The Morgenthau Diaries Are Online

Henry Morgenthau, Jr. was Secretary of the Treasury from 1934 to 1945, a period that of course included the 1944 Bretton Woods conference. Fortunately for historians, he was a compulsive chronicler. His collection of speeches, memos, transcripts of meetings, and other documents, termed the Morgenthau Diaries, runs to hundreds of volumes. They have been available for some years on microfilm, but at a price so high that few libraries have them. Now the diaries are are available for free online. They offer inside perspective on a tumultuous period of American and world history.

Morgenthau was the president of the Bretton Woods conference and the head of the U.S. delegation to the conference, and his diaries from that period (July 1-22, 1944) contain transcripts of many of the delegation’s meetings behind closed doors. The American delegates could be blunt in their private assessments, as these words from a July 1 meeting show:

MR. [Harry Dexter] WHITE: Those are the large countries. The smaller countries all want larger quotas. The most troublesome will be Australia, who is participating to an extent far beyond the proper role of a country of her size and importance. But they are going to insist on a larger quota and some other things that I suggested before.

Readers interested in Bretton Woods will find much to instruct and occasionally amuse them. Among other things, the diaries show clearly that Federal Reserve chairman Marriner Eccles, who is not recorded as having said a word in the conference sessions, was highly active behind the scenes.

At Bretton Woods the United States was at the zenith of its relative economic power, as the leading economy whose home territory was nearly untouched by the enemy. The attitude of the American delegation reflects its awareness of that fact. Reading the diaries, though, one must that remember that however fascinating they are, they are but a part of the story. What the Americans wanted was not always what transpired in conference, and their private scheming had counterparts in the private scheming of other delegations, which is less well recorded but which has recently received scrutiny from assiduous researchers.

(Hat tip to Eric Rauchway, who spoke at the 2014 CFS Bretton Woods conference.)

The Economist on “The 70-Year Itch”

In The Economist this week, there is a terrific article The Bretton Woods agreements: The 70-year itch.  Highlights include:

– America learned the benefits of economic co-operation the hard way. Its failure to create institutions to help steer the world economy after the first world war exacerbated the Great Depression and paved the way for the next conflagration.

– Yet today’s pre-eminent powers seem to have forgotten this lesson.

– If John Maynard Keynes were alive, he would sigh not just at the risks in all this economic nationalism but also the huge missed opportunity. Perhaps it is time to send another group of dignitaries to New Hampshire.

The full article is at http://www.economist.com/news/leaders/21606280-both-west-and-china-are-neglecting-institutions-help-keep-world-economy

The piece is similar to my Forbes column Lessons from the Summer of 1944.

The full column can be viewed at http://www.forbes.com/sites/greatspeculations/2014/06/06/lessons-from-the-summer-of-1944/

Review of Two New Books on Bretton Woods

(The following review, for the economic history site EH.net, is reprinted with their permission, and the copyright provisions specified there apply.)

Ed Conway, The Summit: The Biggest Battle of the Second World War, Fought Behind Closed Doors. London: Little, Brown, 2014. xxvi + 454 pp. £25 (hardcover), ISBN: 978-1-4055-2930-3.

and

Eric Helleiner, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order. Ithaca, NY: Cornell University Press, 2014. xii + 304 pp. $40 (hardcover), ISBN: 978-0-8014-5275-8.

Two books have appeared just in time for the seventieth anniversary of the Bretton Woods conference. Edmund Conway’s The Summit is a popular account of the conference by a financial journalist, while Eric Helleiner’s Forgotten Foundations of Bretton Woods is a political scientist’s examination of a little explored angle of the conference: the role of what we now call emerging market countries.

Conway, economics editor of the British cable television channel Sky News, set out to write an overview incorporating material that has come to light since Armand van Dormael’s 1978 book Bretton Woods: Birth of a Monetary System. (Benn Steil’s The Battle of Bretton Woods [2013] is an interpretation of the conference according to a master theme rather than an overall account, as I will explain later.)[1] We now have additional reminiscences by delegates; declassified archival material such as the Venona files detailing Soviet espionage in the ranks of U.S. Treasury officials; and full transcripts of many committee meetings at the conference.

