The Soviet spy, the birth of the IMF, and the 1940s roots of today's crisis

Crises are born from stranger places.

Although the spectacular collapse of the global economic was apparently sudden and unpredicted, it is a crisis that has been building since the structure of the global economy was put in place in the desperate days of the mid-1940s. I want to take a step back from the feverish debates taking place in the Eurozone and explore the roots of the crisis in the agreements reached at the end of the Second World War, and question the rather dubious credentials of the man who can be said to have emerged victorious from those negotiations.

In these days of Depression and the failure of the neoliberal economic model many eyes are cast back nostalgically to the 1930s and the work of Keynes is receiving a particularly rapid rehabilitation. Keynes is identified most strongly with his support for government involvement in the management of national economies. This was a lesson learned the hard way during the last global depression, and that was deliberately unpicked by intellectual and political strategies dating from the 1970s onwards. In contrast to George Osborne, Keynes focused on the national economy as a system. His idea of the multiplier effect expressed the way that government spending is not money wasted or added to a pile of debt, but rather generates further cycles of spending. It thus stimulates economic activity, supports livelihoods and generates further tax revenue.

But arguably Keynes’s contribution to the international economic system was at least as impressive. The design for what is sometimes rather pompously called the ‘global financial architecture’ ate away the last years of his life. I imagine him at Bretton Woods, arguing to defend the equality of nations against the threat of dollar imperialism: a struggle that ended in failure. It is perhaps too romantic to suggest that Keynes was heart-broken by his failure to win the debates, but within two years of the conference he was dead.

Keynes’s opponent at Bretton Woods was Harry Dexter White, the chief economic adviser of Treasury Secretary Henry Morgenthau.1 Our memory of policy towards the devastated countries of post-war Europe is of the US munificence of the Marshall Plan. The Morgenthau Plan is not so well remembered: its intent was to deconstruct the industrial infrastructure of Germany so that it could never again threaten the stability of Europe.2 Germany was to be returned to a peasant society. The chief author of this plan was Harry Dexter White. Those of us on the left have long assumed that Marshall investment was not motivated by compassion but by the fear of communism. How might it change our view if we were to find evidence that White may have been working for the Soviet Union?

There have long been rumours circulating to this effect, but a book published by former KGB officer Vassieliev produces fairly compelling evidence:

The most important member of the Silvermaster network and the most highly placed asset the Soviets possessed in the American government was Harry Dexter White, assistant secretary of the Treasury. More than two dozen KGB documents, spanning 1941 to 1948, spell out his assistance to Soviet intelligence.3

To put this into context we have to recall, first, that the US and Soviet Union were allies for most of the period that White worked for the US government. Secondly, wartime economies were heavily centrally controlled, and hence the ideological distance in terms of economic policy between US civil servants and their counterparts in the 1940s was considerably smaller than it became as the Cold War progressed.

More important in the context of our present situation is the role played by White at Bretton Woods, the conference held at the New Hampshire resort where the Allies debated the structure of the post-war global economy. As US Treasury Secretary, Morgenthau also chaired the Bretton Woods conference. As with his Plan for Europe, he saw the weakness of the US’s competitors as an opportunity to increase US power in the post-war world. The objective of the Bretton Woods negotiations was to put in place a structure that would achieve stability and fair competition between nations, but prevent the destructive consequences of the gold standard and the excessive competitive pressures of uncontrolled currency competition that had contributed to international tensions and eventually war.

White and Keynes were the chief negotiators for the US and UK and shared much understanding about how to design the new system. They agreed about the importance of maintaining some political control over exchange rates between national currencies, a compromise between fixed exchange rates and fully floating exchange rates that became known as the ‘pegged rate currency regime’. As White put it:

‘The absence of a high degree of economic collaboration among the leading nations will…inevitably result in economic warfare that will be but the prelude and instigator of military warfare on an even vaster scale.’4

The system of exchange rates free to move within a fixed band system achieved tremendous stability for nearly 30 years, until Nixon’s unilateral decision to cut the link between the dollar and gold in 1971.

This brings us to the crucial disagreement between the two economists: what would the world’s nations peg their national currencies to? White’s plan gave this role to the dollar, making it the world reserve currency; Keynes suggested the creation of a neutral trading currency he had called the ‘bancor’, or ‘bank gold’. This would achieve stability without limiting policy to the volume in circulation of one particular naturally occurring mineral. If the dollar became the peg currency then it would effectively enable the US to print money and buy up the world’s production in return. The link with gold prevented that in theory, but the link with gold would always be, as history proved, subject to the decision of the US President.

