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.

American Thinker Reviews The Bretton Woods Transcripts

On the American Thinker Web site, Jon Decker says of The Bretton Woods Transcripts,

This is an invaluable primary source.

Schuler and Roserberg have done both historians and policy makers a signal service with this meticulously-edited edition.

Decker focuses on the difference between the pre-World War I “classical” gold standard on the one hand and the interwar and Bretton Woods “gold exchange” standards, where the U.S. dollar (and in the interwar period the pound sterling and French franc) vied with gold for dominance in central bank holdings of foreign reserves. Overreliance on the dollar turned out to be a weak point in the architecture of the Bretton Woods system.

A World Bank for the Axis, too

In “Questions and Answers on the Bank for Reconstruction and Development,” which the U.S. Treasury prepared for distribution at the Bretton Woods conference. it is mentioned that the proposed capital for the organization now better known as the World Bank was $10 billion. The document does not offer a breakdown by country, but in the run-up to Bretton Woods, the organizers of the conference had in mind to reserve $2 billion notionally for the countries that did not participate in the Bretton Woods conference. These were a few neutral countries, such as Spain, Sweden, and Turkey, and, more important, the Axis powers. It was envisioned that after a suitable period of postwar occupation and rehabilitation, Germany, Japan, and Italy would join the World Bank as well as the International Monetary Fund. (Membership in the World Bank was only open to members of the IMF.)

As it turned out, the World Bank received pledges for $9.1 billion in capital subscriptions, $800 million more than the organizers had hoped for. The Soviet Union at the last minute pledged $1.2 billion, more than expected. It later decided not to join the IMF or the World Bank, though, so they began without Soviet participation. The influence of the United States correspondingly increased, since it had more than 40 percent of the remaining subscriptions, and still more of the truly effective capital of the bank given that many countries paid their subscriptions in national currencies that were not readily usable internationally. Italy joined the World Bank in 1947, while Germany and Japan joined in 1952.

The U.S. economy was $225 billion in 1944 dollars. The World Bank’s proposed capital was therefore 4.4 percent of the size of the U.S. economy. Today the U.S. economy is  $16.7 trillion and the World Bank’s total subscribed capital is $223 billion (see Table 15 of this), or 1.3 percent of the size of the U.S. economy. The rest of the world has grown faster than the United States since 1944, so in proportion to the world economy the World Bank’s capital is smaller still, about 0.5 percent today versus 2-2.5 percent in 1944. As my previous post mentioned, postwar international finance was stronger and more dynamic than the organizers of Bretton Woods hoped, and the World Bank has had a correspondingly small role than they expected.

Expectations for the World Bank in 1944

Looking back today at “Questions and Answers on the Bank for Reconstruction and Development,” distributed by the U.S. Treasury to the delegates and journalists attending the Bretton Woods conference, it is apparent that the World Bank has been less important than was expected in 1944. The document refers to the decline of foreign investment in the 1930s as evidence that without guarantees such as the World Bank is intended to provide, investment may be small even though sound investment opportunities are extensive. In a number of places the document stresses the pump-priming effect World Bank guarantees will have.

It is understandable that those who wrote “Questions and Answers” should be pessimistic about a rebound in foreign investment. They had just experienced the worst 15 years for foreign investment since…maybe ever. Moreover, under the proposed agreement for the International Monetary Fund that was the main focus of the Bretton Woods conference, member countries pledged to open their current accounts (trade in goods and services) but made no such pledge with respect to their capital accounts (financial investment).

As it turned out, the World Bank did little of the post-World War II reconstruction work envisioned in its long title, the International Bank for Reconstruction and Development. The Marshall Plan was larger and quicker. And once Western European countries undertook currency and other economic reforms, they moved from privation to adequacy and then to prosperity. The long Western European boom began a renewed era of growing foreign investment, which broadened and deepened over time until today it includes most of the world’s countries and an even larger share of its population.

The World Bank has played a role in reconstruction following a number of civil or regional wars, but it has mainly been a development institution. That it has had a supporting role rather than a main role in international capital markets testifies to the overall success of the internationalist spirit underlying the Bretton Woods conference. The terrible 15 years up until Bretton Woods were not a predictor of things to come. Given the right environment, private investment proved willing to move across borders on a large scale without the World Bank’s guarantee.

New Bretton Woods Document Released

I have found another previously unpublished document from the Bretton Woods conference.

“Questions and Answers on the Bank for Reconstruction and Development” discusses the institution now better known as the World Bank. The document was prepared by the U.S. Treasury Department and distributed to delegates and journalists at Bretton Woods. It has been known and cited by historians, but only a few copies seem to exist in libraries, and it has never before been widely available.

The 22 questions and answers cover a variety of issues. Many remain relevant today, such as Question 4: “What is the appropriate role of the Bank in the field of international investment? Will the Bank compete with private financial institutions?” Others are now out of date but provide insight into how the organizers of the Bretton Woods conference expected the world financial system to evolve after the worldwide depression of the 1930s and the world war that was then raging.

The transcription of the document is available here. Photographs of an original mimeograph of the document are available here These efforts are part of the CFS Bretton Woods Project. They complement the CFS’s recent release of the hardcover edition of The Bretton Woods Transcripts, edited by me and Andrew Rosenberg.

I will have some short reflections on the document in a couple of follow-up posts.

The Bretton Woods Transcripts now in hardcover

The Bretton Woods Transcripts has just been released in a hardcover edition. Readers who prefer paper to electrons can find it here for $33.68, a bargain price for a 700-page book.

The main content is the same as that of the e-book released in October, but the appendices have some differences. To keep the size and cost of the hardcover manageable, it omits Appendix F, which contains previously published documents that comprise half the length of the e-book. On the other hand, the hardcover contains tables in Appendix E showing the evolution of the IMF and World Bank Articles of Agreement, which had to be omitted from the e-book because e-books do not handle tables well.

This is the first hardcover book published by the Center for Financial Stability. More are planned.

Bretton Woods: The Next Chapter at the IMF/WB Spring Meetings

Kurt Schuler, co-editor of The Bretton Woods Transcripts, spoke on Friday at the IMF/World Bank spring meetings. Kurt is one of three authors who recently came out with a book on the Bretton Woods monetary conference that spoke on this panel.

To see the video, click here.

Jim Boughton, former IMF historian, makes opening remarks. Professor Bessma Momani of the University of Waterloo moderates the panel. Kurt Schuler’s remarks begin at 14 minutes and 15 seconds.