Conway writes in a lively style. (Example: “As far as [Keynes] was concerned, the [International Monetary] Fund should be regarded as a kind of economic health spa. There should be no stigma associated with going to it for help: all countries should be entitled — nay, encouraged — to do so at some point. For White, however, the Fund was Accident and Emergency — countries should only be wheeled in if close to complete economic collapse” p. 171.) In addition, he has done some original research that will ensure a niche for his book in the scholarly literature. For example, in the Russian archives he found a number of documents that illustrate Soviet perceptions of Bretton Woods. The Soviet Union was active and often obstreperous at the Bretton Woods conference. It signed the Bretton Woods agreements but later decided not to join the International Monetary Fund and the International Bank for Reconstruction and Development (World Bank), in part because it did not want to divulge the economic data required of IMF members.

Because the book is intended for readers who may know nothing of Bretton Woods, many of you reading this review can comfortably skip the early chapters, which provide background, and start with the British delegation’s ocean voyage to America. Conway vividly conveys the atmosphere both of the voyage and of the Atlantic City conference that preceded Bretton Woods and developed the drafts from which the Bretton Woods delegates worked.

At the heart of The Summit is of course the account of the Bretton Woods conference itself. (The title, by the way, is a triple reference to Bretton Woods as an important international gathering, a high point in economic diplomacy, and a location within sight of the highest peak in the northeastern United States.) Conway devotes a substantial chapter to each of the three weeks of the conference. He gives an overall idea of the course of negotiations and, again, of the atmosphere in which delegates worked, but omits minute details that are more appropriate to books aimed at narrower audiences.

The final chapters describe the later life of the Bretton Woods agreements, beginning with controversies on the way to their ratification in the United States and in Britain. In the United States some experts got worked up about the agreements, but as Conway relates, the public was apathetic; with World War II still raging, the subject was too abstruse to arouse passion. In Britain, the country’s largest newspaper fiercely criticized the agreements, but the enormous parliamentary majority of the new Labour Party government meant that it could pass into law anything it wanted.

Throughout the book Conway focuses on the personality traits of the players. Economists and political scientists often write as if impersonal interests dominate and personalities make little difference; journalists, diplomats, and historians know better. As a case in point, the turnover of lower-level officials after Harry Truman succeeded Franklin Roosevelt as president quickly led to changes in actual or prospective policies, including abandonment of the Morgenthau Plan to reduce Germany to an economic backwater after the war and the idea of locating the IMF and World Bank in New York rather than Washington. Conway’s book will not be, and is not intended to be, the authoritative academic account of Bretton Woods, but it is a useful addition to previous accounts.

Eric Helleiner, a professor of political science at the University of Waterloo (Canada), calls into question the prominent line of thinking about Bretton Woods that it was an American, and to a lesser extent a British, production, with other countries having little impact. Benn Steil is in this vein, interpreting Bretton Woods as a nearly unvarnished exercise in power politics. Steil focuses on the animosity of many American officials toward Britain and the ways in which they tried to use Bretton Woods and the Lend-Lease negotiations to diminish British postwar influence. Steil shares the view Keynes privately expressed, which likened the delegates from most other countries at Bretton Woods, particularly those from the poorer countries — what  we would now call emerging markets — as denizens of a “monkey house,” raucous and useless.

Helleiner’s library and archival research incorporate sources previously absent from English-language scholarship on Bretton Woods. His writing lacks Conway’s journalistic panache but conveys clearly ideas that other social scientists would have clotted with needless jargon. Helleiner finds antecedents to Bretton Woods, incidents at the conference, and events afterwards to indicate greater importance for the emerging markets than has hitherto been acknowledged.

The opening chapters focus on American attitudes toward emerging markets, documenting how Franklin Roosevelt’s New Deal and his Good Neighbor policy towards Latin America changed the approach of the U.S. government toward international financial issues. U.S. officials became more sympathetic to the concerns of emerging market officials on matters of exchange rate choice, exchange controls, commodity price stabilization, industrial protectionism, and, to a lesser extent, debt default. The remaining chapters discuss Bretton Woods as viewed from the perspective of Latin American, Asian, and Eastern European governments, with a sidebar on how British official attitudes about economic development did or did not fit into the picture.

Helleiner’s implicit claim is that by the time of Bretton Woods, the ideology of the Roosevelt administration, and the experience of the 1930s, made the U.S. government more comfortable with “developmentalist” ideas (my term, not Helleiner’s) than at any time before and possibly since. Helleiner discusses the abortive Inter-American Bank as a dry run for the IMF and especially the World Bank. It was to have been a government-owned multilateral financial institution, with weighted voting, lending both to ease short-term balance of payments problems and to promote long-term economic development. The United States was to have provided the largest share of funds for it, but the U.S. Congress failed to approve the charter, so the project died. An echo of it exists in the Inter-American Development Bank, established in 1959.

