BOOK REVIEW News Weekly
Britain's Faustian bargain with the United States
, October 11, 2014
THE BATTLE OF BRETTON WOODS:
John Maynard Keynes, Harry Dexter White, and the Making of a New World Order
by Benn Steil
(Princeton University Press)
Paperback: 464 pages
Reviewed by Warren Reed
It is sometimes said of books that if you read what’s on the front cover and what’s on the back, then in between, by the time you put the book down, all three should be in perfect alignment. Benn Steil’s work, which casts light on what really happened at the famous Bretton Woods Conference in July 1944, is a classical example of this.
The author is a master wordsmith and traverses his canvas with bold strokes tinted with vivid flecks of detail, often human, that illuminate the story. This is well-researched history at its most readable and enjoyable.
For those delving into this subject for the first time, the book is like a Russian doll: it is a story within a story, within a story. As the title states, two main characters inhabit the tale, each the diametrical opposite of the other.
Harry Dexter White (left) and
John Maynard Keynes
One of them was the world-famous Cambridge economist, John Maynard Keynes, who had revolutionised economic thought with his bold policy prescriptions for combating the prolonged mass unemployment of the 1930s. In 1942 he was made a peer of the realm, and in 1944 set out for America to help establish the economic foundations for a durable postwar global peace — one that would allow governments more power over markets, but fewer prerogatives to manipulate them for trade gains. Steil describes Keynes as “the facund [silver-tongued], servant-reared scion of Cambridge academics”.
The other, Harry Dexter White, was “the brash, dogged technocrat raised in working-class Boston by Lithuanian Jewish immigrants”. Arrogant and bullying (as a boy he was targeted by neighbourhood bullies), he was nerve-ridden, insecure and wholly dependent on his ability to keep his boss, Treasury Secretary Henry Morgenthau — a confidant of President F.D. Roosevelt, with limited smarts — continually rearmed with actionable policies.
White was always acutely conscious of his tenuous status in Washington and often made himself ill with stress at Bretton Woods before negotiations with Keynes, and would then explode during them. “We will try,” he spat out in one particularly heated session, “to produce something which Your Highness can understand.”
Bretton Woods, the name of the remote New Hampshire town where 700 representatives of 44 Allied nations gathered just a month after the D-Day landings in Normandy, has become shorthand for enlightened globalisation.
The actual story surrounding the historic accords reached, at what was the most important international gathering since the Paris Peace Conference of 1919, however, is significantly different. It is a saga replete with startling drama, intrigue, chicanery, bureaucratic skulduggery and rivalry.
Conventional wisdom portrays the accords as the product of amiable Anglo-American collaboration; but Steil shows that they were in reality part of a much more ambitious geopolitical agenda hatched within the FDR administration and aimed at eliminating Britain as a competitor. As Tony Barber of the Financial Times describes it, Steil’s story has the “hard economic detail and the acid humour of men making history under pressure”.
Bretton Woods took place in a unique context: the political and economic rise of America and the precipitous fall of Great Britain. On the eve of World War I, the ratio of British debt to GDP was a mere 29 per cent; by the end of World War II it had soared to a staggering 240 per cent. A nation that had in the 1920s controlled a quarter of the earth’s territory and population was, in Keynes’s words, facing a “financial Dunkirk”.
As Steil puts it, “The story of the Faustian bargain Britain struck with the United States in order to survive the war would become an essential element in the Bretton Woods drama.” This was the stage onto which the two main actors strode.
Keynes at Bretton Woods was the first-ever international celebrity economist, and one with a reputation to maintain. The American media drooled over the barbed, eloquent Englishman, who was both revered and reviled for his brash ideas on government economic intervention. In the author’s words, he had assaulted the intellectual orthodoxy of the economics profession as Einstein had done with physics two decades earlier.
In his monumental 1936 book, The General Theory of Employment, Interest and Money, Keynes had argued, with his biting wit and self-assuredness, that what governments thought was eternally sound policy — that is, balancing the budget annually and largely leaving the economy alone — was actually counter-productive when it came to tackling a depression.
His pioneering insight was that the decisions of savers and the decisions of investors in a market economy did not necessarily coincide, but often got out of gear, causing either inflationary booms or deflationary busts. His observation undermined the belief long subscribed to by classical economists that a market economy was automatically self-correcting.
Keynes’s proposed remedy in the 193os was for government to combat falling economic output and growing joblessness by ensuring an adequate level of overall spending in the economy. Now he wished to apply this insight in the design of a new global monetary architecture, built around an innovative international reserve currency — one that would be a threat to the global supremacy of the U.S. dollar and which the pugnacious White was determined to destroy.
The scene was set for a gargantuan confrontation.