Speculation about White’s relationship with the Soviet secret services leads to questions about why Truman chose him to be the first Executive Director of the International Monetary Fund. It has been suggested that this might have been a protective strategy, moving White out of the administration. So while White's move to become first head of the IMF may seem incredible, in fact it sheltered him from national legal investigation in the US, and so protected the reputation of the Truman administration.

The piecing together of this jigsaw puzzle, a crucial piece of which has only come to light since the end of the Cold War, raises a series of fascinating questions. The first is what motivated Harry Dexter White to propel us into the post-war world of dollar-controlled capitalism. It seems rather a stretch to suggest that the Morgenthau Plan, heavily influenced by White, was a strategy to destabilise the societies of post-war Europe. It certainly had this effect, with votes for Communist parties soaring, especially in Italy, where only the intervention of the CIA prevented a Communist victory in the 1947 election.5

If his Morgenthau Plan was intended to ensure instability and social unrest in Europe, perhaps his Bretton Woods Plan was designed to achieve similar effects at a global scale? His success in massively enhancing the power of the dollar in the post-war world seems more obscure when viewed in terms of its potential benefit to the Soviet Union. Did he hope that the US would become massively indebted and that this would challenge the dominance of the capitalist system of which it was the heart? Did he underestimate the resilience of the free-market system, or is he still waiting to be proved right?

There are two problems with re-evaluating history in this way. First it is easy to forget the context. Both the Morgenthau Plan and the Bretton Woods agreement were drawn up before the Cold War; for example, it was originally envisaged that Russia would become a member of the IMF. Secondly, it is difficult to interpret the motivations and expectations of the players. If we are prepared to accept that White was attempting to further Russian interests, what would he have thought that meant? Building the inevitability of crises into the global financial system perhaps.

Poignantly, White may also have died of a broken heart. He suffered a heart attack shortly after giving evidence to McCarthy’s House Unamerican Activities Committee in August 1948, and died a few days later.

1. Information on White is taken from Boughton, M. (2004), ‘New Light on Harry Dexter White’, Journal of the History of Economic Thought, 26/2: 179-95.

2. The Morgenthau Plan, including the role of Harry Dexter White, was the subject of a programme in the Radio 4 Series Things We Forgot to Remember, broadcast on 7 June and available as a BBC podcast.

3. Haynes, J. E., Klehr, H. and Vassiliev, A. (2009), Spies: The Rise and Fall of the KGB in America (Yale University Press), p. 258.

4. Jones, B. D., Pascual, C. and Stedman, S. J. (2009), Power and Responsibility: Building International Order in an Era of Transnational Threats (Washington: Brookings Institution) p. 234.

5. See the interview with CIA operative F. Mark Wyatt in the CNN Cold War archive, who also identifies George Marshall as a key player in this operation.

The front cover of a 1953 edition of Time, asking what President Truman knew about Harry Dexter White.

Molly Scott Cato is Green MEP for the southwest of England, elected in May 2014. She has published widely, particularly on issues related to green economics. Molly was formerly Professor of Strategy and Sustainability at the University of Roehampton.

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How society is failing transgender children

In the wake of the cancellation of a public debate on this subject, one of the speakers shares her view on where society's approach to gender nonconformity is going wrong.

In August this year, several UK councils issued guidance to schools on accommodating female pupils who wear binders. A binder is a constricting undergarment for the upper body: what it binds are the breasts, pressing them down to a flatness that the wearer feels is appropriate to their self-perception as masculine or gender-neutral. According to Cornwall Council, the binder is “very important to [the wearer’s] psychological wellbeing.” But binders have unwelcome physical side-effects too, including “breathing difficulties, skeletal problems and fainting.” Lancashire Council’s advice urges teachers to “monitor [wearers] carefully during physical activities and in hot weather. It may be necessary to subtly offer more breaks.”

When the NSPCC invited me to participate in a discussion on the subject “is society letting down transgender children?” (part of its Dare to Debate series), those guidelines were one of the first things I thought of. They’re written in accordance with the overriding principle of gender identity politics, which is that affirmation is all. Any bodily harms incurred count for little compared to the trauma believed to be inflicted by a “mismatch” between appearance and identity. It’s a doctrine that insists we’ve moved beyond the tyranny of physical sex and social pressure, and into a realm of pure selfhood where all must be able to live in accordance with their own inherent being.

