The Final Agreement and Aftermath

He has this big argument with the American delegation. It was actually over whether the Bank for International setettlements should be shut down. And part of what the Americans wanted, they thought it was semi corrupt and they kind of wanted it to be shut down immediately. Kynes did not want it to be shut down immediately and they were fighting over that. Kenes got very angry about it. He's running upstairs for a meeting and then has a heart attack Today, on the Story of Money, the origin story of what is perhaps the most important monetary agreement in modern history And yet ironically, it was birthed in a remote and dilapidated New England hotel with a leaky roof, broken furniture and really bad paint job. A well, then I think I know which agreement you're talking about, Jinian It's the one that arguably provided the foundations for three decades of booming trade, economic growth, all that good stuff at the end of World War two And yes, this agreement actually came out of three weeks of rushed negotiations among hundreds of delegates Wh I gather frankly spent more time drinking than sleeping. Absolutely But the point is, it formally enshrined the US dollar as a new global reserve currency knocking the pound out And at the same time though, the talks were so chaotic Britain's lead negotiators didn't even grasp this fact until he'd already signed it, although he was supposed to be one of the most brilliant economists in the world It also produced two the world's most important financial institutions, and we still have them today, the International Monetary Fund and the World Bank And yet neeither of these institutions actually ended up serving the purposes for which they're originally set up And here's the crowning irony T John Maya Kainnes, a British economist who was at the college where I oversee today, Kings's College, Cambridge, and his US counterpart, Harry Dexter White thought this was the crowning achievement of their careers And yet They would soon be dead. And in fact, it would contribute to the undoing of both of their reputations subsequently So if you hadn't guessed it already, we're obviously going to be talking about the Breton Woods aggreement, which was signed on the twenty second of july in nineteen forty four. So Stby is coming up here on the story of Money from the financial times withith me, Gillian Tet, and me Robin Wglessworth In eighteen ninety eight, John Nuvine had a vision, to underwrite municipal bonds that would propel American infrastructure into the twentieth century. More than one hundred twenty five years later, that vision lives on. Today, Nuvine has grown into a leading global asset manager with expertise spanning public and private markets, still investing with a future in mind Nuine Invest like the Future is watching. Visit Nuine d. com slash future to learn more. Investing involves risk, prrincipal loss is possible. So Jillian, I think it's fair to say that most people these days, if they think about Breton Woods, the words Bretton Woods really What comes to mind is the architecture of the entire post warar financial system, right? Absolutely. In fact it's bit of a modern monetary meme, if you like, because it's used as a shorthand for the system' fixed exchange rates The agreement ushered in for the first twenty five years after the end of World War twoI And even today, people use that meme to talk about the IMF and World Bank calling them the Breton Woods Institutions because they came out of that conference in nineteen forty four. Yeah, but what people don't always realise or appreciate is that Bretton Woods, the conference, was possibly one of the maddest episodes in all monetary history Kaness called it the most monstrous monkey house assembled for years. I mean, it had everything. had drunkenness, debauchery, espionage, a heart attack, famous economists, and you know, I like famous economists and all my good stories. And it was set in the final months of the Second World War in this remote decaying hotel That sounds frankly a little bit like the hotel in the Shining with Jack Nicholson As luck would have it, we have the perfect person to tell us that story who actually came up to Cambridge, Kynes's stamping ground recently to talk about his book Ed Conway, Ed, welcome to the show. It's an honour to be here So Ed, before we dive into things, I just have to stress to viewers that we have not kidnapped you Because it looks like we're holding you hostage in some horrible dingy room I know it probablyrob is one of those soundproof booths that you have at Sky News. but does I it look like a prison cell or something, right? my panic room. Now, Ed, you're a long timee business journalist currently working as the economics editor at Sky News. so many of our listeners will have seen you on television But you've also got a reputation as an author of some really important books how the modern global economy works, including the One Ab Bretton Woods confonference, which gave birth to all this, which is called The Summit. It sounds bit like a Jon Grisham novel should Thankk you, Jillian, that's kind. And yeah, I mean, I was drawn to this partly because This is like a really good story as you were both laying out. It's kind of got the drama, it's got the misoncine of this extraordinary hotel in the middle of nowhere And the stakes were so high So the stakes both both in wartime, when the British delegation and the European delegation left Europe, it was as D day was happening. So you have all of the drama lining up and the stakes for the global economy, again, are extraordinary. And as you say, Breton Woods has become this kind of meme that every time people have some sort of gripe about the structure of the global international monetary system We need a new Breton Woods is the phrase that always comes up. And so when I kind of went through it, it was partly to try and understand what would that actually mean in practice, but also partly to understand the kind of cauldron in which this was forged and to try to tell the story, the human story of it as much as the specific economics of it That's