The Moneybags and the Brains

The Bretton Woods conference of 1944 saw a historic meeting of economists that changed the world forever

Books Economy
At loggerheads: John Maynard Keynes (right) and Harry Dexter White

In Washington Lord Halifax
Once whispered to Lord Keynes
It’s true they have the moneybags
But we have all the brains.

This piece of doggerel refers to the lengthy and often acrimonious Anglo-American negotiations, in which Keynes was a central figure, over how Britain was to pay for the huge debts it had incurred in fighting the Second World War. Unfortunately for the British, intellectual superiority was not enough. 

In 1941 the US agreed, through the Lend-Lease Act, to supply military equipment to Britain. This was described by Winston Churchill as “the most unsordid act in the whole of recorded history”, but the strings attached to the agreement, including the forced sale of British assets in the US, were onerous, and bitterly resented by Keynes.

As became clear during the Lend-Lease talks and at the Bretton Woods monetary conference in 1944, there was an almost unbridgeable gulf between the two sides, not just on the terms of any US loan but also on two much bigger issues of vital importance to Britain: the future of the empire and the future of sterling.

On this last point, there was never any doubt about US intentions, and they were made crystal clear at Bretton Woods. This remarkable gathering, held in chilly New Hampshire and hailed as the most important international conference since the Paris peace talks of 1919, paved the way for the creation of the International Monetary Fund and the World Bank. But it also allowed the Americans to impose on the 44 participating countries, including a reluctant Britain, its own vision of the world monetary system, one in which the dollar would reign supreme.

The British team at Bretton Woods was impressive — not just Keynes, the world’s first celebrity economist, but other powerful intellects such as Lionel Robbins and Dennis Robertson. However, the hand they had to play could hardly have been weaker, and they were faced by a US administration which was determined to dethrone sterling and to dismantle, or at least to weaken, the empire.

The principal architect of this hard-line policy was Harry Dexter White, who made up for any shortcomings as an economist with gritty intelligence, relentless drive and command of detail. He was also ruthless in ignoring or crushing any threats to his goal, which was nothing less than US global financial domination.

The clash between Keynes and White forms a central theme in Benn Steil’s absorbing book, which should be required reading for anyone who wants to understand the not-so-special relationship between the US and Britain.

While Keynes was born into a family of cultured upper-middle-class intellectuals and educated at Eton and King’s College, Cambridge, White was the youngest son of a Lithuanian immigrant who made a modest living in the Boston hardware and crockery business. After an undistinguished spell at the Massachusetts Agricultural College, White spent several years working in his father’s stores before deciding, at the age of 30, to try his hand at an academic career. 

He won a place at Stanford, took a PhD at Harvard and became an economics professor at a small college in Wisconsin. Then, in 1934, came his big break. He was invited to Washington to work on a study of US banking legislation, and this was the start of a civil service career which led to his appointment as a key adviser to the Treasury Secretary, Henry Morgenthau. White’s speciality was the world economy. 

Morgenthau himself was no economist but had the great asset of being on intimate terms with the president, Franklin Roosevelt. FDR was happy to leave the conduct of international economic policy to his family friend (much to the annoyance of the State Department), and Morgenthau, in turn, delegated most of the thinking about policy, and its implementation, to White.

White had “a coherent vision of an internationalised New Deal” — that is, a system in which governments, led by the US, would, through judicious intervention, ensure currency stability and prevent the beggar-thy-neighbour policies that had led to the Great Depression. But there was another side to White which was unknown to his superiors.

White had supported the Progressive Party candidate in the 1924 presidential election, and, although he was probably never a member of the Communist Party, his left-wing inclinations led him to study and admire the Soviet Union. After he moved to Washington he was recruited by Whittaker Chambers to pass classified documents to Soviet agents, and this seems to have continued throughout the war. 

Chambers, who broke with the Communists in 1938, reported White’s activities to the FBI, but the evidence was not strong enough to threaten his position in the Treasury or his appointment in 1945 as executive director of the IMF. Indeed, when White appeared before the House Un-American Activities Committee in 1948, he convinced the committee (though not one of its junior members, Richard Nixon) that he was an unfairly traduced, loyal American. White died of a heart attack a few days after the hearing, and the charges against him were not fully proven until some years later.

Did White’s Communist sympathies affect his approach to economic policy? He favoured a low-interest loan to the Soviet Union in 1945 (it did not go ahead), and he envisaged a postwar world in which the two superpowers would work closely together. But the Soviets never ratified the Bretton Woods agreement and never joined the International Monetary Fund. At least on monetary matters, the Soviet Union was irrelevant to the struggle which absorbed most of White’s energies, that between the US and Britain.

What mattered to the British was to stave off bankruptcy, to maintain the role of sterling as an international trading currency, and to preserve what they could of their imperial power. Unlike some of his critics such as Lord Beaverbrook, Keynes had no emotional attachment to the empire, but he saw it as the only bulwark against outright economic dependence on the US.

His ideas for monetary reform, based on the creation of a new currency which he called bancor, would have reduced the importance of the dollar (and of gold) and given Britain a shared influence with the US in managing the world monetary system. “Keynes’ advice”, in the words of another great economist Joseph Schumpeter, “was in the first instance always English advice, born of English problems.” The Keynes plan was doomed to fail because it was up against the brick wall of American economic power.

Would Keynes have made more progress if he had been less rude to the Americans? For some members of Congress, Keynes was nothing more than a slick-tongued aristocratic bamboozler, and his arrogance did little to win friends on the other side. At Bretton Woods Keynes once threw a draft written by Harry White to the floor and prepared to walk out, to which White replied: “we will try to produce something which Your Highness can understand.”

Yet Keynes was also a realist, recognising with total clarity the weakness of the British position and the need to make concessions which, however unpalatable to his political masters in London, would give Britain at least some room for manoeuvre in a US-dominated world. As Steil remarks, the Bretton Woods saga took place at a crossroads in modern history. An ascendant anti-colonial superpower used its economic leverage over a once-dominant but now insolvent imperial ally to rewrite the rules of international finance.