And yet, look again at that list of side effects: breathing difficulties, skeletal problems, fainting, inability to participate fully in exercise. The female adolescents wearing binders have reproduced all the problems of tight-lacing corsets, this time in the service of restrictive anti-femininity rather than restrictive femininity. So is issuing guidance to reduce the harms of binder-wearing in schools an act of care for transgender children, or an abdication of it? Is the role of adults in authority – whether parental, educational or medical – to validate everything that comes under the rubric of transition, regardless of long-term consequences, or could another approach be better?

The number of children who identify as trans is small, but rapidly increasing: referrals to the Tavistock and Portman NHS Trust’s gender identity development service have doubled year-on-year. Putting gender-nonconforming youths on a medical track opens the possibility that they will be prescribed puberty blockers, delaying the physical changes of adolescence that individuals may find distressing. Later, treatment can include cross-sex hormones and surgery to create the desired sexual characteristics.

For many, this can alleviate profound anguish about the self, but not without costs. The long-term effects of hormone therapies aren’t known, and won’t be until the current generation of trans children have lived well into adulthood. There’s a risk that increased medicalisation could be imposing permanent physical changes on children who, left to their own devices, would discover they are quite happy living with their natal sex – about 80 per cent of children diagnosed with gender dysphoria desist before adulthood, but the normalisation of medical transition could commit many to irrevocable treatments they would otherwise avoid.

Remarkably, as I found out when I worked on a long feature on the subject, there isn’t any agreement on what gender identity is or how it relates to the physical body. Which means that transitioning children are receiving an untested treatment for an undefined condition. Medicine often involves a surprising degree of idiosyncrasy and guesswork, but this uncertainty both about what is being treated and the effects of the treatment should be a cause for caution. While many who transition find it wholly positive, not everyone does: doubt and detransition happen, and these stories tell us that the quickest path to reassignment is not always the best treatment for someone presenting with dysphoria.

Sometimes, a diagnosis of gender dysphoria might mask a different underlying cause to a child’s distress. Psychiatrist Susan Bradley reports that children with cross-sex identification are often (not always) either responding defensively to a violent background or engaging in the obsessive behaviours associated with autistic spectrum disorders. A policy of “watchful waiting” – listening to the child, supporting them and giving them freedom to experiment and develop – is vital if we are to give children the kind of help they really need. But in an environment where anything short of total and immediate reinforcement is deemed abusive, “watchful waiting” is not an option.

One more problem: if gender dysphoria is conceived as the problem, and gender reassignment as the solution, then transition represents the summation of a process which should in theory resolve everything. In practice, newly-transitioned young people (especially those crossing the threshold from child and adolescent mental health services to adult provision) can find themselves stranded, no longer in receipt of the support they had during transition. We simply aren’t getting the treatment of transgender children right if we’re only treating their gender.

The consequences extend well beyond children who identify as trans, of course. Schools are suffused with sexual harassment and sexual violence, yet girls are expected to accept a child they previously knew as a boy as female like them, or be called bigots. The naturalisation of sex-stereotypes in parental narratives of transition surely has a limiting influence on other children’s conception of sex-appropriate behaviour. For some gender-nonconforming children, the cultural celebration of transition leads to anxiety about whether they themselves should be trans, even if they’re happy in their bodies. Certainly, many gay and lesbian adults have looked back on their own childhoods and remarked nervously that their behaviour then would qualify them as trans now.

If we’re not able to address these issues, then we’re manifestly failing children. But addressing them is incredibly difficult: practitioners who privately mention their doubts about current approaches to gender noncomformity are afraid to ask questions publicly, anticipating personal attacks and the loss of their jobs.

They’re not wrong to do so. After announcing the Dare to Debate event, the NSPCC was put under sustained pressure, I was persistently abused, and following the withdrawal of the other panelist, the charity cancelled the event. Previous installments in the series have looked at child sexualisation, foetal alcohol syndrome, and asked whether the investigation of child sexual abuse has tipped into “hysteria”, but apparently it would be just too daring to talk about gender. Doctrine so bitterly defended that it must even be protected from good-faith debate is a kind of restrictive garment for the intellect. Wearing it can ease our mental pangs. But the damage it does besides is very real.

Sarah Ditum is a journalist who writes regularly for the Guardian, New Statesman and others. Her website is here.