a good moment to bring in two of the star characters in this story. and every great story, even in economics or especially in economics, needs colorful people So let's start with the most famous of the two men who were really at the center of it, John Mayor Keynes, who's somebody who hangs over me every single day at Cambridge University because he was at Kings' College Cambridge. He dominated the college for many years. portrait and his bust is everywhere. U But what kind of man actually was Kaynes and how did he end up at the Bretonwood's hotel leadaving the British delegation. He was a renaaissance man. He was I mean, obviously, we know him as this famous economist and But his interests kind of were spread across all sorts of different disciplines. I mean, he was obsessed with the arts, he was obsessed with the literature. He was a part of the Bloomsbury set. So you know, in the kind of nineteen tens, the nineteen twenties, this group of people, Virginia Wolf, Vanessa Bell, EM Forster Littleon Strachy, he was part of that kind of That club And it was a club that was very liberal, very much part of the establishment, but they were I fixated with intelligence. and I suppose that's kind of this kind of wr key strength and weakness of John May A Kaines, who he had this extraordinary intellect and from his early days, regarded as a prodigy, essentially But he was also massively intellectually snobbish. And so that meant whenever he would have meetings with people, if he didn't intellectually respect who he was talking to, he would treat them like dirt And that's not great politics at all. Now, we have the archives of Kynes at Kings's College, and one of the most moving part of the archives was Keynes's trip to Paris in nineteen nineteen after World War Ine when he fell, as he wrote in letters to his mother, into a deep depression. about what was happening. And that's absolutely critical to why he fought so hard years later in nineteen forty four to try and create Breton Woods exxplain to us why he was so depressed after World War I and why in many ways what happened in Breckham Woods was his second attempt to fix it. The starting point for all of this was that throughout this period, There was a fixation with the state of the international monetary system, which in a way, like to the modern mind, feels quite foreign because we're used to this era of exchange rates that float against each other. We're used to the fact that a country like Britain or the US has this enormous deficit in its current account and its budget deficit. Back in that world, there was this kind of obsession with trying to maintain some degree of stability in the monetary system. maintaining the fact that Exchange rates are going to be fixed with each other, maintaining the notion that countries shouldn't have enormous deficits or enormous surpluses against each other. A lot of that kind of went back to the old idea of the Victorian gold standard. so that there was this notion and a system whereby if you were kind of trading with another country, that gold would be this kind of anchor that would keep your exchange rates fixed with each other and often when you would kind of trade with each other, gold would be there somewhere in the middle and That entire system, that Victorian gold standard, basically broke down in the face of the First World War And when the First World War came to an end obbviously there was this effort to try to create some sort of a settlement between both sides and that happened at Versailles But what was first of all, what was never done at that point was to really try and make a kind of a more functional version of what had broken before And secondly, so much of the onus of reparations was put on Germany in the Versaill kind of Treaty, that Keynes saw that this was going to be such an inordinate burden on Germany that it was basically going to consign the world to another likely war and wrote about that at the time. And that was his brilliant book, Economic Consquour the Peace, which basically is a howl of despair against the triumph of revenge politics and anti globalization politicians who wedded to populism, protectionism and extreme nationalism S sounds familiar? It was an extraordinary best seller. That's the thing about economic consequences, the piece such a best seller that he was a household name because it did foresee what eventually happened with the kind of the breakdown of the international monetary system in the years that followed, the rise of Hitler, But his opportunity, I guess From nineteen nineteen onwards He had had in his head global monetary system and just the economic set of rules that defines the relationship between nations had never been properly fixed after the First World War, and that everyone suffered as a consequence. And so the nineteen forties and what would eventually become Breton Woods, he saw as this is my opportunity to put right what went wrong in nineteen nineteen and I couldn't really do anything about it But his first plan to sort of address this, like a big master plan for a new post warar mononttery system I think came to him in nineteen forty What was that plan and what prompted him to sort of start sketching out the quantours of it? The Allies had discovered that the Germans had a plan for how they would arrange the New Wld Oder under the Nazis if they won the war. And there was a guy called Walter Funck who drew up This big monetary plan. And he was essentially, Keyes was given a copy of the funk plan, the German plan, the Nazi plan. Can we call it a funky plan Is that too much is a funky plan? It was a funky plan. Yeah, fununky. He was given it by Harold Nicholson, so another part of the establishment elite at the time. And he said, well, be a good chap and explain why this is not a good idea Keynes went away, read the plan and said, well, actually And I've got the quote. He said, In in my opinion, about three quarters of it would be excellent if only the name of Great Britain was substituted for Germany.assic Kynes.f classic Kynes in a way. you know, when the facts change, I change my mind. I mean One of the things