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Inventing the World’s Money


Do we need another book on Bretton Woods, the conference in 1944 in New Hampshire that established a new monetary system following World War II? The answer is yes. The two excellent existing histories of Bretton Woods, by Richard Gardner (1956) and Armand van Dormael (1978), are now dated.1 New historical materials have become available. Since the crash of 2008 the arcane subject of the world’s money has become urgently relevant. So a fresh look at the famous conference is warranted.

International Monetary Fund
Assistant US Treasury Secretary Harry Dexter White and John Maynard Keynes, adviser to the UK Treasury, at the inaugural meeting of the International Monetary Fund’s Board of Governors, Savannah, Georgia, March 1946. White and Keynes had clashed at the Bretton Woods Conference in July 1944, which conceived the IMF as part of a new postwar international monetary system.

In The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, Benn Steil has brought together three interesting stories, usually told separately: the life of John Maynard Keynes; the espionage activity of the US Treasury official Harry Dexter White; and the making of the Bretton Woods agreement itself. Steil, a senior fellow at the Council on Foreign Relations, understands the economic issues at stake and has done meticulous research on the history. Every good story that has ever been told about the major actors involved and the happening itself is in his book, and a few more besides. For those who come fresh to the subject, and even for those who know most of it, it is an excellent and revealing account.

At its heart is the clash between the British economist John Maynard Keynes and Harry Dexter White. This is not just a battle between two economists but a competition between two nations, Britain and the United States, for postwar position. For the US the stake was hegemony; for Britain independence. Steil tells the story of how Keynes tried by intellectual superiority to overcome Britain’s weak bargaining position with the United States. In contrast to Keynes, White is merely dour and abrasive. But he compels interest because he has a secret: he was a Soviet agent. Steil’s is the most successful effort yet to link the espionage activity of Harry White to the position he took in monetary politics, though bringing together these two sides of his character remains an elusive task.

The Bretton Woods agreement, as Steil says, set up the “new world order” that dominated postwar monetary history until its collapse in 1971, when Richard Nixon canceled the convertibility of the US dollar into gold. Since then we have lacked a monetary system. Instead we have had a free-for-all with floating, managed, and fixed exchange rates. Excessive accumulation of dollar reserves by countries like China contributed heavily to the financial collapse of 2008. So it is instructive to learn how the leaders of 1944 tried to deal with the problem of international monetary relations—and the conditions of their success and failure.


The run-up to Bretton Woods is framed by the histories of its two main figures, White and Keynes, set against the background of the collapse of the pre-war economic world into disorder and war and Britain’s struggle for survival against Nazi Germany. White is given pride of place for he, rather than Keynes, was the real author of the Bretton Woods agreement.

As Steil notes, the central problem in making sense of White is to link his economic ideas and policies to his activities as a Soviet agent. He did not subscribe to the Marxist theory of the Great Depression, which amounted to saying that it was incurable under capitalism. White was instead an enthusiastic New Dealer; and by the mid-1930s, his policy advice was “thoroughly Keynesian.”

“Stocky, and moonfaced, with round rimless spectacles, blue eyes, and a trim, black mustache,” Steil writes, White was acerbic, quick-tempered and overly ambitious. He was not a top-notch economic theorist, languishing till the age of forty at an obscure American university. But once allowed into Henry Morgenthau’s Treasury—initially as assistant to Treasury adviser Jacob Viner—White displayed a “preternatural ability to explain technical subjects clearly and carefully, and to relate economic principles to actual international political circumstances.” His basic idea, first developed in his Ph.D. dissertation at Harvard, and from which he never deviated, was that a global currency system managed by the United States was an essential condition for the expansion of US exports.

While White was gradually making himself indispensable to Treasury Secretary Morgenthau, he was receiving expensive gifts of Bokhara rugs from the Soviet military intelligence agent Colonel Boris Bykov. His work as a Soviet agent started in 1935 with his arrival at the Treasury, when he started giving Whittaker Chambers, then a courier working for Soviet intelligence, official Treasury documents for copying. Chambers later wrote bluntly:

I had never liked Harry White. I see him sauntering down Connecticut Avenue at night, a slight, furtive figure…. He is nervous at the contact, idles along, constantly peeping behind him, too conspicuously watchful.

White gave up spying in 1939, following the Nazi-Soviet Pact, but resumed in 1941, with a new courier, Elizabeth Bentley, after Hitler’s invasion of the Soviet Union in June of that year.