Steil describes how Keynes’s “unlikely emergence as Britain’s last-ditch financial ambassador — its chief voice in the Bretton Woods, Lend-Lease and British loan negotiations — was grounded in the repeated failure of his country’s politicians and mandarin class to make headway in increasingly desperate begging operations to Washington”.
He quotes a piece of British doggerel from the period that neatly frames how the country’s emissaries saw its plight: “In Washington, Lord Halifax once whispered to Lord Keynes, it’s true they have the money bags but we have all the brains.”
After the failure of Halifax, and many others in the British political establishment, to loosen the strings on America’s money-bags, Keynes was sent off to Washington and Bretton Woods in the vain hope that, if brains were to be the key to Britain’s future solvency, he might have more success. Despite his effortless facility with words, however, Keynes had one fatal flaw: he was more concerned with cornering his opponents and humiliating them, than with converting them.
Keynes struggled both mentally and physically to adapt to the strange circumstance of people, particularly Americans, who could be neither swayed by his superior command of facts and reason nor compelled to get out of the way. The Americans never deviated from their hard-line geopolitical terms — at least until after the war, when Truman’s team reshuffled the deck.
Keynes was out of his depth. The psychological price for his obstinacy was, as Steil illustrates, bouts of a Stockholm syndrome variant, whereby he persuaded himself — and the political class in London — that the American government, for all its insufferable legalism and defiance of reason, truly meant well and would do the right thing by Britain in the end. So much hope; so much disappointment. This is one of the key stories in The Battle of Bretton Woods.
The chief obstacle to Keynes’s blueprint for postwar monetary order was a still little-known U.S. Treasury technocrat. White bristled at suggestions that he might have few ideas to proffer save those drawn from Keynes’s General Theory. He won grudging respect for his sharpness of mind and knack for framing economic policy. His role as the chief architect of Bretton Woods, where he outmanoeuvred his far more brilliant counterpart, marked him out as an extractor of every advantage from British weakness.
But he was not simply eager for influence, nor was he purely a Keynesian New Deal Democrat. He was much further to the left and had a long-standing fascination with the Soviet Union, believing that the postwar world could be based on the Soviet socialist model of economic organisation, which he saw as being in the ascendant. There was no room in this scenario for the remnants of British imperial glory.
It is here that Steil’s research skills come to the fore. White’s links with the Soviets have been known for many years and examined by other astute writers, each of whose interpretations positions him differently on the “spying spectrum”.
But Steil has uncovered an unpublished essay, hand-written by White just before the end of the war, which contains highly provocative commentary on American attitudes to the Soviet Union that, had it seen the light of day, would undoubtedly have led to his dismissal.
The manuscript outlines a postwar world in which the Soviet socialist model of economic planning would supersede the American liberal capitalist one.
White envisaged a powerful alliance between America and its communist rivals: in effect, a new world order. He suggested that change would be in the direction of increased government control over industry, and increased restrictions on the operations of competition and free enterprise. His conclusion was: “Russia is the first instance of a socialist economy in action. And it works!”
In 1948, White was accused of spying for the Soviet Union and in the same year defended his record before the House Un-American Activities Committee. Three days after his appearance he died of a heart attack.
Americans who had confessed to having been Soviet spies themselves accused White of being a Soviet “agent of influence”, a charge which declassified VENONA decrypts of Soviet diplomatic traffic in the 1940s appear to confirm. Newly opened Soviet records indicate that White did indeed pass classified information to the Russians during World War II.
Steil points out that White was never a member of the Communist Party, suggesting he acted out of idealism, not simply because he believed that the Soviet Union was a vital U.S. ally but because he also believed passionately in the success of the bold Soviet experiment with socialism.
White would not take orders from Moscow, Steil points out, and worked on his own terms; he joined no underground movements. The economics he advocated were hardly Marxist. They were by this time what would be described as thoroughly Keynesian.
White’s domestic politics were mainstream New Deal progressive, and there is no evidence that he admired communism as a political ideology. It is this chasm, Steil asserts, between what is known publicly of White’s economic and political views, on the one hand, and his clandestine behaviour on behalf of the Soviets, on the other, that accounts for the plethora of unpersuasive profiles of the man that have emerged.
By any measure, White was an intelligent although insecure man desperate to be relevant. With his outstanding access to Washington’s corridors of power, he was a prime target for the discerning eye of any foreign intelligence officer.
The Battle of Bretton Woods may be recommended as a solid and easily digestible analysis of key events of the day, spiced along the way with side stories such as the role that expensive Bokhara carpets played in the early stages of a Soviet recruitment for espionage.
Warren Reed is a former intelligence officer with the Australian Secret Intelligence Service (ASIS). He was trained by MI6 in London and served for 10 years in Asia and the Middle East. His latest spy novel, Hidden Scorpion, is available from News Weekly Books.