The modern world economy materialized in the mountain air of Bretton Woods, New Hampshire, in July 1944. Three weeks after the D-Day landings on the beaches of Normandy, delegates from forty-four Allied countries gathered at the Mount Washington Hotel to devise institutions meant to foster multilateral cooperation, financial stability and postwar economic reconstruction. Their expressed goals were not just economic; the delegates were convinced that the success of the Bretton Woods conference would ensure world peace as well as prosperity. In the words of the most famous of the attendees, John Maynard Keynes, their efforts could create a world in which “the brotherhood of man will have become more than a phrase.” But first they had to overcome deep divisions rooted in national interests.
Two men dominated the planning for Bretton Woods and the negotiations at the conference. On one side, representing the declining power of Great Britain, was Lord Keynes, the most famous economist in the world and an unpaid adviser to the UK Treasury. For several years, he had been refining his plan to create an International Currency Union, a kind of global central bank that would create its own money (“Bancor”) to lend to indebted countries like Britain so they could import more goods than they were able to export in the lean postwar years. On the other side, representing the ascendant power of the United States, was an obscure Treasury Department official named Harry Dexter White. Although he was hardly known outside Washington, White was a brilliant, Harvard-trained economist who was empowered and completely trusted by Treasury Secretary Henry Morgenthau Jr., in turn a close friend and trusted adviser of President Franklin Delano Roosevelt. For three years, White had been working on his own plan for an International Stabilization Fund that would steady foreign exchange rates by persuading countries to peg their currencies to the US dollar, while pegging the value of the dollar to a fixed price for gold. White’s fund would lend dollars—and, potentially, other convertible currencies or gold—to debtor nations, but on tighter terms than were envisaged by Keynes. These two plans were reconciled at Bretton Woods to create the International Monetary Fund (IMF).
The “battle” between Keynes and White was a tense and occasionally explosive but mostly collegial negotiation conducted in the midst of World War II. It was a struggle between two vastly different men on behalf of two countries that were immensely powerful in vastly different ways. White had the upper hand, and only partly because the United States held most of the world’s gold and was the only creditor country of any relevance. Circumstances also gave White the high moral ground. Britain was desperate to hold on to its empire, its system of “imperial” trade preferences and its “sterling area” of countries pegging their currencies to the pound. In the United States, the Roosevelt administration was eager to tap into markets in the British orbit, and it therefore favored a more rapid and complete opening up of trade and finance. In White’s plan, lending by the fund would be secondary to its focus on creating an open multilateral financial system.
Because Roosevelt and Morgenthau saw the greater purpose of Bretton Woods as promoting a lasting opportunity for peace, White also viewed Great Britain as a secondary player in this scheme. Of far greater portent was the US relationship with the Soviet Union. Although the USSR, like Britain, was a US ally that was being impoverished by the war, White foresaw that it would hold the key to world security in the aftermath of the conflict. A prosperous Russia would provide a counterweight in Europe to Germany (still the enemy), and trade with Russia was potentially valuable for the West.