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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

Andre Carhillo
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The decline of the Fifth Republic

With the far right and far left surging in the run-up to a defining presidential election, the French seem intent on blowing up the political establishment.

On a cold Saturday evening in late February, cycling back to my flat in southern Paris, I accidentally ran into a pack of lads on a rampage. They were turning over bins, kicking over expensive motorbikes parked on the street, and obviously looking for someone to fight.

It wasn’t the first time that I’d seen this sort of thing, even in this relatively gentrified part of the city. Usually the best course of action is to stop, let them swarm past and allow the police to do their job. But on this particular night, although I could hear the buzz of a police helicopter above us, there were no officers on the ground. As I nervously became aware of this, one of the lads, no more than five yards away, looked at me and screamed: “T’es qui toi?” (“Who the f*** are you?”). His mates turned and gathered round. Now panicking, I saw that he was pointing a screwdriver at me.

I pelted down the street, heart racing as the young men followed me, so shocked that when I reached my apartment building I twice tapped in the wrong entry code. It was only once indoors, now safe but genuinely scared and sweating, that I understood what had happened.

This was a gang from one of the local ­cités – council estates – that border this part of Paris. They had been flushed out of their normal dens, where they deal in weed and mess about, by police using helicopters and unmarked cars, and were now taking their revenge on these unfamiliar surroundings. When they saw me, a tall, white, male figure, watching in the dark on my bike (stupidly the same dark blue as a police bike), they assumed I could only be one thing: a police spotter. In other words, their most hated enemy.

In the past few weeks, in Paris and across France, there has been a new and special danger in being identified by such gangs as a lone policeman. This is because the ever-present tensions between police and the youth of the cités have become particularly acute following the so-called Affaire Théo. On 2 February in Seine-Saint-Denis, north-east of Paris, four police officers violently attacked an innocent black man, identified only as Théo. The assault was caught on camera and allegedly involved the man’s “rape” with a telescopic baton.

The details of the case caused widespread outrage, right up to the highest level of ­government. In the banlieue, the suburbs where many young people feel excluded from mainstream French life, some felt a desire for revenge. And though their anger related to a specific incident, it was in keeping with the emotions sweeping across France, at all levels of society, in the lead-up to the first round of this year’s presidential election on 23 April.

***

France is in a state of political disarray. This much was obvious during the first live “great debate” on 20 March, organised by the television channel TF1, featuring five front-runners for the presidency.

Probably the greatest loser on the night was François Fillon of the centre-right party les Républicains, who served as prime minister from 2007 to 2012. Fillon has gone from being a sure favourite to outsider in the presidential contest, following allegations of dodgy financial dealings. Most damagingly, a formal judicial investigation has been launched into reports that he paid upwards of €800,000 of taxpayers’ money to his wife and other family members for jobs they didn’t actually do. Fillon, who denies any wrongdoing, has also been accused of failing to declare a €50,000 loan from a French businessman in 2013 (which he has since repaid). He held himself in check during the debate, trying to look dignified and presidential, but he has become the object of scorn from all sides, including his own.

Benoît Hamon, the candidate for the Parti Socialiste (PS), the party of the outgoing and discredited president, François Hollande, did not perform much better in the debate. Hamon identifies with the far left and green wings of the PS and favours a basic income, the legalisation of cannabis, and euthanasia. He resigned from Hollande’s government in 2014 claiming that the president had abandoned socialist values. But at every public appearance Hamon still looks surprised to be in the race. Although he has positioned himself as the “anti-Hollande” candidate – no surprise, as Hollande has the lowest polls ratings of any French president – even Hamon’s supporters concede that he has no reach outside the party faithful, and his dismal poll ratings reflect this.

In recent weeks, Jean-Luc Mélenchon, a veteran left-winger and now leader of his own party, France Insoumise (“Unsubmissive France”), has surged in the polls. He has been compared to Jeremy Corbyn but is more like George Galloway, in that he can be trenchant and biting and speaks fluently without notes. Some of his views – anti-EU, anti-Nato, pro-Russia – are close to those of Marine Le Pen, the leader of the far-right Front National (FN). The candidate of the centre or centre-left is Emmanuel Macron, a 39-year-old former investment banker and protégé of Hollande, under whom he served as minister of the economy, industry and digital data. Macron broke with the PS in 2016 to set himself up as an independent candidate with his new movement, En Marche! (“onward”). He presents himself as a voice of moderation and common sense. He defends the EU and the eurozone and is an unashamed liberal globaliser. But Macron is also hard to love: his enemies claim that he is self-serving, an opportunist who cannot be trusted, and, worse, that he lacks experience of high office. On television he can be vain and testy – as was the case when he came under attack from Marine Le Pen, during the TF1 debate.

In many ways, Macron was a gift to Le Pen. She accused him of being out of touch and of not knowing what he was talking about. Even non-FN supporters, who didn’t necessarily agree with her views on security and immigration, conceded that Le Pen was the most convincing speaker. As I was told by a neighbour with an impeccable PS background, it was as if she was the only politician on the night of the debate in charge of what she believed. Le Pen’s popularity increased as a consequence.

So is it now possible to think the unthinkable: that Marine Le Pen could triumph not only in the first round of the presidential election but in the second as well? If that happens, not only would she become the first female president of France but she would transform French politics and further destabilise the European Union.

***

When I put this to Jean-Pierre Legrand, the leader of the Front National in Roubaix, a town of 90,000 inhabitants in the north of France, he shook his head. He wishes Le Pen well but fears that in the second round the mainstream parties will gang up and back whoever her opponent is. “This is what always happens,” he told me. “This is why so-called French democracy is actually a form of dictatorship. You can never really get your hands on power. It belongs to an elite, people like Emmanuel Macron.”

Legrand, 69, has been a supporter of the FN for decades. He smiles a lot and can be witty, but he also likes talking tough, like the hard-headed factory boss he used to be. He admires the way Le Pen has reinvented the party, shedding some of the old-school neo-Nazi trappings. But he is also faithful to, maybe even nostalgic for, the old FN of her father, Jean-Marie Le Pen, who reached the second round of the 2002 presidential election (he lost to the centre-right Jacques Chirac). So I asked him if he was not really a democrat but, like Le Pen père, basically a fascist. “I am not afraid of being called a fascist, or even a Gaullist,” he said. “But all I really believe in is order and authority. And that is what France needs now.”

I had come to Roubaix because it is officially the poorest town in France. It is also, according to most media reports, one of the most troubled. It’s not far from Paris – just over 90 minutes on a fast train – but when you get there it feels like a different, distant place. The train station is scruffy and there is little sense of the usual Gallic civic pride; the stroll down the main boulevard to the Grand Place is drab and quiet, unlike in most French towns.

Roubaix has a large immigrant population, mainly from North Africa but comprising more than 60 nationalities. It has a reputation as a refuge for illegal migrants making for Calais and then the UK, and as a hotbed of Islamist radicalisation. In May last year the conservative news weekly Valeurs actuelles described Roubaix as “le Molenbeek français”. The magazine was referring to the suburb of Brussels where several of the terrorists and sympathisers involved in the November 2015 attacks on Paris, which killed 130 people, including 89 at the Bataclan concert hall, grew up.

Legrand and his FN colleague Astrid Leplat offered to show me around the town, just as they had done with the writer from Valeurs actuelles. The article was criticised by the local newspaper La Voix du Nord as depicting a fantasy version of France conjured up by the FN. I was aware of this argument, but also keen to take up the offer of a tour: it was a rare chance to see an ordinary French town through the eyes of the FN.

I quite liked Roubaix. With its sooty terraced houses, empty textile mills, iron bridges and dirty canals, it reminded me of Salford in the 1970s. The town is neatly laid out even if the streets are scruffy. It is also busy with small businesses – Arabic-language bookshops, kebab houses and tea shops, as well as traditional French cafés and bistros. It looked no more menacing than Bradford or Rusholme in Manchester.

Legrand is proud of Roubaix, or at least of what Roubaix used to be, and has chosen to live here rather than in nearby Lille. Having been a blue-collar worker, too, he admires the noble ambitions and graft of the people who built the town. These were the original indépendants – the aspiring working class, much cherished by the FN, who believe in the values of hard work and public service. But Legrand told me that when he looks at the streets today he sees not the cluttered life of 21st-century, multicultural France but what he called “conquered territory”.

