hour to go until that final dinner.

This was as much as most of the delegates knew as they filed into the dining room. Despite the hotels best efforts to keep numbers manageable, hundreds had turned up that night: bleary-eyed delegates, lobbyists, the local great and the good, journalists and even the odd gatecrasher.

The only people assured of a seat were the big names: the chairmen of the delegations, who had taken their places at the high table at least, all but one of them.

Not every Allied country was represented at Bretton Woods. President Franklin D. Roosevelt had insisted on involving the Big Four the US, Britain, the Soviet Union and China but who should come along with them was up for debate. And as with so much else at Bretton Woods, even this had turned into a battle of influence between the British and the Americans. The British regarded the Latin Americans and the Chinese as entirely craven before the US. The Americans suspected the British had undue influence over the Greeks and Indians. In the end the delegations were whittled down to forty-four, though that was still a few too many for the British, who considered the whole enterprise variously a monstrous monkeyhouse, a Tower of Babel.