Bretton Woods and the Spoliation of Europe
Having marked the quinquagenary of the destruction of the gold standard Sunday, August 15, it is natural to be a little nostalgic for the Bretton Woods system. After all, it might not have been the classical gold standard, but at least it wasn’t as bad as the fiat standard that succeeded it. As sites such as wtfhappenedin1971.com document, that year indeed looks to be a turning point in the economic history of the West. However, the suspension of convertibility of dollars into gold was simply the logical outcome of the system. The PhD standard was not an arrangement that emerged by default in 1971, as governments tried desperately to patch up the international monetary system before its final breakdown in 1973; Bretton Woods was itself the original ideal of government controlling and carefully managing monetary affairs scientifically.
Bretton Woods and Managed Money
The social engineering was on full display when international delegations from forty-four nations came to the resort town of Bretton Woods, New Hampshire, in July 1944 to agree on how the international monetary system should be set up after the world war. However, in reality the system was an American diktat; while the Europeans were not completely without influence, they were all either bankrupt or still occupied by German soldiers, whereas the Americans were now creditors to the world and sitting on a pile of gold that had flowed into the country in the 1930s and during the war. As Ben Steill documents in his account of the conference, the system agreed upon was essentially that proposed by Harry Dexter White, the creature of Henry Morgenthau.1 The (more) inflationary plan proposed by John Maynard Keynes was never really a serious alternative, although the arrogant and insufferable behavior of Keynes at the conference probably didn’t do the British any favors.
The system was essentially one of managed, convertible currencies. The currencies of the participating countries were to be convertible into dollars at a fixed rate, and foreign central banks could redeem dollar claims into gold at the fixed rate of $35 per ounce. Thus, a gigantic inflation machine was created: the Americans could increase the supply of dollars with little restraint, since foreign central banks would then use dollar reserves as the basis for their own expansion of the domestic money supply. The watchword for all these deliberations and negotiations was “liquidity,” as the emerging Keynesian orthodoxy lived in mortal fear of a lack of liquidity. Of course, what this meant in reality was that the more inflationary countries wanted someone else to finance the inevitable balance of payments deficits. The Keynes Plan’s only substantial difference from the White Plan was the British wish for more liquidity to finance their balance of payments through Keynes’s International Clearing Union scheme, which would have funded balance of payments deficits and issued its own paper currency, the “bancor”—in other words, a scheme to make the foreigners (i.e., the Americans) bear the burden of British inflation.
The Bretton Woods system began operating in 1945, when the International Monetary Fund (IMF) was set up. American officials were generally in favor of a return to freer trade and financial flows, managed through the new international institutions, of course. Yet while Bretton Woods was officially in operation, there was not much trade going on. Understandable, perhaps, when Europe was only emerging from the war in 1945, but as the forties dragged on, revival of international commerce still seemed distant. This is partly explained by the lingering command economies in Europe. The social democrats now in power were loath to abolish the totalitarian economic controls they had inh
Article from Mises Wire