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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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Jeremy Corbyn and the paranoid style

The Labour leader’s team has a bunker mentality, and their genius has been to extend that bunker to accommodate tens of thousands of their followers. Within that bubble, every failure becomes a victory.

 

There was an odd moment on the BBC last summer, during Jeremy Corbyn’s first leadership campaign. A reporter had asked him a simple question about nationalisation: “Where did you get these words from?” he snapped. “Has somebody been feeding you this stuff?” 

At the time I was taken aback, but before long the campaign would become defined by paranoia, manifested in its leader as an extreme suspicion of “mainstream media”, and in its supporters as a widespread belief that establishment forces were conspiring to “fix” the Labour leadership contest, the so-called #LabourPurge.

This summer, Corbyn is fighting another leadership election. The main focus of his campaign so far has been an attempt to paint his rival Owen Smith as a “Big Pharma shill”, while Corbyn’s most influential supporter, Unite’s Len McCluskey, has claimed that MI5 are waging a dirty tricks campaign against the Leader of the Opposition. On stage Corbyn has attacked national media for failing to cover a parish council by-election.  

Corbyn’s time as Labour leader has been marked by an extraordinary surge of paranoia and conspiracy theory on the left. The sheer intensity of it, combined with some of his supporters’ glassy-eyed denial of reality and desire to “purge” the party unfaithful, has led some to compare Corbynism to a cult or a religious movement. Unfortunately, the problem goes much deeper. Corbyn didn’t create or lead a movement; he followed one.

In the last few years, a new breed of hyperbolic pundits has emerged on left-wing social media who embody what Richard Hofstadter called “The Paranoid Style” in politics, “a sense of heated exaggeration, suspiciousness, and conspiratorial fantasy”.

Hofstadter’s 1964 essay was inspired by McCarthyism, but the Paranoid Style as a political and psychological phenomenon has been with us for as long as modern politics. Of course conspiracies and misdeeds can happen, but the Paranoid Style builds up an apocalyptic vision of a future driven entirely by dark conspiracies. The NHS won’t just be a bit worse; it will be destroyed in 24 hours. Opponents aren’t simply wrong, but evil incarnate; near-omnipotent super-villains control the media, the banks, even history itself. Through most of history, movements like this have remained at the fringes of politics; and when they move into the mainstream bad things tend to happen.

To pick one example among many, science broadcaster Marcus Chown’s Twitter feed is full of statements that fall apart at the slightest touch. We learn that billionaires control 80 per cent of the media – they don’t. We learn that the BBC were “playing down” the Panama Papers story, tweeted on a day when it led the TV news bulletins and was the number one story on their news site.  We learn that the Tories are lying when they say they’ve increased spending on the NHS. As FullFact report, the Tories have increased NHS spending in both absolute and real terms. We learn via a retweet that Labour were ahead of the Conservatives in polling before a leadership challengethey weren’t.

The surprise Conservative majority in last year’s election shocked the left to the core, and seemed to push this trend into overdrive. Unable to accept that Labour had simply lost arguments over austerity, immigration and the economy, people began constructing their own reality, pasting out of context quotes and dubious statistics over misleading charts and images. Falsehoods became so endemic in left-wing social media that it’s now almost impossible to find a political meme that doesn’t contain at least one serious mistruth. Popular social media figures like Dr Eoin Clarke have even built up the idea that the election result itself was a gigantic fraud.

The problem with creating your own truth is that you have to explain why others can’t – or won’t – see it. One answer is that they’re the unwitting stooges of an establishment conspiracy that must involve the “mainstream media”, a belief that seems more plausible in the wake of scandals over expense claims and phone-hacking. Voters can’t be expressing genuine concerns, so they must have been brainwashed by the media.  

The left have long complained about the right-wing bias of the tabloid press with some justification, but in recent years the rage of a hardcore minority has become increasingly focused on the BBC. “Why aren’t the BBC covering X” is a complaint heard daily, with X nearly always being some obscure or unimportant protest or something that in fact the BBC did cover.  

Bewildered and infuriated by the BBC’s refusal to run hard-left soundbites as headlines, the paranoid left assume Auntie is involved in some sort of right-wing establishment plot. Public figures such as Laura Kuenssberg, the Corporation’s political editor, have been subjected to a campaign of near-permanent abuse from the left, much of it reeking of misogyny. By asking Labour figures questions as tough as those she routinely puts to Conservative politicians, she has exposed her true role as a “Tory propagandist whore”, a “fucking cunt bag”, or a “Murdoch puppet”.