There are problems in Roubaix: 45 per cent of the town’s residents live below the official French poverty line of €977 a month. Describing the local poverty, Legrand used the term “misère”, a word that also translates as “wretchedness”. The unemployment rate is high (40 per cent in parts of town) and on a typical weekday afternoon there are many young men sitting around with nothing to do.

As we drove through some of the tougher areas, Legrand pointed out so-called Salafist mosques, most of them shielded from the streets by the high walls of disused factories. It is these places, unknown and unvisited by outsiders, which have given Roubaix its reputation for radicalism.

It is true that in the recent past Roubaix has produced many extremists. The most notorious is Lionel Dumont, a former soldier who is white and working class, and is viewed as the leader of radical Islam in the French prison system, where he is serving a 25-year sentence for terrorism offences that include trying to set off a car bomb during a G7 meeting in Lille in 1996. Islamists such as Dumont are, in effect, beyond the control of the penal authorities because French laws forbid the monitoring of prisoners on grounds of race or religion. One frustrated director of prisons in the Paris region complained to me that the French penal system was “the real engine room of radicalisation”.

The main reason why Roubaix has produced so many terrorists – including Mehdi Nemmouche, the gunman who fired the shots at the Jewish Museum in Brussels in May 2014 that killed four people – is not immigration, as the Front National would have it, but geography. This part of France is depicted in the media as “a security black hole”, partly because of its proximity to the Belgian border. You can drive into Belgium from Roubaix in ten minutes, as I did with Legrand; the border is just a roundabout and unmonitored. The French and Belgian intelligence services are minutes away from each other but do not share information or collaborate properly. This allowed some of the terrorists who led the 2015 Paris attacks to escape after the killing spree.

***

Crossing the border to Belgium, you notice that the roads are lined with gleaming new warehouses belonging to Amazon and other technology companies. ­Roubaix suddenly seems like a ruin from the early 20th century. It must be difficult for its people not to feel trapped and abandoned – by the French elite to the south and the new economy to the north.

“If you live in Roubaix it is hard to feel connected to the rest of France,” said Hélène Robillard, a junior civil servant. I had come across her in the centre of town. She was leading a group of young women, merrily banging tambourines, blowing whistles and chanting slogans outside one of the
offices of the local council. They were striking against work conditions at the council, but having a laugh, too, in the best Made in Dagenham style.

I asked the women about the film Chez nous (This Is Our Land), which had been released only a few weeks earlier and was playing to packed houses across France. Set in a fictionalised town much like Roubaix, it tells the story of a young woman, Pauline Duhez, a nurse who is seduced into joining the FN and standing for a seat on the council. As she learns the party’s true positions, she becomes disillusioned and angry. The film ends with Pauline returning to the socialist values of her unemployed father, a former steelworker, culminating in a family trip to watch a game featuring the local football team Lens.

The women protesting with Robillard were all determinedly anti-FN. Those who had seen the film were full of enthusiasm. “It is our real life,” said one of them, laughing. “It shows our true values – not fascism, but football, beer and chips.”

Like Pauline in the film, the FN’s Astrid Leplat is a nurse. Jean-Pierre Legrand explained to me that this was why she had been hand-picked by Marine Le Pen to stand
as a regional councillor. The party has adopted a policy of recruiting fonctionnaires (civil servants), especially those who work in the health and support services. This is partly to demonstrate that the FN has left behind its neo-Nazi origins and is now the party of everyday folk, but also to undermine PS dominance of the public services.

When I asked Leplat why she supported the FN, she said that she had witnessed the disastrous effects of repeated budget cuts on hospitals, with overstretched departments and increasingly run-down facilities. “The Front National are there to protect us,” she said.

Leplat told me she hadn’t seen Chez nous and that she probably wouldn’t, because it would upset her. There were also political reasons why she didn’t want to see it: it had been financed with public money from Hauts-de-France, the northern region that covers Roubaix, as well as the television companies France 2 and France 3. When I pointed out that most French cinema relies on public subsidy, she argued that the film’s release had been deliberately timed to undermine the February launch of the FN’s presidential campaign.