that's fascinating about Keynes is that he was quite flexible and adaptable to changing circumstances. And not afraid to say something controversial if he had to. Part of the personal backdrop of Kaines, he was homosexual in an age where that was You know tacitly not acceptable. I mean it was legal, but he was not ashamed of it. and then later on went to marry Lydia Lopakova, who was one of the world's most famous ballerinas But throughout this period was a flamboyant person And so intelligent that very few people would ever challenge him. And so when it came to the Nazi plan, he kind of basically said, actually, this is pretty good. And it's worth it's worth pointing out that because he was so hard to define intellectually in runny occasions Today, he has bipartisan interests from people on both right and left. I mean, yes the left often talk about his vision, but I was in Washington just recently talking to people in the Trump administration, some of whom, like Jameson Greer, are great fans of Kynes because of what he said about international imbalances and are looking to that history for how they fashion policy today. So history is very relevant in that sense That's so interesting, and actually so much of what was discussed at Breton Woods was tantalizingly, know analogous to what we're living through right now. And there's still a lot of people who say if we had had the Kannes plan versus the White plan then how different could history be? And what could we do to try and adopt it these days But before we get to the White plan, can you tell us what were the key points of Kynes's plan? the one that he kind of took the inspiration from this funky plan that a German official had done So at the heart of this was the idea that at the center of the international system. there should be something called a clearing union. And basically when you're trading with another nation All of that exchange of know your money to their money needs to go via this institution. That's kind of the key thing and This union would have its own currency, which he called Banor, although he did try and come up with other names. Bancor was the one that that he eventually ended up with. No it's French for gold. Yeah, French for gold, but he also came up with unicorn was another one ahead of his time The key thing is international currency is right in the middle of things. And then the other kind of key thing is that There had to be symmetrical adjustment, okay? So basically if your country had a big deficit, so basically you're importing lots more from the rest of the world than you're sending out to the rest of the world, which is kind of basically That's the UK today, That's the US today If you had a deficit, had you got penalized by this clearing union and had to try and kind of gradually reduce your deficit. but Symetrical. Also, if you had a surplus, in other words, you're like China today and you're exporting far more out to the rest of the world than you are importing, you also got penalized by the clearing Union. And so it was really radical and a lot of people read this at the time and were just blown away. I guess the other kind of bit of background and why this was attractive to the UK at the time was that the UK was a deficit nation And it was and Kynes was very conscious that if all of the onus of trying to sort out your own kind of affairs put on to deficit nations like the UK, he was aware that the Britain was in trouble On the flip side, America was a surplus nation. So America was very similar back then to China today. It had enormous exports. And lo and behold, when the American planl came out, there was nothing like that. It wasn't that you had to suddenly adjust if you were a surplus nation. And it's worth pausing on that because Robert Skidelsky, Kains's great biographer who sadly passed away recently always argued that this was one of Kane's most important insights, right Case wasn't just trying to help deficit countries like Britain I mean, he wanted a system that would force surplus countries to adjust Force them to stop hording surpluses and pushing all the pain onto everybody else Now let's turn to Kenes's American counterpart. Carry Dexter White, who's the Chief Undersecretary of International Finance at the U.S. Treasury And he's the opposite of Caines, right? He's definitely not a celebrity. He was a brilliant person, very clever person, very impressive person. But clearly, he wasn't even a famous economist, let alone the kind of incendary celebrity that Keynes was at that point. So Harry Harry Dexter White is kind of the exact opposite to Keynes. He was short where Kynes was very tall. He was a self made man. Kenes came from the establishment. Harry Dexter White was working class, genuinely working class. He was the son of Lithuanian Jewish immigrants. Keynes was you know, anti Semitic in that way that many people of the British establishment were at that point. And World War One, Kenes was sent out He was a conscientious objective, but he was sent out on tours to tour the battlefield and understand the economics, whereereas White he never quite made it to the trenches, but he was out there as a volunteer and And he was He kind of scrambled his way up to the top and gradually worked his way both into Harvard and then joined the U.S. Treasury. But he was never someone who stuck out. He was just a hard working guy He was spotted by Henry Morgenthau, who became the Treasury seecretary in the US who basically made him his protege. And the upshot of that was that by the time they were coming to try and negotiate, so the British and the Americans to negotiate what the post war settlement was going to look like White had risen from obscurity, and Kenes was this enormous kind of figure. And so there was a massive imbalance in terms of the personalities of the two figures. But by the same token, that was completely offset by the imbalance between America, which was the obvious coming superpower and Britain, which was diminishing enormously and basasically, you know, close to bankrupt. But remember there's this great quote in your book that you had that talks about the