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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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The lost magic of England

The great conservative journalist Peregrine Worsthorne reflects on a long life at the heart of the establishment.

In a recent editorial meeting, our subscriptions manager happened to mention that Peregrine Worsthorne was still a New Statesman subscriber. A former editor of the Sunday Telegraph and, during a long Fleet Street career, a self-styled “romantic reactionary” scourge of liberals and liberalism, Worsthorne used to be something of a pantomime villain for the left, a role he delighted in. He had close friends among the “Peterhouse right”, the group of High Tory intellectuals who gathered around Maurice Cowling at the small, conspiratorial Cambridge college. He was a frequent contributor to Encounter (which turned out to be funded by the CIA) and an ardent cold warrior. His social conservatism and lofty affectations offended lefty Islingtonian sensibilities. On several occasions he was the Guardian’s reviewer of choice for its annual collection of journalism, The Bedside Guardian, and he invariably delivered the required scornful appraisal while praising its witty television critic, Nancy Banks-Smith. There is no suggestion, he wrote in 1981, that the “Guardian ever sees itself as part of the problem; itself as having some responsibility for the evils its writers described so well”.

His prose style was Oxbridge high table, more Walter Pater than George Orwell. It was essential not to take Worsthorne too seriously, because he delighted in mischief-making and wilful provocation – one of his targets for remorseless ridicule was Andrew Neil, when Neil edited the abrasively Thatcherite Sunday Times. He ended up suing Worsthorne, who was famous for his silk shirts and Garrick Club lunches, for libel; he was awarded damages of £1, the then cover price of the Sunday Times.

“I wrote that in the old days editors of distinguished Sunday papers could be found dining at All Souls, and something must have changed when they’re caught with their trousers down in a nightclub,” Worsthorne told me when we met recently. “I had no idea he was going to sue. I was teasing. I occasionally run into him and we smile at each other, so it’s all forgotten and forgiven.”

After his retirement in 1989, Worsthorne, although he remained a resolute defender of aristocracy, seemed to mellow, and even mischievously suggested that the Guardian had replaced the Times as the newspaper of record. In the 1990s he began writing occasionally for the New Statesman – the then literary editor, Peter Wilby, commissioned book reviews from him, as I did after I succeeded Wilby. Like most journalists of his generation, Worsthorne was a joy to work with; he wrote to length, delivered his copy on time and was never precious about being edited. (Bill Deedes and Tony Howard were the same.) He might have had the mannerisms of an old-style toff but he was also a tradesman, who understood that journalism was a craft.

Shortly before Christmas, I rang Wors­thorne at the home in Buckinghamshire he shares with his second wife, Lucinda Lambton, the charming architectural writer. I asked how he was. “I’m like a squeezed lemon: all used up,” he said. Lucy described him as being “frail but not ill”. I told him that I would visit, so one recent morning I did. Home is a Grade II-listed old rectory in the village of Hedgerley. It is grand but dishevelled and eccentrically furnished. A sign on the main gates warns you to “Beware of the Dog”. But the dog turns out to be blind and moves around the house uneasily, poignantly bumping into objects and walls. At lunch, a small replica mosque in the dining room issues repeated mechanised calls to prayer. “Why does it keep doing that?” Perry asks. “Isn’t it fun,” Lucy says. She then turns to me: “Have some more duck pâté.”

As a student, I used to read Worsthorne’s columns and essays with pleasure. I did not share his positions and prejudices but I admired the style in which he articulated them. “The job of journalism is not to be scholarly,” he wrote in 1989. “The most that can be achieved by an individual newspaper or journalist is the articulation of an intelligent, well-thought-out, coherent set of prejudices – ie, a moral position.”

His Sunday Telegraph, which he edited from 1986 to 1989, was like no other newspaper. The recondite and reactionary comment pages (the focus of his energies) were unapologetically High Tory, contrary to the prevailing Thatcherite orthodoxies of the time, but were mostly well written and historically literate. Bruce Anderson was one of the columnists. “You never knew what you were going to get when you opened the paper,” he told me. “Perry was a dandy, a popinjay, and of course he didn’t lack self-esteem. He had a nostalgia for Young England. In all the time I wrote for him, however, I never took his approval for granted. I always felt a tightening of the stomach muscles when I showed him something.”

***

Worsthorne is 92 now and, though his memory is failing, he remains a lucid and engaging conversationalist. Moving slowly, in short, shuffling steps, he has a long beard and retains a certain dandyish glamour. His silver hair is swept back from a high, smooth forehead. He remains a stubborn defender of the aristocracy – “Superiority is a dread word, but we are in very short supply of superiority because no one likes the word” – but the old hauteur has gone, replaced by humility and a kind of wonder and bafflement that he has endured so long and seen so much: a journalistic Lear, but one who is not raging against the dying of the light.