Two other important examples of changing U.S. official attitudes toward Latin America were the U.S. government advisory monetary missions to Cuba in 1941-42 and Paraguay in 1943-44. They were much friendlier to developmentalist ideas than the semiofficial U.S. monetary doctor Edwin Kemmerer had been when he had advised many Latin American and other countries in the 1920s. Latin American governments responded favorably to what they saw as greater recognition by the United States of their sovereign dignity. The motives of the United States were not purely disinterested: it wanted to keep Latin America out of the Nazi orbit. U.S. officials were solicitous about involving their Latin American counterparts in their international plans from an early stage, choosing the January 1942 Rio de Janeiro Conference to announce their interest in planning for the postwar financial order.

In return, Latin American governments were generally supportive of the U.S. plans, though they proposed and received some changes to support their interests. At Bretton Woods, they and the other emerging markets secured agreement that the World Bank would focus equally on reconstruction and development, as opposed to its original stronger focus on reconstruction. With regard to the International Monetary Fund agreement, Latin American countries got a provision expected to benefit commodity exporters, instructing the Fund to take into consideration exceptional requirements of borrowing countries. The IMF agreement also was tolerant of the multiple exchange rates that existed in a number of Latin American countries at the time.

(Here I must mention a misconception that pops up in discussions of Latin American countries at Bretton Woods. They were the largest regional bloc, but their influence was less than their numbers. The conference proceeded mostly by consensus, avoiding formal votes on contested issues where possible, because a contested agreement rammed through by majority vote would have jeopardized the support of the United States, the major source of funds. The United States, in turn, could not simply dictate terms because the IMF and World Bank would have lacked legitimacy had they been viewed as little more than fronts for U.S. policies.)

East Asia was represented at Bretton Woods only by China and by the Philippines, the latter still an American colony but scheduled to become independent soon. Helleiner calls attention to Sun Yat-Sen’s book International Development of China, a pioneering effort in what later came to be called development economics. It had a strong influence on subsequent Chinese thinking about economic development and some influence abroad. Before Bretton Woods, China submitted its own plan for the IMF, alongside the British, American, Canadian, and French plans. It has been neglected by most historical accounts, including the IMF’s official history.[2] At Bretton Woods, China got a clause inserted into the World Bank agreement allowing that in special circumstances, the Bank could make loans not tied to specific projects, hence promoting overall development goals.

India’s delegation at Bretton Woods, a mixture of Britons and Indians, effectively represented India’s particular interests even though India was still a British colony. The overall attitude of British officials toward developmentalist ideas was lukewarm, a result in part of Britain’s fragile war finances and the knowledge that resources Britain could command through its empire would be greatly reduced if the colonies were to have more local control of their economic policies. Keynes was more developmentalist than the British consensus. He had, for instance, suggested as early as 1913 that India should have a state-owned central bank with a development focus, and he was critical of the idea, eventually adopted, to establish a currency board in Burma after it separated monetarily from India following World War II.[3]

Delegates from Eastern Europe were, naturally, keenly interested in the IBRD’s reconstruction role, but the Polish delegation appreciated the case for development lending given that Eastern Europe other than Czechoslovakia could be seen as a backward region.

In the final chapter, Helleiner traces the subsequent fate of developmentalist ideas at the IMF and IBRD. The Cold War had the effect that what came to be called the Third World was, as its name implied, low in international status. Today, though, with the Cold War past and emerging markets accounting for roughly half of world output, “echoes of the Bretton Woods development discussions have begun to be heard once again” (p. 276).

Notes:
1. Van Dormael is a retired businessman turned amateur historian, Conway is a journalist, Steil is an economist, and Eric Helleiner is a political scientist. Professional historians are notable by their absence from deep study of Bretton Woods, although Eric Rauchway, a professor at the University of California-Davis, has a forthcoming account.

2. J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, 3 volumes (Washington, D.C.: International Monetary Fund, 1969).

3. The countries whose monetary reforms Helleiner discusses — Paraguay, Cuba, Burma, Ethiopia — have not been known for long-term monetary stability under the central banks that all eventually established. Might they in fact have been better off with more rigid monetary authorities?

Kurt Schuler, an economist, is Senior Fellow in Financial History at the Center for Financial Stability in New York. He is the editor, with Andrew Rosenberg, of The Bretton Woods Transcripts (2012).

Who Was at Bretton Woods?

