BENN STEIL is a Senior Fellow and Director of International Economics at the Council on Foreign Relations. This essay is adapted from his most recent book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton University Press, 2013).See more by this author
In the wake of the 2008 financial crisis and the ensuing global economic downturn, it has become commonplace for politicians, pundits, and economists to invoke the memory of Bretton Woods. In July 1944, in the midst of World War II, representatives of 44 nations gathered in this remote New Hampshire town to create something that had never before existed: a global monetary system to be managed by an international body. The gold standard of the late nineteenth century, the organically formed foundation of the first great economic globalization, had collapsed during the previous world war. Efforts to revive it in the 1920s proved catastrophically unsuccessful. Economies and trade collapsed; cross-border tensions soared. In the 1930s, internationalists in the U.S. Treasury Department saw a powerful cause and effect and were determined to resolve the flaws in the international economic system once and for all. In the words of Harry Dexter White, a then little-known Treasury official who became the unlikely architect of the Bretton Woods system, it was time to build a "New Deal for a new world."
Working in parallel and in prickly collaboration with his British counterpart, the revolutionary economist John Maynard Keynes, White set out to create the economic foundations for a durable postwar global peace. Governments would be given more power over markets but fewer prerogatives to manipulate them for trade gains. Trade would in the future be harnessed to the service of political cooperation by ending shortages of gold and U.S. dollars. Speculators who stoked and profited from fears of such shortages would be shackled by strictures placed on the frenetic cross-border flows of capital. Interest rates would be set by government experts schooled in the powerful new discipline of macroeconomics, which Keynes had been instrumental in establishing. A newly created International Monetary Fund (IMF) would ensure that exchange rates were not manipulated for competitive advantage. Most important, budding dictators would never again be able to use barriers to trade and currency flows as tools of economic aggression, ruining their neighbors and fanning the flames of war.