On arrival, I am shown through to the drawing room, where Perry sits quietly near an open fire, a copy of that morning’s Times before him. He moves to a corner armchair and passes me a copy of his book Democracy Needs Aristocracy (2005). “It’s all in there,” he says. “I’ve always thought the English aristocracy so marvellous compared to other ruling classes. It seemed to me that we had got a ruling class of such extraordinary historical excellence, which is rooted in England
almost since the Norman Conquest.

“Just read the 18th-century speeches – the great period – they’re all Whig or Tory, but all come from that [the aristocracy]. If they didn’t come directly from the aristocracy, they turned themselves very quickly into people who talk in its language. Poetic. If you read Burke, who’s the best in my view, it’s difficult not to be tempted to think what he says has a lot of truth in it . . .”

His voice fades. He has lost his way and asks what we were talking about. “Oh, yes,” he says. “It survived when others – the French and Russians and so on – were having revolutions. It was absolutely crazy to set about destroying that. There was something magical . . . the parliamentary speeches made by Burke and so on – this is a miracle! No other country has it apart from America in the early days. And I thought to get rid of it, to undermine it, was a mistake.”

I ask how exactly the aristocracy was undermined. Even today, because of the concentration of the ownership of so much land among so few and because of the enduring influence of the old families, the great schools and Oxbridge, Britain remains a peculiar hybrid: part populist hyper-democracy and part quasi-feudal state. The Tory benches are no longer filled by aristocrats but the old class structures remain.

“Equality was the order of the day after the war,” Worsthorne replies. “And in a way it did a lot of good, equalising people’s chances in the world. But it didn’t really get anywhere; the ruling class went happily on. But slowly, and I think unnecessarily dangerously, it was destroyed – and now there are no superior people around [in politics]. The Cecil family – Lord Salisbury, he was chucked out of politics. The Cecil family is being told they are not wanted. The institutions are falling apart . . .

“But there were people who had natural authority, like Denis Healey. I’m not saying it’s only aristocrats – a lot of Labour people had it. But now we haven’t got any Denis Healeys.”

Born in 1923, the younger son of Alexander Koch de Gooreynd, a Belgian banker, Worsthorne (the family anglicised its name) was educated at Stowe and was an undergraduate at both Cambridge (Peterhouse, where he studied under the historian Herbert Butterfield, the author of The Whig Interpretation of History) and Oxford (Magdalen College). “I have always felt slightly underprivileged and de-classed by having gone to Stowe, unlike my father who went to Eton,” Worsthorne wrote in 1985.

Yet his memories of Stowe remain pellucid. There he fell under the influence of the belle-lettrist John Davenport, who later became a close friend of Dylan Thomas. “He was a marvellous man, a famous intellectual of the 1930s, an ex-boxer, too. But in the war he came to Stowe and he was preparing me for a scholarship to Cambridge. He told me to read three books, and find something to alleviate the boredom of an examiner, some little thing you’ll pick up. And I duly did and got the scholarship.”

Can you remember which three books he recommended?

“Tawney. Something by Connolly, um . . . that’s the terrible thing about getting old, extremely old – you forget. And by the time you die you can’t remember your brother’s name. It’s a terrible shock. I used to think old age could be a joy because you’d have more time to read. But if you push your luck and get too far, and last too long, you start finding reading really quite difficult. The connections go, I suppose.”

Was the Connolly book Enemies of Promise (1938)?

“Yes, that’s right. It was. And the other one was . . . Hang on, the writer of the book . . . What’s the country invaded by Russia, next to Russia?

Finland, I say. Edmund Wilson’s To the Finland Station (1940)?

“Yes. Wilson. How did you get that?”

We both laugh.

***

Worsthorne is saddened but not surprised that so many Scots voted for independence and his preference is for Britain to remain a member of the European Union. “What’s happening is part of the hopelessness of English politics. It’s horrible. I can’t think why the Scots would want to be on their own but it might happen. The youth will vote [for independence]. This is part of my central theme: the Scots no longer think it’s worthwhile belonging to England. The magic of England has gone – and it’s the perversity of the Tory party to want to get us out of the European Union when of course we’re much more than ever unlikely to be able to look after ourselves as an independent state because of the quality of our political system.

“The people who want to get us out are obviously of an undesirable kind. That the future should depend on [Nigel] Farage is part of the sickness. I mean the real horror is for him to have any influence at all. And when you think of the great days of the Labour Party, the giants who strode the stage – famous, lasting historical figures, some of them: Healey, Attlee, who was probably the greatest, [Ernest] Bevin. I’m well aware that Labour in the good days produced people who were superior.”

He digresses to reflect on his wartime experience as a soldier – he served in Phantom, the special reconnaissance unit, alongside Michael Oakeshott, the philosopher of English conservatism who became a close friend, and the actor David Niven, our “prize colleague”.