In a new CFS paper released on July 1st, Mark Bernkopf and I offer a nearly complete list of the people who attended the 1944 Bretton Woods conference as delegates, secretarial staff, or journalists. There were roughly 700 people listed among several documents in the conference proceedings published in 1948 and the unpublished telephone directories issued during the conference.

In addition to the people directly concerned with the work of the conference, there were a number of Boy Scouts who helped distribute documents and move microphones, plus military messengers and police. None are listed in any document we have seen, though. Additionally, there were of course the staff not only of the Mount Washington Hotel, where the conference was held, but of three other hotels nearby that accommodated overflow boarders. The Bretton Arms Inn, within walking distance of the Mount Washington Hotel, is still in existence, while the more remote Crawford House and Maplewood Hotel no longer exist.

Mark Bernkopf, my coauthor, established in the 1990s what may have been the first Web site on central banking generally as opposed to the sites of particular central banks. It has since been superseded by other sites to which it served as an example and a spur, especially the “Central bank hub” section of the Bank for International Settlements site. After I found Mark’s site and contacted him by e-mail to ask him a question about it, we found that we lived within walking distance, and struck up a lasting friendship. A stint at the Federal Reserve Bank of New York before he established the Web site contributed to Mark’s interest in both the practice and history of central banking.

Read Who Was at Bretton Woods?.

Who Was at Bretton Woods?

In a new CFS paper, Mark Bernkopf and I offer a nearly complete list of the people who attended the 1944 Bretton Woods conference as delegates, secretarial staff, or journalists. There were roughly 700 people listed among several documents in the conference proceedings published in 1948 and the unpublished telephone directories issued during the conference.

In addition to the people directly concerned with the work of the conference, there were a number of Boy Scouts who helped distribute documents and move microphones, plus military messengers and police. None are listed in any document we have seen, though. Additionally, there were of course the staff not only of the Mount Washington Hotel, where the conference was held, but of three other hotels nearby that accommodated overflow boarders. The Bretton Arms Inn, within walking distance of the Mount Washington Hotel, is still in existence, while the more remote Crawford House and Maplewood Hotel no longer exist.

Mark Bernkopf, my coauthor, established in the 1990s what may have been the first Web site on central banking generally as opposed to the sites of particular central banks. It has since been superseded by other sites to which it served as an example and a spur, especially the “Central bank hub” section of the Bank for International Settlements site. After I found Mark’s site and contacted him by e-mail to ask him a question about it, we found that we lived within walking distance, and struck up a lasting friendship. A stint at the Federal Reserve Bank of New York before he established the Web site contributed to Mark’s interest in both the practice and history of central banking.

See Who Was at Bretton Woods?.

The Bretton Woods Transcripts Receives ESHET Award

The European Society for the History of Economic Thought has awarded The Bretton Woods Transcripts the ESHET 2014 Best Scholarly Edition Award. Congratulations to the editors – Kurt Schuler and Andrew Rosenberg – who will be invited to organize a Bretton Woods Transcripts session at the next ESHET conference.

For more on the book and links to the Bretton Woods Project and historic documents and memorabilia:
http://www.centerforfinancialstability.org/brettonwoods.php

Keynes on Sovereign Debt

John Maynard Keynes (United Kingdom) on Sovereign Debt

Mr. Chairman, since the United Kingdom is the only country here represented which has incurred large-scale war debt to our allies and associates, also here present, these three alternative amendments must be assumed, as indeed Mr. Shroff made clear, to relate primarily to her. Mr. Chairman, the various members of this alliance have suffered in mind, body and estate through the exhaustion of war, through which we are differing in kind and degree. These sacrifices cannot be weighed one against the other. Those of us who are most directly threatened and were nevertheless able to remain in the fight, such as the USSR and the United Kingdom, have fought this war on the principle of unlimited liability and with a more reckless disregard to economic consequences. Others are more fortunately placed. We do not need information in the larger fields of human affairs. Nothing could be less prudent than hesitation or careful counting of the cost. But as a result, there has been inevitably no equality of financial sacrifice.

