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.

Swiss Derivatives Review: Bretton Woods Transcripts

Jacques de Larosière and Steve H. Hanke’s preface to The Bretton Woods Transcripts was recently published in the Swiss Derivatives Review.

The authors attribute the success of the Bretton Woods Conference to a set of ideas that attracted a consensus; a group of prepared and capable participants; and a leader, namely the United States, who was prepared to lead.

Mr. de Larosière was Managing Director of the International Monetary Fund from 1978 to 1987.  He was also formerly Undersecretary of Monetary Affairs in the French Treasury (1974–1978), Governor of the Banque de France (1987–1993), and President of the European Bank for Reconstruction and Development (1993–1998).  He is currently Chairman of Eurofi.

Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Special Counselor at the Center for Financial Stability in New York.

The Bretton Woods Transcripts, edited by CFS Senior Fellow Kurt Schuler and CFS Research Associate Andrew Rosenberg, offer a front row seat at the conference that has shaped the international monetary system for nearly 70 years.

The de Larosière and Hanke preface in the Swiss Derivatives Review.