different stature of the men in s of celebrity terms that you know some a friend of Harry Dexter White said the happiest day in his life when he was on the first name basis, Wet Kainnes, which is shows just how much of a humble person he really was. Yeah, was he was a fan boy and just to be able to play on the top table like this was was had always been his dream. But then by the same token, you know, he was he was smart. He was opinionated. And also, you know, he was Probably I would say more political than Kainnes. He was part of this democratic tradition that was You know by today's standard's really quite left wing, which would later come to haunt him, but exactly tootally unconventional in you know in the Democratic partarty of the time He also had White a plan for how he wanted to organize the global monetary system, didn't he, which was different from Keaine's Give us a quick summary of how he saw the best solution to these problems unfolding So why is plan was far less revolutionary, far less radical than Keynes's. Basically, it involved somewhat refashioning the old pre war gold standard and replacing that with He called it gold backed exchange. and the idea was that all countries around the world would have their exchange rates fixed with some sort of Gold Back exchange, which was ultimately going to be the dollar. and there would be the stabilization fund, which eventually basically became the International Monetary Fund, which would provide kind of you know emmergency help for countries that needed it. On the flip side, you would also have a bank that was going to kind of help with the post war reconstruction This is kind of basically what happened in the end. Right, so just to recap, we've got these two brilliant men. are made for Hollywood ty of scenario very different characters with countries in radically different circumstances coming together One of them wants a global currency, the other one wants a dollar. One wants to give trade deficit countries a break No surprise there, given that Keynes came from Britain, which was a deficit country. The other wants to let the country with the world's biggest trade surplus back then was America, not China, C the shots So gotot this. inbuilt tension between their visions and between the men from the get go go Did they try and thash out their differences at all before Bretonwoods or with Bretonwoods the first time they really clashed No, a lot of the pre kind of summit stuff happened in the intervening years So both White and Kanes were charged with coming up with their vision of how the global international monetary system would look. It kind of around nineteen forty, nineteen forty one That basically kickst started a set of different meetings. And you've got White and you've got Kynes meeting time and time again throughout this period. Initially, Keynes doesn't know who the hell White is, and he is massively dismissive towards White and so many of these initial meetings. And he is convinced that his plan is genius and that White's plan is disastrous and The meetings go on and on. and initially, as you're saying Robbert, know for White it was just such an honor to be there on the top table, but that very quickly broke down and the two of them have kind of shouting matches with each other as the nineteen forties go on And so you have something kind of meeting after meeting, all of which culminates in nineteen forty four with right, okay, we know we know that we're kind of winning the war at this point. Now let's actually have the official meeting, which is going to happen in Breton Woods. In practice, by the time Bretton Woods comes around kind of already have a decent sense that This is the broad plan and the broad plan at that point is basically White's plan. Kynes' plan has been suppressed and suppressed and ignored and ignored. And by the time nineteen forty four comes around, the only person who kind of believes he might have a chance of getting the international currency like Bancor and his clearing Union instituted is John Maynard Kenes. Everyone else has seen the writing on the wall And it's going to be America's century and America is going to be the architect of what happens to Brettonwoods. Okay, so by now it's june nineteen forty four, they've had all these meetings leading up to Bretton Woods, but they still have to get all the Allies on board, right? Because this was basically the UK and the US trying to thrash things out And then they have to get, frankly, the rest of the world to agree to that. And to do that, they had to get them all together And that brings us to one of my favorite scenes in your book which is what you call the Tower of Bel on wheels Because it was summer It was hot, and so Kaynes and the others decided to head to the mountains up in New Hampshire, and hundreds of delegates from forty four different Allied nations all got onto a train together to go up to Bretton Woods. and to try and thrash out the agreement speaking lots of different languages, which is why the Ter of Babel. In fact, Kainnes's wife Lydia is pressed into service as a translator between the Russian delegations and the Americans, which turns out to be crucial. Off they go up to Bretton Woods And after the break, we will hear about what happened next The future of fixed income investing will continue to blur the lines between public and private markets Nuim's credit platform was built to navigate this shifting landscape, channeeling capital toward the businesses, infrastructure and energy solutions that are shaping tomorrow's economy, all while aiming to deliver the resilience and returns that portfolios seek today Nuine. Invest like the future is watching. Visit nouine. com slash future to learn more. Investing involves risk, principal loss is possible Welcome back Well. The train has reached its destination Breckon in the Wood. And it has disgorged these hundreds of delegates from the US, the UK, and forty two other Allied nations, and including Norway, afterad They've all come up there to negotiate a new post war monetary system. based on this outlined plan agreed between Harry Dexter White and John