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When Keynes went to America

The first Bretton Woods meeting was intended to establish a postwar money regime and secure funds fo

The night the Mount Washington Hotel opened in 1902, its builder, the New Hampshire coal and railroad magnate Joseph Stickney, raised a glass to “the damn fool who built this white elephant”. With its octagonal towers and 300 yards of wooden verandah, its 234 rooms each with its own bath, its telephone and mail system, and its interminable corridors, set in endless New Hampshire wilderness, this colossal monument to the Gilded Age somehow survived the Depression and wartime shortages to its appointment with financial history in July 1944.

As allied armies fought their way into Normandy, some 730 finance ministers, delegates and clerks from all 44 allied countries, including China and the Soviet Union, gathered for three weeks at the Mount Washington to plan the postwar monetary and trading order.

The United Nations Monetary and Financial Conference, better known from the hotel's railway stop and mail address as the Bretton Woods conference, established a currency regime and two powerful institutions, the International Monetary Fund and the World Bank. The role of Bretton Woods in the postwar recovery is, as always with economists, disputed but the name still evokes, for men such as Gordon Brown or Nicolas Sarkozy, an idea of order in a chaotic financial world.

The gestation of the Bretton Woods conference, as the long-serving US diplomat Dean Acheson put it, "about doubled that of elephants". It arose in the minds of two men of different temper and background but equal brilliance and arrogance: the British economist John Maynard Keynes and Harry Dexter White of the US Treasury. At their backs, like a ghost, was the German banker who served the Nazis till he fell out with Hitler in 1938: Hjalmar Schacht.

The Victorian system for settling international transactions, known as the international gold standard, had come to grief in the Depression of the 1930s. A succession of countries, led by Britain, detached their currencies from gold rather than be forced by a fixed exchange-rate to cut demand and add further to unemployment. Britain erected a trade tariff round the British empire, known as Imperial Preference, while other countries devalued their currencies to export at any price. By the summer of 1941, when Keynes retired to his country house in Sussex to think about a successor to the international gold standard, Britain was in a desperate plight, in debt not just to the US but to the countries playing host to her armies, such as India and Egypt. Without currency controls, Britain was bankrupt.

Keynes envisaged a sort of supernational bank in which trading accounts would be settled not in gold, but in a sort of artificial or bank money that would be available to members as an overdraft facility according to their share of world trade. Behind it would stand the greatest creditor nation, the United States.

As Keynes's biographer, Professor Robert Skidelsky, writes: "Provided all countries were guaranteed sufficient quantities of reserves, it might be possible to dismantle the trade barriers which had grown up in the 1930s and during the war and restore the single world which had vanished in 1914."

In devising this plan, Keynes admitted to drawing on Schacht's ingenious use of bilateral clearing arrangements to permit the Third Reich to continue importing raw materials for its military build-up in the 1930s.

Keynes, desperate to get away and rest, took the meetings at breakneck speed. On

19 July, he collapsed on the hotel stairs

In Washington, Dexter White, director of monetary research at the US Treasury, was also thinking about "future currency arrangements" but from a different viewpoint. From President Roosevelt down, the US could not care less about preserving the British empire. The US wanted currency convertibility and open markets for its exports as soon as possible. The compromise between the Keynes and White plans, which were published in 1943, became known as the Bretton Woods System.

The process began in an atmosphere of mistrust. At his first meeting with Henry Morgenthau, the US treasury secretary, Keynes tactlessly suggested that Britain would use US military aid to build up its cash balances. Keynes and his staff objected to the number of lawyers on the US side and made snide remarks about "rabbinics", by which they meant the precision and subtlety of the Jewish officials at the Treasury such as White and Edward Bernstein.

Eventually, Keynes and White devised a system in which only the US dollar would exchange at a fixed rate into gold. The allies had to make their currencies convertible into these gold dollars within 1 per cent of a fixed rate, but could draw on short-term assistance from a stabilisation fund to which all members subscribed and the US, naturally, subscribed most. In addition to this fund, now christened the International Monetary Fund, White and his staff had devised a bank to finance the rebuilding of war-damaged economies. This International Bank for Reconstruction and Development still forms the core of what is now known as the World Bank.

Lord Keynes was by now ailing and could not bear the thought of working through the Washington summer. With great courtesy, the Americans agreed to hold the drafting meetings in Atlantic City on the New Jersey shore and the main conference in the cool of New Hampshire. Arriving with Keynes by train on 30 June, Lydia Lopokova, the Russian ballerina whom Keynes had married in 1925, found chaos: "The taps run all day, the windows do not close or open, the pipes mend and unmend and no one can get anywhere."

They were lodged in the room above Morgenthau, and for three weeks the US treasury secretary was disturbed by Lady Keynes's dancing exercises.

With much of the main work done, the conference itself consisted mostly of a British rearguard action to delay the convertibility of its debts and much detail of a mind-numbing complexity. Desperate to get away and rest, Keynes took the meetings on the bank at a breakneck pace. As Acheson reported: "Keynes . . . knows this thing inside out so that when anybody says Section 15-C he knows what that is, but before you have an opportunity to turn to Section 15-C and see what he is talking about, he says, 'I hear no objection to that', and it is passed."

On 19 July, Keynes collapsed on the hotel stairs, and word spread that he had had a heart attack. According to Skidelsky, the German newspapers ran adulatory obituaries. On 22 July, Keynes had recovered enough to propose acceptance of the conference's final act. As he left the room, many of the delegates stood and sang "For He's a Jolly Good Fellow". Within two years, Keynes was dead and White survived only two years longer, bedevilled in his last years by allegations of disloyalty in his dealings with the Soviet Union.

Some economists, such as Milton Friedman, have questioned whether Keynes and White were correct in their analysis and, even if they were, whether Bretton Woods was the solution. Others argue that such measures as the $3.75bn American loan to Britain in 1945, the $13bn Marshall Plan of 1948 and the 30 per cent devaluation of sterling in 1949 did more to revive Europe. The system of semi-fixed exchange rates just about survived the 1960s but the US, under pressure from financing the war in Vietnam, abandoned gold convertibility in 1971. The two Bretton Woods institutions, the IMF and the World Bank, have been criticised for imposing quasi-colonial conditions on third world borrowers. The IMF is also undercapitalised in the face of the current financial crisis.

When Gordon Brown calls for a new Bretton Woods, he is evidently not calling for a currency peg or an infrastructure bank but for a halcyon age of idealism and Anglo-American amity - above all for that ideal or hero of modern times embodied in John Maynard Keynes, the economist as saviour.

James Buchan's latest novel is "The Gate of Air", published by the MacLehose Press

Thirteen things you may not know about John Maynard Keynes

  • He was born the year Karl Marx died, 1883.
  • He was 6ft 6ins tall.
  • When he took civil service exams in 1906, his lowest scores were in economics and maths because, he used to say, he knew more than his examiners.
  • Duncan Grant, with whom Keynes had a long affair, painted him writing a letter asking the US for a loan to continue the 1914-18 war.
  • At the age of 42, he married the Russian ballerina Lydia Lopokova.
  • A regular investor, he lost, then recovered, a fortune in the 1929 crashing stock market.
  • A close friend of Kingsley Martin, he joined the board of the New Statesman in 1931.
  • He bred pigs at his Sussex home.
  • He amassed one of the largest private collections of 20th-century art, with works by Braque, Cezanne, Degas, Modigliani, Picasso, and Seurat.
  • A director of the British Eugenics Society, he described it in 1945 as the most important branch of sociology.
  • During the Bretton Woods conference in 1944. he suffered a heart attack and German newspapers published his obituary.
  • At the conclusion of Bretton Woods, delegates acknowledged Keynes's achievement by singing "For He's a Jolly Good Fellow".
  • In 1946, he suffered a second heart attack and died. It was attributed by some to the effort of securing a $3.75bn loan from the US, a negotiation that Keynes himself described as "absolute hell" .

This article first appeared in the 10 November 2008 issue of the New Statesman, Change has come

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An English hero for the ages: Ian Botham at 60

Botham blends his sportsmanship and deep-seated passion for cricket with a lust for life.

Begging W H Auden’s pardon, it is possible both to honour and to value the vertical man, and in the case of Ian Botham, who turned 60 on 24 November, it is our bounden duty. No sportsman has given Britons so much to enjoy in the past half-century and no sportsman is loved more. Two decades after he retired from first-class cricket, his reputation as one of life’s champions remains unassailable.

No mere cricketer is he, either. Botham is a philanthropist, having raised more than £12m for various charities, notably Leukaemia and Lymphoma Research. In December, 30 years after his first walk from John o’Groats to Land’s End, he will set off again, in South Africa, where England are on tour. And he really does walk, too, not amble. As somebody who accompanied him on one of his dozen walks said: “You can’t keep up with him. The man is a phenomenon.”