In 1939, Chambers was the first to “finger” White, but his accusations were dismissed by Roosevelt as fantastic, and White remained at the Treasury throughout the war. Bentley’s later testimony had more effect, and White’s government service was terminated in 1946. But proof of his espionage came only after his death, with the cracking of Soviet intelligence codes (the “Venona project”) and later still from KGB files. In these White, under various code names, is clearly identified as a Soviet “asset.”2

Steil makes the arresting claim that White was a “key player” in precipitating the Japanese attack on Pearl Harbor. He was the immediate author of the ultimatum by Roosevelt that is said to have provoked the Japanese attack on December 7, 1941. Among other demands, the ultimatum insisted that Japan withdraw its troops from China and Indochina. Steil writes that, according to former Soviet military intelligence colonel Vladimir Karpov, “Stalin was the real initiator of the ultimatum to Japan.” Just how Stalin transmitted the ultimatum to White is left rather circumstantial, but Steil—without direct evidence—considers it beyond dispute that White wrote “the key ultimatum demands.” If this is so, he was certainly a useful man for the Soviets to have around.

Why did White become a Soviet spy? Steil conjectures that spying raised his self-esteem. Harvard had rejected him; his lowly position at the Treasury rankled. What seems clear is that his espionage, like that of the British spies Guy Burgess, Donald Maclean, and Kim Philby, resulted from his belief that the Soviet Union was the only effective bulwark against Nazism and barbarism, and that to help the Soviet Union in any way was a moral duty. During the war he added the idea that a close military alliance between the United States and the Soviet Union was the indispensable condition of future world peace. He was not a Communist, but he believed that socialist economics “worked” and that the future would see a convergence between the capitalist and socialist systems.

Britain’s role in the benign dual alliance of White’s imagination was simply to be a dependent and dependable ally of the United States. For this to happen, the then-largest imperial power had to be shorn of its capacity for independent action. Britain was to be kept in the war, but only on terms that precluded its establishment as a rival to the United States. This was the geopolitical meaning of the events leading up to the Bretton Woods agreement, and the agreement itself.

In the discussions leading up to Bretton Woods, White confronted John Maynard Keynes, the chief financial emissary of Great Britain. Aged fifty-six when the war broke out, Keynes was nine years older than White. His official position was merely that of adviser to the chancellor of the exchequer, but such was his intellectual and personal authority that, though far from well, he personally conducted all the wartime financial negotiations with the United States. Steil renders a shrewd if somewhat unflattering portrait of the first celebrity economist, and an accurate if somewhat unsympathetic account of Keynes’s economic theory. (He dismisses his 1936 magnum opus The General Theory of Employment, Interest and Money as “a reliable tract on depression economics.”)

Keynes was not an ideal negotiator, his imperious, if not imperial, style being ill-suited for the job of asking for generous treatment. But he had a crucial and underestimated asset: his intellect. The intellectual content Keynes brought to the negotiations made the Bretton Woods agreement more than a geopolitical device. Keynes’s intellectual ability forced White to refine his own ideas. The result was a monetary agreement that, though imperfect, proved durable, unlike the much inferior 1992 Maastricht Treaty for European monetary union, which started to unravel as soon as it ran into trouble.

The road to Bretton Woods began with Roosevelt’s announcement on December 7, 1940, of the Lend-Lease agreement, by which the US turned over ships and military supplies to Great Britain. This came none too soon: Britain had almost run out of money (gold and dollars) to pay for its war purchases in the United States and, without Lend-Lease, might well have had to sue for peace. In April 1941 Keynes came to Washington on the first of his wartime financial missions to negotiate the terms of what Churchill called “the most unsordid act in history.” Since Lend-Lease was to take the form of a gift of supplies to Britain, haggling over the terms of a loan was not the issue. Rather there were two. The first was, how much Lend-Lease was Britain to get? It turned out that the United States was determined to keep Britain on short rations: enough to continue the war, but not to replenish its gold and dollar reserves.

The second issue concerned the non-financial “consideration” that the US would require in return for the gift. This, it turned out, was a promise by Britain to give up its imperial preference trading system, which discriminated against American goods. When confronted, on his visit in April, with this “consideration,” Keynes raged against what he called the “lunatic proposals” of Secretary of State Cordell Hull. But being of constructive mind, he rejected the idea of promising anything the US wanted and then shuffling out of the promise after the war. Instead, he turned his attention to how Britain might safely and honestly give the United States the assurance it wanted and at the same time help construct a more rational postwar monetary system than the gold standard. The result was his proposal for an International Clearing Union, which he drafted over one weekend when he was back in England in September 1941.

  1. 1

    Richard N. Gardner, Sterling-Dollar Diplomacy: Anglo-American Collaboration in the Reconstruction of Multilateral Trade (Oxford: Clarendon Press, 1956); Armand van Dormael, Bretton Woods: Birth of a Monetary System, (Holmes and Meier, 1978). 

  2. 2

    This has long been denied by IMF historian James M. Boughton: see “The Case Against Harry Dexter White: Still Not Proven,” IMF Working Paper 00/149, 2000. But it is more than enough for a court to convict. 

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