This was the context in which Corbyn’s leadership campaign was fought, and with his own dislike of the media and love of a good conspiracy theorist, he swiftly became a figurehead for the paranoid left. Suddenly, the cranks and conspiracy theorists had a home in his Labour party; and they flocked to it in their tens of thousands. Of course most Corbynistas aren’t cranks, but an intense and vocal minority are, and they have formed a poisonous core at the heart of the cause.

The result is a Truther-style movement that exists in almost complete denial of reality. Polls showing double-digit leads for the Conservatives are routinely decried as the fabrications of sinister mainstream media figures. The local elections in May, which saw Corbyn’s Labour perform worse than most opposition leaders in recent history, triggered a series of memes insisting that results were just fine. Most bewildering of all is a conspiracy theory which insists that Labour MPs who quit the shadow cabinet and declared ‘no confidence’ in Corbyn were somehow orchestrated by the PR firm, Portland Communications.

The paranoid left even has its own news sources. The Canary manages, without irony, to take the worst traits of the tabloids, from gross bias to the misreporting of a suicide note, and magnify them to create pages of pro-Corbyn propaganda that are indistinguishable from parody. On Facebook, Corbyn has more followers than the Labour Party itself. Fan groups filter news of Corbyn and his enemies so effectively that in one Facebook group I polled, more than 80 per cent of respondents thought Corbyn would easily win a general election.

This kind of thinking tips people over a dangerous threshold. Once you believe the conspiracy theories, once you believe you’ve been denied democracy by media manipulation and sinister establishment forces mounting dirty tricks campaigns, it becomes all too easy to justify bad behaviour on your own side. It starts with booing, but as the “oppressed” gain their voices the rhetoric and the behaviour escalate until the abuse becomes physical.

I’m prepared to believe Jeremy Corbyn when he says that he doesn’t engage in personal abuse. The problem is, he doesn’t have to. His army of followers are quite happy to engage in abuse on his behalf, whether it’s the relentless abuse of journalists, or bricks tossed through windows, or creating what more than 40 women MPs have described as a hostile and unpleasant environment

Supporters will point out that Jeremy Corbyn hasn’t asked for this to happen, and that in fact he’s made various statements condemning abuse. They’re not wrong, but they fail to grasp the point; that the irresponsible behaviour of Corbyn and his allies feeds into the atmosphere that leads inexorably to these kinds of abuses happening.

We see this in Corbyn’s unfounded attacks on media conspiracies, such as his absurd complaints about the lack of coverage of council elections. We see it in the shadow chancellor John McDonnell’s angry public jibes at Labour MPs. Surly aggression oozes out of the screen whenever a TV reporter asks Corbyn a difficult question. Then there’s the long history of revolutionary rhetoric – the praise for bombs and bullets, the happy engagement with the homophobic, the misogynistic, the anti-Semitic, the terrorist, in the name of nobler aims. 

Even the few statements Corbyn makes about abuse and bigotry are ambiguous and weak. Called upon to address anti-Semitism in the Labour party, he repeatedly abstracts to generic racism – in his select committee evidence on the topic, he mentioned racism 28 times, and anti-Semitism 25 times, while for his interviewers the ratio was 19 to 45. Called on to address the abuse of women MPs in the Labour Party, he broadened the topic to focus on abuse directed at himself, while his shadow justice secretary demanded the women show “respect” to party members. Corbyn’s speech is woolly at the best of times, but he and his allies seem determined to water down any call for their supporters to reform.   

Still, why reform when things are going so well? Taken at face value, Corbyn’s summer has been appalling. It began with the poor local election results, continued with Labour’s official position being defeated in the EU Referendum, and then saw the party’s leader lose a vote of no confidence, after which he was forced to watch the resignation of most of his shadow cabinet and then face a leadership challenge. Labour are polling terribly against Theresa May (who, admittedly, is in her honeymoon period), and the press are either hostile or find Corbyn impossible to work with.

If Corbyn were a conventional Leader of the Opposition these facts would be catastrophic, but he’s not and they’re not. To understand why, let’s look at some head-scratching quotes from leading Corbynistas. Jon Lansman, Chair of Momentum, was heavily mocked on Twitter recently for saying, “Democracy gives power to people, ‘Winning’ is the small bit that matters to political elites who want to keep power themselves.” The former BBC and Channel 4 journalist Paul Mason released a video clip suggesting Labour should be transformed into a “social movement”, along the lines of Occupy.  