Of all postwar sportsmen, only Bobby Charlton and, at a pinch, Henry Cooper come close to matching Botham’s enduring popularity. But Charlton, a shy man who was scarred by the Munich plane crash of 1958 (and may never have recovered from its emotional effects), has never comfortably occupied a public stage; and Cooper, being a boxer, had a solitary role. Botham, by contrast, spoke for England. Whenever he picked up his bat, or had a ball in his hand, he left spectators in no doubt.

Others have also spoken for England. Bobby Moore and Martin Johnson, captains respectively of England’s World Cup-winning football and rugby teams, were great players but did not reach out to people as naturally as Botham. Nick Faldo, Lester Piggott, Sebastian Coe and, to bring us up to date, Lewis Hamilton have beaten the best in the world, but they lacked those qualities that Botham displayed so freely. That is not to mark them down. They were, and are, champions. But Botham was born under a different star.

It was John Arlott, the great cricket commentator, who first spotted his uniqueness. Covering a match at Taunton in 1974, he asked the young colt to carry his bags up the rickety staircase to the press box, where Arlott, wearing his oenophile’s hat, pulled out a bottle of red wine and invited Botham to drink. Forty years later Botham is a discriminating wine drinker – and maker. Along with his friend and fellow England great Bob Willis, and their Australian wine­making pal Geoff Merrill, he has put his name to a notable Shiraz, “BMW”.

Arlott, with his nose for talent and good company, saw something in the young Botham that Brian Close, his captain at Somerset, was beginning to bring out. Later, Mike Brearley, as England captain, drew out something even more remarkable. As Rodgers and Hammerstein wrote, you’ve got to be carefully taught. And Botham, a fine team man as well as a supreme individual performer, has never withheld praise from those who enabled him to find his voice.

If sport reveals character, then cricket is the game that reveals it most clearly. In no other sport is the individual performance rooted so firmly in a team context. Every over brings a contest of skill and intelligence between batsman and bowler but only a team can win the match. “A cricketer,” as Arlott said, “is showing you something of himself all the time.”

Cricket also reveals national character more than any other sport. Football may be the most popular game in the world but cricket, and cricketers, tell us far more about England and Englishness. It is instructive, in this regard, to hear what Philippe Auclair, a French journalist and author long resident in London, has to say about Botham: “He is essentially an 18th-century Englishman.” In one! It’s not difficult to sense a kinship with Tom Jones, Fielding’s embodiment of 18th-century life, who began his journey, as readers may recall, in Somerset.

A country boy who played for Worcestershire after leaving Somerset, and who lives by choice in North Yorkshire, Botham is an old-fashioned Englishman. Although nobody has yet found him listening to the parson’s sermon, he is conservative with a small and upper-case C, a robust monarchist, handy with rod and gun, and happiest with a beaker in front of him. He represents (though he would never claim to be a representative) all those people who understand instinctively what England means, not in a narrow way, but through something that is in the blood.

Above all, he will be remembered for ever as the hero of 1981. Even now it takes some believing that Botham bowled and batted with such striking success that the Australians, who were one up after two Tests, were crushed. Some of us who were actually at Headingley for the famous third Test – thousands who claim to have been there were not – recall the odds of 500-1 on an England victory going up on the electronic scoreboard that Saturday evening.

Botham made 149 not out as England, following on, beat the Aussies by 18 runs. For three hours the country seemed to stop. In the next Test, at Edgbaston, Botham took five wickets for one run as Australia fell under his spell. Then, at Old Trafford, on a dank Saturday afternoon, he played the most memorable innings of his life and one of the greatest innings ever played by an Englishman: 118 magnificent, joyful runs. Joy: that’s the word. Botham brought joy into people’s lives.

Yet it was the final Test at the Oval, which ended in a draw, that brought from him a performance no less remarkable than those from before. He bowled 89 overs in that match, flat out, continuing to run in when others withdrew with injury. That was the team man coming to the fore. Little wonder his comrades thought the world of him.

Modest, loyal, respectful to opponents, grateful to all who have lent him a hand, and supported throughout a turbulent life by Kath, his rock of a wife, and their three children, this is a cricketing hero to rank with W G Grace, Jack Hobbs, Wally Hammond and Fred Trueman. A feature in the lives of all who saw him, and a very English hero. 

This article first appeared in the 26 November 2015 issue of the New Statesman, Terror vs the State