“How else can this be explained?” she said. “The Front National is always persecuted by the establishment elites in culture and politics.”

***

Back in Paris, as part of a documentary I was making for BBC Radio 4, I interviewed Émilie Dequenne, the actress who plays Pauline in Chez nous, and the film’s director, Lucas Belvaux. We met at the production company’s office just off the rue du Faubourg Saint-Honoré in the swish heart of Paris – a corner of the city that couldn’t be further removed from the streets of Roubaix. But both Dequenne and Belvaux are intimately connected with the region and the northern working-class life, because they grew up near the Franco-Belgian border and still have family ties there. I asked them whether the FN had a point about the film.

“The film is not ambiguous,” Dequenne said. “It is clearly a warning about being ­seduced by the far right. But it also has lots of [different] ambiguities. The main character, Pauline, is a good person, and not stupid. She wants to help people. She thinks that this is not the case with the main pol­itical parties. So she is attracted by a party that seems to care.”

“I agree it is a warning,” Belvaux said. “We are not yet a fascist country, but I do fear that this could happen.

“There are big social and cultural divisions in France. Not everybody who will vote for the Front National is a bad person, but there are many angry people in this country who feel hurt and damaged. When this is the case, fascism can arrive much more quickly than you think.”

Until now, voting for the FN has been a sign of protest, historically a safety valve for releasing discontent. Whenever the FN has got near to victory, right and left have come together as a bloc to exclude it from power. This is what happened in 2002, of course, when Jean-Marie Le Pen, the then leader of the FN, made it through to the second round of the presidential elections. Jacques Chirac won the run-off with 82 per cent of the vote, despite accusations of corruption. The rallying cry across all non-FN political lines was: “Vote for the crook, not the fascist!” Yet there is no guarantee that this will happen again, because Marine Le Pen has successfully reinvented and rebranded the FN, making it more acceptable to mainstream voters.

Even if Marine loses, there is another danger. If those French parties of the left and right which historically have been strongest continue to implode, there will be a new constituency of voters who in future will be “homeless”. Even if Macron wins – having blurred the lines between right and left – he will disappoint at some stage. When this happens, those who supported him may not find their way back to the established parties, thus opening up an avenue to power for the far right. Sylvain Bourmeau, an associate professor at the École des Hautes Études en Sciences Sociales in Paris, told me that this was part of the Front National’s long-term strategy.

The withering of a historically strong party has already happened in the UK, where voters’ movement to Ukip and the SNP has undermined, if not destroyed, Labour as a national force. Marine Le Pen has already voiced her admiration for Ukip for “breaking the mould”. However, it is important to remember that the FN is not “populist” in the way that Ukip, or indeed Donald Trump, is. Nor are Roubaix and the north of France the same as the “rust belt” of the United States.

Rather, the present conflicts in France are ideological, with roots in the antagonisms and turmoil of French history. The FN’s ultimate goal is to get rid of the present French Republic – the result of the “mistake” of the “liberal revolution” of 1789. In other words, the promise of liberté, égalité, fraternité is to be replaced by an “awakening”, which would lead to a “national movement”: that is, the rebirth of the French nation. The FN is not just about racism, immigration or identity: it wants to send French history into reverse gear.

That is how high the stakes are, and why the coming elections are the most important in France since the Second World War. There is a generalised tension right now – the tension that I encountered on my bike on my own street in southern Paris – which sometimes finds expression in gang violence, anti-police riots and even terrorism, all fuelling the rise of the FN.

For all the polls, signs and omens, it is ­impossible to predict the election result. Whatever happens in the coming weeks and months, with the old political certainties melting away, it seems more than ever that France is set on a long and unstoppable journey into darkness. L

Andrew Hussey is the author of “The French Intifada” (Granta Books). He lives in Paris. His documentary “Culture, Class and Le Pen” will be broadcast on BBC Radio 4 on 24 April (8pm)

This article first appeared in the 20 April 2017 issue of the New Statesman, May's gamble

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