Maynard Keynes And the talks will take place at this Mount Washington Hotel in Breton Woods Ned. It's a pretty special venue, not just because of its historical significance Can you tell us a bit about it? What was it like at the time Yeah,'s I don't know have either you been to it, it's like an extraordinary place. I have been there a few times and in fact, I once putk my kids there when I was a juggling single mum to an economics conference where they ran around the lawn They managed to dive bomb George Saors in the swimming pool and practically rugby tackle Paul Volka. So I have very fond memories of how beautiful the hotel is in the middle of the mountains and the woods But in those days it wasn't quite so beautiful and they've refurbished it since, haven't they? Yeah, it's kind of very nice now actually. And you wouldn't have have guessed that at various periods in its existence, including, you know, including in nineteen forty four because a lot of the time it was, you know, on the brink of of literal and metaphorical collapse It's worth saying, the reason that they chose to do this in New Hampshire is Obviously it was summer. This was before the days of very widespread air conditioning, availability. And Keynes in particular was not a well man, even though he was still relatively young, by today's standards. he'd had heart problems for a long time. and he had basically begged The US Treasury please do not have this in Washington, DC, where it gets incredibly swampy, as everyone knows in the summer. do it somewhere, do it somewhere it's cool In fact, the fun little little aside, you know, the Federal Reserve building Or the main meeting place where the Fed governors and reserve presidents get together to decide, that's where D day was planned because it was one of the few rooms in DC that had air conditioning. Oh that is interesting. I did not know that Yeah, but because of the air conditioning, that's fascinating. So partly it's because of the air conditioning thing, but partly also, I think there was some senator or congressman from New Hampshire who needed a favor done. And so having this within New Hire is always the way. Sounds very American, right? Yeah, Exactly. So everyone was more or less happy with with this compromise And so up they went on the train. And the hotel is an extraordinary place as Jillian was saying. The landscape around there is stunningly beautiful. and the hotel is in this kind of nook, this valley in the middle of the mountains, but just by Mount Washington, as the name would kind of imply, which is famous for having the worst weather in the world. I think one of the fastest wind speeds ever recorded was on the top of Mount Washington. And it's worth going up. if you ever go around there, you take a little train to the top and get blown away by the wind. And it's pretty cool in every sense of the word. The hotel is kind of one of these Gilded Age enormous structures, all made of wood. I think it's one of the biggest wood buildings than anywhere in the planet is and Th these days, I can kind of imagine know your children running around because I think if I was a kid, running around those long corridors, it has these incredibly long corridors that are a bit like in the shining. And when I went there, I was thinking, God, this place It's the perfect setting for some sort of suspenseful drama, which is exactly what happened there. And actually there was one newspaper reporter who wrote, this is the perfect setting for a murder And indeed, you know, I don't know if that did happen this time, but there were lots going on. So obviously the hotel is really nice now, but what was it like when these delegates all poured in in nineteen forty four? Y, it's in total disrepair. No one is going on hold day there at this point during wartime. and so that you've got kind of holes in the roof, broken furniture It had recently kind of gone bankrupt and then it had a new owner in there who was desperate to try and rejuvenate it. And Just in order to kind of make it vaguely livable, you had kind of people, US army people and also German POWs, so German prisoners rushed in to try and fix it up and to paint everything Everything gets painted white to like to the great too the horror of the new owner because there are if you go there these days, you'll see there's lots of beautiful glassw, including Tiffanys stained glass windows and they painted everything, including these stained glass windows. Yeah, apparently they told these the POWs, they gave them twenty five gallons of white paint and told them to paint anything that doesn't move, essentially Exactly. And so there's kind of hundreds of rooms, but nowhere near enough rooms to accommodate all of the delegates. So you have delegates kind of sleeping in linen cupboards and a load of them are kind of shunted off to another place, guestthouse around the corner. And everyone kind of congregating on this place. Kainnes was terrified that the longer this goes on, the more likely it is severe alcohol poisoning is going to set in because he's concerned about the stakes being so high And there's a bar, right? There are several bars at the hotel as well that were unusually well stocked for wartime. Yeah, there's several bars. There's one called the Moon Room, and these were kind of prohibition era bars or bars that had kind of certainly continued serving through the prohibition. One of the trains kind of coming in, one of the carriages was completely full of alcohol just you know to the rafters. So of course, one of the not so secret aspects of Bretton Woods was that whenever you put lots of peopleople under huge pressure together at close quarters with lots of alcohol, There was inevitably some fraternizing, womanizing that happened as well how bad was it I think was by today's standards it was pretty pretty damn bad to be honest with you. You had lots of people Should we say? I mean Secretaries who may not have been secretaries who were drafted in there. I mean, it wasn't all womanizing. There was just lots of straightforward drunkenness at the same time Bruce in One of the world's most famous magicians