“I remember Harold Macmillan saying to me, after the Second World War, the British people needed their belt enlarged; they’d done their job and they deserved a reward. And that’s what he set about doing. And he wasn’t a right-wing, unsympathetic man at all. But he didn’t – and this is what is good about conservatism – he didn’t turn it into an ‘ism’. It was a sympathetic feel, an instinctive feel, and of course people in the trenches felt it, too: solidarity with the rest of England and not just their own brotherhood. Of course he didn’t get on with Margaret Thatcher at all.”

Worsthorne admired Thatcher and believed that the “Conservatives required a dictator woman” to shake things up, though he was not a Thatcherite and denounced what he called her “bourgeois triumphalism”. He expresses regret at how the miners were treated during the bitter strike of 1984-85. “I quarrelled with her about the miners’ strike, and the people she got around her to conduct it were a pretty ropey lot.

“I liked her as a person. I was with her that last night when she wasn’t prime minister any more, but she was still in Downing Street and had everything cut off. The pressman [Bernard Ingham] got several of us to try to take her mind off her miseries that night. There’s a photograph of me standing at the top of the stairs.”

In the summer of 1989, Peregrine Wors­thorne was sacked as the editor of the Sunday Telegraph by Andrew Knight, a former journalist-turned-management enforcer, over breakfast at Claridge’s. He wrote about the experience in an elegant diary for the Spectator: “I remember well the exact moment when this thunderbolt, coming out of a blue sky, hit me. It was when the waiter had just served two perfectly poached eggs on buttered toast . . . In my mind I knew that the information just imparted was a paralysingly painful blow: pretty well a professional death sentence.”

He no longer reads the Telegraph.

“Politically they don’t have much to say of interest. But I can’t put the finger on exactly what it is I don’t like about it. Boredom, I think!”

You must read Charles Moore?

“He is my favourite. Interesting fellow. He converted to Catholicism and started riding to hounds in the same week.”

He has no regrets about pursuing a long career in journalism rather than, say, as a full-time writer or academic, like his friends Cowling and Oakeshott. “I was incredibly lucky to do journalism. What people don’t realise – and perhaps you don’t agree – but it’s really a very easy life, compared to many others. And you have good company in other journalists and so on. I was an apprentice on the Times, after working [as a sub-editor] on the Glasgow Herald.”

How does he spend the days?

“Living, I suppose. It takes an hour to get dressed because all the muscles go. Then I read the Times and get bored with it halfway through. Then there’s a meal to eat. The ­answer is, the days go. I used to go for walks but I can’t do that now. But Lucy’s getting me all kinds of instruments to facilitate people with no muscles, to help you walk. I’m very sceptical about it working, but then again, better than the alternative.”

He does not read as much as he would wish. He takes the Statesman, the Spectator and the Times but no longer the Guardian. He is reading Niall Ferguson’s biography of Kissinger, The Maisky Diaries by Ivan Maisky, Stalin’s ambassador to London from 1932 to 1943, and Living on Paper, a selection of letters by Iris Murdoch, whom he knew. “I get these massive books, thinking of a rainy day, but once I pick them up they are too heavy, physically, so they’re stacked up, begging to be read.”

He watches television – the news (we speak about Isis and the Syrian tragedy), the Marr show on Sunday mornings, and he has been enjoying War and Peace on BBC1. “Andrew Marr gave my book a very good review. He’s come back. He’s survived [a stroke] through a degree of hard willpower to get back to that job, almost as soon as he came out of surgery. But I don’t know him; he was a Guardian man.” (In fact, Marr is more closely associated with the Independent.)

Of the celebrated Peterhouse historians, both Herbert Butterfield (who was a Methodist) and Maurice Cowling were devout Christians. For High Tories, who believe in and accept natural inequalities and the organic theory of society, Christianity was a binding force that held together all social classes, as some believe was the order in late-Victorian England.

“I was a very hardened Catholic,” Worsthorne says, when I mention Cowling’s book Religion and Public Doctrine in Modern England. “My mother was divorced [her second marriage was to Montagu Norman, then the governor of the Bank of England] and she didn’t want my brother and me to be Catholic, so she sent us to Stowe. And I used to annoy her because I read [Hilaire] Belloc. I tried to annoy the history master teaching us Queen Elizabeth I. I said to him: ‘Are you covering up on her behalf: don’t you know she had syphilis?’

“Once I felt very angry about not being made Catholic. But then I went to Cambridge and there was a very Catholic chaplain and he was very snobbish. And in confession I had to tell him I masturbated twice that morning or something, and so it embarrassed me when half an hour later I had to sit next to him at breakfast. I literally gave up going to Mass to get out of this embarrassing situation. But recently I’ve started again. I haven’t actually gone to church but I’ve made my confessions, to a friendly bishop who came to the house.”

So you are a believer?

“Yes. I don’t know which bit I believe. But as Voltaire said: ‘Don’t take a risk.’”

He smiles and lowers his head. We are ready for lunch. 

Jason Cowley is editor of the New Statesman. He has been the editor of Granta, a senior editor at the Observer and a staff writer at the Times.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle