Morning Must-Read: Eric Rauchway: Going off gold and the basis for Bretton Woods

Eric Rauchway: Going off gold and the basis for Bretton Woods: “Experience is teaching us a counterintuitive lesson: the way to control leads away from stability.

Aim at growth – moderate growth in safer quarters, even if it means a bit of inflation and debt – and we will achieve stability. It is a lesson that our predecessors learned in the Great Depression, and which led them to establish the Bretton Woods system for precisely those purposes. The essential feature of Bretton Woods was a conditional commitment to exchange stability – with conditionality as essential as stability. The commitment was predicated on the Depression-begotten recognition that monetary stability took a back seat to the promotion of widespread prosperity.

When we talk about Bretton Woods, quite often we emphasize the conflict before and at the conference between the UK and the US, and generally between the persons of John Maynard Keynes and Harry Dexter White… [who] won out – not because [his plan] was intellectually superior, but because the United States had more money and power and US congressmen wanted to see a plan that looked like it was more sparing of American resources.

The White plan did not survive – in 1947, the international monetary system became more Keynesian, with the Marshall Plan, and in 1969 more Keynesian still, with the introduction of Special Drawing Rights as a reserve asset. Despite this early and lasting convergence on a Keynesian consensus, scholarly discussion of Bretton Woods generally focuses on the initial conflict and its detrimental impact specifically on Britain. Focusing on this conflict is misleading and I believe impoverishes our understanding of the fundamental, shared ideas underlying Bretton Woods…