called Cardini was brought in to do tricks for some of the delegates and so you can still see photos of him doing card tricks. There was golf tournent tournaments and there was a volleyball contest as well where Harry Dexter White actually took part. he was photographed diving for a volleyball at one point. But for the most part, it was negotiation, it was drunkenness, and there was lots of womanizing going on at the same time. If you look at any of the photos from this conference, there's this suspicious preponderance of very glamorous looking women alongside these not very glamorous looking finance ministers A finance minister is not glamora E? How dare you? I mean, you know, these days it's changed enormously, but back in the day Well, there's even this famous drinking song, the Bretton Woods song, right? where I think I have it here. And when I die, don't bury me at all. just cover my bones with alcohol, putut a bottle of booze at my head and feet pray the Lord my soul to keep. And that was the Brettonwood song. and that probably sums up a little bit what the zeitgeist was like. And I think for a lot of the delegates, know who were used to war and they were used to rationing and many of them had come across from Europe. They came to places like Atlantic City and New Hampshire and thought to themselves My goodness, it's like there's no war. You know, you can order food and it comes. You can order a burger, you can order a lollipop and here it is, you can order ice cream And so there's this strange this strange kind of surreal holiday like atmosphere that precludes throughout this entire period. And then at the same time, everyone is just absolutely working, you know kind of eighteen hour days just trying to draft the quite complex legal agreement that constitutes the articles of foundation for Bretonwoods and for the Bretonwoods institutions. It's a carnivalistic atmosphere Right. And of course there are those extraordinary verandas like many Gilded Age mansions, where people held meetings and would have been nice and cool in the summertime in Breton Woods And that's where a lot of the conversations actually took place alongside the indoor actual conference room. So How do the negotiations actually go once they all got over their hangovers So it's kind of a bit like a DavOS or the IMF. A lot of the actual kind of action is happening outside of the official kind of negotiation rooms There's a famous moment where the French delegate tries to coll her I think it's one of the Americans and is absolutely furious that the articles that have being negotiated are not going to be put in French as well as in English. It's the main thing that upsets the French representative. I hope I'm not going to offend any French listeners to say that sounds extremely French. Pchange. Yes. Yeah, La Pchange. But also I mean the other thing that everyone is trying to negotiate desperately is what their quota is going to be at the International Monetary Fund, which is also how much voting power is each nation going to have How much influence will we're going gonna have in the future So what about the dollar? I mean, how did the dollar end up? at the centre of this new global monetary system Within the White Pan, there was always this kind of strange thing which There was a ephemism in the middle of it which is that If you making a transaction with another country. that had to go via somethingomet that they called a gold convertible exchange I mean basically the only gold convertible exchange in the universe at that point was the dollar And so it was kind of a statement of the obvious that that should be the dollar, but at no point up until then had been formally written into any of the articles that this was the dollar at the linnchpin of this new system And actually In one of the meetings, there was a UK delegator called Dennis Robertson very well regarded economist who had worked actually quite extensively with Kynes on the general theory And so so very smart Quite diffident character who was given the responsibility on behalf of the Brits to do the negotiations on the fund. So he was in that while Kenes was working on the World Bank, Robertson was working on the fund. And he said at one point, well, why are we going to just keep going on about gold converible exchange? Can't we just call a spade a spade and put dollar in there? And that's basically what happens. And then lo and behold, the dollar was officially at the center of the international monetary system E then depends on the fate of the dollar, which is kind of part of the latater story about what happens with Breton Woods and its breakdown. If you don't have the dollar being a relatively stable currency in the middle, which you can assume will always be convertible into gold then you've got problems, which, you know, spoiler alert is kind of that's That's what happened. That was the demise of Breton Woods later on Yes, and that is another great story and one that I promise we will cover in another episode For now, can you tell us a little bit about the Russian delegation? well, the Soviet Union delegation really And Harry Dexter Whiteess Shall we say controversial relationship with them? Yeah. well, it is interesting, shall we say, and it's still a matter of debate and speculation even now. He was having A series of meetings, most of which were undocumented, with members of the Russian delegation. So Basically, the Russians arrived, enormous delegation There was this determination, which really came from the top, which came from FDR that the Russians were going to be involved in Breton Woods and that it wouldn't be a success if the Russians didn't sign off on it. And there were wartime allies at the time, right? They were the ones who were winning the war in Europe at least, you know. And if you looked at some of the polling in America at the time, the Russians were much more popular than the British. because it was they were seen as heroes. They were seen as the ones who were, you know who were actually driving Hitler back towards Berlin So the Russians were there and FDR was determined that they were going to be