In respect to overseas assets, the end of the war will find the United Kingdom greatly impoverished and other of the United Nations considerably enriched at our expense. We make no complaint to this provided that the resulting situation is accepted for what it is. On the contrary, we are grateful to those allies, particularly to our Indian friends, who put their resources at our disposal without stent, and themselves suffered from privation as result. Our efforts would have been gravely, perhaps critically, embarrassed if they had held back from helping us so wholeheartedly and on so great a scale. We will appreciate the moderate, friendly and realistic statement to the problem which Mr. Shroff has put before you today. Nevertheless, the settlement of these debts must be, in our clear and settled judgment, a matter between those directly concerned. When the end is reached and we can see our way into the daylight, we will take it up without any delay to settle honorably what was honorably and generously given. But we do not intend to ask assistance in this matter from the International Monetary Fund beyond the fact, as Mr. Bernstein has just pointed out, that the existence of the Fund and the general assistance it will give to stability, and expansion of trade may be expected to improve indirectly our ability to meet other obligations. We concur entirely with the view that has just been expressed by Mr. Bernstein on behalf of the American delegation that the Fund is not intended to deal directly with war indebtedness.

Now, since we do not intend either to ask for or to avail ourselves of any special treatment from the Fund, it appears to the United Kingdom delegation that this amendment could be of no practical effect, and it is therefore better to discard it if misunderstanding is to be avoided about the role which the Fund can be expected to play.

(Commission I, third meeting)

The Bretton Woods Transcripts
Typescripts and Conference Proceedings of the United Nations Monetary and Financial Conference
Bretton Woods, New Hampshire
July 1-22, 1944

Edited by CFS Senior Fellow of Financial History Kurt Schuler and CFS Senior Associate Andrew Rosenberg

Bretton Woods: Who Was Eduardo Suárez?

The Bretton Woods conference was divided into three working groups called commissions. Commission I, on the International Monetary Fund, was chaired by Harry Dexter White of the United States Treasury. Commission II, on the International Bank for Reconstruction and Development (World Bank), was chaired by John Maynard Keynes of the United Kingdom. Commission III, on other means of international financial cooperation, was chaired by Eduardo Suárez of Mexico. Keynes is known to everyone; White is known to everyone interested in Bretton Woods; but Suárez is not well known outside of his native country. Who was he?

Eduardo Suárez Aranzolo was born on January 3, 1895 in Texcoco, in the State of Mexico (which adjoins the federal district of Mexico City). As a youth he studied law, with the aid of a scholarship granted by the government of the state of Hidalgo. At age 22 he became an official in that government. After unsuccessfully running for a seat in the state legislature, he taught international law, eventually becoming a chaired professor at Mexico’s leading university. He also frequently acted as a consultant to the national government, including on a U.S.-Mexican commission and representing Mexico at the League of Nations. He participated in drafting important Mexican laws relating to the central bank, credit, and labor in the early 1930s.

Suárez was Secretary of Public Finance and Credit under two Mexican presidents from 1935 to 1946. His tenure in the office remains the second longest on record (after Antonio Ortiz Mena, who served from 1958 to 1970). He can be considered the founder of what has been termed the “developmentalist” school of thought in Mexican economic policy making. Two important events during his tenure were a rise in the world price of silver in 1935 that made Mexican silver pesos worth more as metal than as money, and the nationalization of foreign oil companies by president Lázaro Cárdenas in 1938.

After his time as a top official, Suárez resumed his career as a lawyer and also became an adviser to a number of businesses. He served as Mexico’s ambassador to Britain from 1965 to 1970. He died on September 19, 1976.

According to Luis Machado, a Cuban delegate to the Bretton Woods conference  who later became an executive director of the World Bank, Suárez was considered as a prospect to be the second president of the bank after its first president, the American Eugene Meyer, resigned. Ultimately the post went to another American, John J. McCloy.

Suárez’s son helped gather material for a posthumous collection of writings entitled Commentarios y recuerdos (1926-1946) (Comments and Memories, 1926-1946), published in Mexico City in 1977. Readers who know Spanish may also be interested in this reminiscence of Bretton Woods 50 years later by the technical secretary of the Mexican delegation, Victor L. Urquidi.

Bretton Woods Viewed from India

The Internet now has many documents related to Bretton Woods that were unavailable when Andrew Rosenberg and I began our work on The Bretton Woods Transcripts a little more than two years ago. The latest that I have found is the Report of the Indian Delegation to the United Nations Monetary and Financial Conference at Bretton Woods, on the Reserve Bank of India’s recently established digital library site. The report, printed in 1945, stresses some particular concerns India raised at Bretton Woods, such as the convertibility of its pound sterling assets, the extent to which the IMF would stress economic development over balance of payments considerations, and quotas (capital subscriptions in the International Monetary Fund and World Bank). India, although still a British colony at the time of the Bretton Woods conference, was notable for the independent stance of its delegation, extending to the Englishmen who served on the delegation.