These sentiments are echoed at the heart of Team Corbyn. Owen Smith claimed to have asked Corbyn and his Shadow Chancellor, John McDonnell, whether they were prepared to let the Labour party split. According to Smith, whose version of events was denied by John McDonnell but backed up by two other MPs, Corbyn refused to answer while McDonnell said “if that’s what it takes”. Many activists seem to hold the same view – Twitter is full of Momentum warriors quite happy to see the bulk of the PLP walk away, and unconcerned about their diminishing prospects of winning any election.

Which on the face of it makes no sense. Labour has 232 seats, considerably more than David Cameron inherited in 2005. Their opponent is an “unelected” Prime Minister commanding a majority of just twelve, who was a senior figure in the government that just caused Britain’s biggest crisis since the war, and is now forced to negotiate a deal that either cripples the economy or enrages millions of voters who were conned by her colleagues into believing they had won a referendum on immigration. Just before leaving office, George Osborne abandoned his budget surplus target – effectively conceding it was a political gambit all along.

A competent Labour leader, working with other parties and disaffected Remainian Tories, could be – should be - tearing lumps out of the government on a weekly basis. Majority government may be a distant prospect, but forcing the Tories into a coalition or removing them from government altogether by the next election is entirely achievable.  Yet it’s fair to say that many Corbynistas have little interest in seeing this scenario play out.

Which makes sense, because to these people Labour – real Labour – doesn’t have 232 seats, it has about 40. The others seats are occupied by “Red Tories” or, worse, “Blairites”. Since these groups are as much the enemy as the Tories are, exchanging one for the other is meaningless. The Corbynites could start their own party of course, but why do that when they can seize control of Labour’s infrastructure, short money and institutional donors. The only long-term strategy that makes sense is to “purify” Labour, and rebuild from the foundations up. That may mean another 10 or 20 years of Tory rule, but the achingly middle-class Corbynistas won’t be the ones to suffer from that.

Seen through that prism, Corbynism makes sense. A common theme among the dozens of resignation letters from former shadow ministers has been his apparent disinterest in opposition policy work. A recent Vice documentary showed his refusal to attack the Tories over the resignation of Iain Duncan Smith. Even Richard Murphy, a supportive economist who set out many of the basic principles of ‘Corbynomics’, lost patience in a recent blog post

“I had the opportunity to see what was happening inside the PLP. The leadership wasn’t confusing as much as just silent. There was no policy direction, no messaging, no direction, no co-ordination, no nothing. Shadow ministers appeared to have been left with no direction as to what to do. It was shambolic.”

So where are his attentions focused? Unnamed “insiders” quoted in the Mirror paint an all too feasible picture of a team that, “spent hours in ‘rambling’ meetings discussing possible plots against him and considered sending ‘moles’ to spy on his Shadow Cabinet.” That claim was given more weight by the recent controversy over Karie Murphy, Corbyn’s office manager, who allegedly entered the office of shadow minister Seema Malhotra without permission. Vice’s documentary, ‘The Outsider‘, showed Corbyn railing against the BBC, who he believed were ‘obsessed’ with undermining his leadership, and other journalists.

By all accounts, Corbyn’s team inhabit a bunker mentality, and their genius – intentional or otherwise – has been to use the ‘paranoid style’ to extend that bunker to accommodate tens of thousands of their followers. Within that bubble, every failure becomes a victory. Negative media coverage simply reinforces their sense of being under attack, and every bad poll or election disappointment becomes an opportunity to demonstrate the strength of their faith. Shadow cabinet resignations and condemnations reveal new ‘traitors’, justifying further paranoia and increasing the feeling of being under siege.

It’s terrible for a functioning opposition, but brilliant for forming a loyal hard-left movement, driving screaming protestors into CLP meetings, keeping uppity MPs in line with the prospect of more abuse or deselection, and ensuring that Corbyn will sign up enough supporters to win the leadership election by a landslide.  

Hofstadter wrote that ”the paranoid is a militant leader. He does not see social conflict as something to be mediated and compromised, in the manner of the working politician.” In the United States, Bernie Sanders was ultimately forced to compromise when Hillary Clinton won the Democrat nomination. The Bernie Corbyn & Jeremy Sanders Facebook group, hardcore loyalists to the end, immediately disowned him, and suggested the group change its name.

Corbyn need make no such compromise, which is his whole appeal. Those who expect him to step down after a general election defeat, or to compromise with the rest of the party to achieve greater success, have completely failed to understand what they’re dealing with. For Corbyn and his followers there is no compromise, only purity, and a Red Labour party with 50 MPs is better than a centrist party with 400. That is the reality of the movement that Labour and the left are facing, and it is catastrophic. 

 

Martin Robbins is a Berkshire-based researcher and science writer. He writes about science, pseudoscience and evidence-based politics. Follow him on Twitter as @mjrobbins.