Orderly Change: International Monetary Relations since Bretton Woods

Chapter 1. Bretton Woods

Chapter 1 Bretton Woods SystemandOrder David M. Andrews July 1944 was an epochal moment in modern economic history. Following the calamities of a global depression and two world wars, the Bretton Woods conference of that month represented the best effort of its generation to provide for shared and lasting prosperity. The immediate aim of the gathering was to realize a durable institutional architecture for global monetary affairs, an architecture capable of facilitating a massive increase in international trade. It was to accomplish this aim while preserving the legal authority, and in fact enhancing the practical capacity, of nations to steer independent courses in their domestic economic policies . The great circle of domestic and international commerce was to be squared as the competing goals of openness and independence were reconciled within a multilateral legal framework. This ambitious task was part and parcel of an even more demanding effort— to change the very bases of relations among sovereign states. The ultimate objective , especially in the eyes of many leading U.S. officials, was not only lasting prosperity but enduring peace. “The international economic policies of nations have more to do with creating conditions which lead to war than any other single factor,” explained Will Clayton, assistant secretary of state for economic affairs under President Harry S. Truman, who became responsible for negotiating a postwar loan to Britain. “If the principles of equality of access on reasonable terms to the trade and raw materials of the world were universally practiced, the appetite for expansion of sovereignty, so productive of international friction, would largely disappear.”1 These aspirations—the establishment of a multilateral framework for advancing global prosperity, national economic independence, and world peace—were nothing if not audacious. But the poverty and violence of preceding years inspired audacity.The nations that would emerge victorious at the end of World War Two announced their intention to embark on a grand experiment in international economic governance. To grasp the nature of that experiment, we must distinguish the goals of the wartime planners, the formal understanding eventually reached by their governments, and how subsequent events actually unfolded. After all, ambitions, agreements, and praxis rarely correspond exactly to one another. Knowing this, we should be wary of regarding the Bretton Woods agreement as little more than a fulcrum on which the wartime planners’ vision was leveraged into action. Instead, the relationship between this founding compact and what transpired in subsequent years was at times more creative than mechanical. The chapters that follow trace the development of that relationship in some detail; here I provide an overview of our findings, beginning with an examination of the relationship between the postwar trade and monetary regimes. Trade and Money in the Postwar World A striking example of the contrast between wartime plans and postwar outcomes can be found in the international trade regime. Revitalizing trade was a central feature of the wartime planners’ vision, and a strong international organization capable of enforcing a code of commercial conduct among nations was intended to play a leading role in postwar economic governance. But negotiating an agreement on these matters was postponed until the conclusion of the war in order to avoid weakening ties within the anti-Hitler alliance; and by the time negotiations for the International Trade Organization (ITO) had resulted in the Havana agreement of March 1948, Congress had lost much of its appetite for new international commitments. Mounting hostility toward its provisions eventually led the Truman administration to shelve the ITO’s charter rather than allow the Senate to formally reject it.2 In retrospect, did this matter? Certainly a great deal of trade liberalization has taken place since World War Two despite the absence of any “Havana institutions.” Although the results of the early multilateral trade negotiations of the 1940s and 1950s were meager, these were followed by successively more ambitious agreements: the Kennedy Round, completed in 1967, which was the first postwar agreement to reduce tariffs on an across-the-board rather than a product-by-product basis; the 1. Private correspondence, cited in Richard Gardner, Sterling-Dollar Diplomacy: The Origins and Prospects of Our International Economic Order, 2nd ed. (New York: McGraw-Hill, 1969), 196. 2. Congress similarly refused to support the creation of a more modest Organization for Trade Cooperation in the 1950s. Bretton Woods 7 Tokyo Round, completed in 1979, which further extended tariff reductions and began to tackle nontariff barriers to...