at the heart of this. The extent to which they were dedicated to Breton Woods, it's not altogether clear. They, as always happens with the Russian negotiators, were playing hardball Many of them did not speak any English. And that's why Lydia Kynes's wife was being pulled in to act as translator. She was no fan of the Russian regime at that point. And she's a ballerina by the way, as well. I mean, you know an incredibly famous ballerina, one of Dagilelev's ballet Russ. an icon actually of ballet at the time And ye, she's called in to do translations. But one of the delegation is a man called Nikolai Chitulin. And he is quite a suave looking man and he's a member of I think the central bank at this point, the state bank And It later transpires he is a member of the NKVD. So he's a secret agent. That's a precursor to the KGB basically The precursors is the KGB And and he to chul in Meets White, a succession of times both at Breton Woods and prior to Breton Woods which then later comes out This is kind of after nineteen forty five when suddenly the iron curtain has fallen and there is a lot more kind of Soviet phobia in the United States Later on, White is accused of being a spy who has sold out America palse secrets to the Russians U and basasically a traitor and is called before the House on American Activities Committee, has to testify, and essentially his reputation is totally trashed. And you know, it's worth just underlining. This is the main American negotiator. This is the man who has derived the plan that we now have in existence that created the IMF, that created the World Bank And it transpires that he is accused of being a Soviet spy. Well, obviously Harry Dexel White was very close to the Soviet delegates. And you know we do know that the conference ended in frankly, the US giving the Russians pretty much everything they wanted But on the other hand, Roosevelt wanted to keep the Russians close. He was telling Harry Dexter Wife to be close to them, to be friendly, to keep them on board, because that was one of the main goals of this conference. So Ed, I'm curious whether you think having read both the US and British and Russian sources on this whether you think Harry Vx White really was a spy for the Russans. I would tend to the view that he was doing his own private diplomacy with a country that wasn't the time an ally not involving the state Department, but then the treasury hated the state Dpartment. know there's this other kind of bit of drama here is the treasury hates the state Department. and And then later on, I think that white you know, he went further than he should have done, but was was he actually a spy who wanted to try to further you know, Russia's kind of status at the detriment of America. I'm just not convinced that there's enough of a smoking gun on that. I don't think having read a lot of his own writings and having looked in his archives, I don't think there's much in there to suggest he was partarticularly sympathetic to the communists, he was definitely a lefty. I think he was a redistributive, democratic ideologue at the time But was he a communist? No. And I don't think he was thinking in those terms. I think he was just thinking, how can I make this happen? And what can I do behind the scenes to make it happen? But as I say The views vary on this, and I suspect it's going to be one of these things that people debate for a long time about white and about know the Soviets at the time. Yeah, The Soviets did, of course get an inflated IMF quota. They got reduced gold obligations and control over the exchange rates. So if there were winners from the conference then it would arguably be the Soviet Union ultimately irony of ironies, they never actually signed the agreement That's the critical thing. They never even signed up to it in the first place. They saw it as this diplomatic kind of win But then when Push came to sh, was a communist regime really going to be able to function as part of this? It seems unlikely. I guess it's what People might call the today a case where Harry Deetxter White was perhaps a useful idiot rather than an assid. Yeah. I think that's probably a generous assertion, yeah Right, Well, let's come back to that later. beforefore we do How do the conference actually end? Because we have canes getting increasingly unwell But did they actually sign an agreement there? So Kainnes W White is having his secret meetings with the Russians Keainnes has his own issues, which is that his heart is kind of failing at this point. And at one point he He has this big argument with the American delegation. It was actually over whether the Bank for International setettlements be shut down which might seem kind of slightly obscure, but The Bank for intern Hal setettlements was set up to basically manage the system of reparations after the First World War And it had somehow transmogrphified into this club of central bankers, which is what it is today And part of what the Americans wanted, they thought it was semi corrupt and they kind of wanted it to be shut down immediately Keainnes did not want it to be shut down immediately, and they were fighting over that. Keainnes got very angry about it. He's running upstairs for a meeting and then has a heart attack. He kind of collapses, he's taken to his room, This starts to filter out. Reuters reported that Keynes has died the von Staufenberg assassination attempt on Hitler. was the same reported on the same day. So in this strange moment, you have reports that Hitler has been killed and that Kynes has died, neither of which actually turn out to be right So because Knes does recover in his rooms He's shaken by it. He just about makes it to the final dinner of Bton Woods And at that final dinner, there the great moment of suspense towards the end of this conference. It's not really about whether the dollar is going to be in the center of it It's kind of about whether the Russians are going to sign up to this and what the quota arrangements are going to be. How much power are they going to have And the Russians are playing hardball all the way to the very end And then finally, at the very last minute, literally the last day of this conference, and it's already been extended long beyond what it was supposed to take. The very last day, finally the Russians sign up to it. and then there is this big dinner and everyone celebrates and it is a moment where I think they are quite ecstatic because if you think about this, what was the main thing that that prefigured World War I. It was the breakdown in the global economy You know, it was the rise in protectionism and this suspicion that if we didn't resolve those problems, then there'd be another world warar. If you look at all of the documentation and all of the pamphlets that' published around this time, it was saying Bretton Woods is there to prevent World WarI from happening And so when they finally have this dinner at the end and everyone has signed up to it, there is this total extraordinary relief that they feel this is one of the single most important things that they've achieved in this war that wasn't achieved in the previous war So Ed, I mean, I hate to shoehorn Norway into absolutely everything, but I have a golden opportunity here because there was a Norwegian delegation there. and at the final signing ceremony, the head of the delegation stood up and thanked the conference for being such an enormous consumer of Norway's biggest export at the time, which was paper There was just reams and reams of paper being ched out by the conference. But what was the finals of daylight? What was, you know, the final donora more of the conference Well, I mean, it was very rushed, to be honest with you. Everyone was totally exhausted at that point and They they The owners of the hotel had An conference that was booked in to finish basically the minute Woods had finished, which was a conference for the American Bankers Association The irony of this is that if there was one group were most set against what was agreed at Breton Woods. It was the American Bankers Association. And why was that? It's because one of the parts, the key parts of Breton Woods was to regulate flows of capital around the world. And if there's one thing that particularly international investment banks do not like It is restrictions on the flow of capital because that is basically their business. And so you have this kind of amusing pastiche, this moment in history where the finance ministers and the negotiators are kicked out. and then all of a sudden, the American bankers get in there and start to work on dismantling Breton Woods, the thing that has just been agreed in the same rooms they were in only a moment ago. A lovely example of how American domestic policy always trumps international commitments and responsibilities They got kicked out of the hotel and they signed the agreement so fast that Kynes didn't even read it properly, did he I mean, a lot of particularly the detail on the dollar being inserted in there explicitly came as a complete shock to him when eventually he discovered it. and he was furious with Dennis Robertson had done this. I think a lot of the delegates just spent the following weeks and months kind of realizing in some cases with horror, what they had actually just signed up to and then had to actually implement it So let's recap. the delegates get back on that train Go back from Bretton Woods down to the Holton Hid, climes of Washington or New York and beyond are going back to their home countries. The dollar is set to reign supreme You've got two new institutions, The IMF and World Bank have been created, at least on paper, it'll take a while so they actually exist in practice. But the story doesn't really end there because what happens next is that the U.S. President Franklin D de Roosevelt, FDR died in april nineteen forty five and his famously blunt vice president, Harry Truman comes in And then three months later, the UK also changed its government with Clement Atlees's Labour government coming into power. So Tell us what happened to Breton Woods agreement under the new US president And what happened to Britain? Well, it's a massive sea change, both both in the UK, but even more so in the U S. just in as much as You know, Roosevelt had just been this lynchpin of the kind of diplomatic relations for such a long time. He had been the one who had wanted to keep Russia as close as possible He had been the one who had pushed through lend lease when most people, I think a lot of people within the administration and within Congress wouldn't have supported Britain throughout that period and suddenly he was gone. So Britain's relationship with the US Treasury It started off quite frosty between white and canes, but it had become closer and closer as the years had gone on But then suddenly, Morgganhau, who's the treasury secretary, is chucked out And then you have a new a new treasury seecretary, Fred Finson, who doesn't really care much about the UK All of a sudden, all of the lendly support for Britain is just stopped abruptly, leaving Britain in a kind of, you know real trouble And while Brittain Woods is pushed through Congress, support from the US. administration for it has diminished enormously, at the same time, because The iron curon is falling and for Russia is or the Soviet Union is seen as as a potential enemy rather than ally Um There's a mistrust that falls into both relations internationally and internally. And so anyone who was previously quite close to Russia is viewed with great suspicion now, including Harry Dexter White And so Harry Jeter White is called up before the House on American Activities Committee. and that goes kind of pretty badly for him and Britain Well, it's left in a pretty perlous financial condition Keynes continues to serve under the labour governments And he gets sent back to Washington to try and come up with a post war loan for Britain because Britain's economy has been left in terrible condition by this. It was in terrible condition after the First World War. It is an even worse condition at this period. The empire is kind of disintegrating and There are many people Kannes included who want to try and keep it all together And as a result, you know, in order to make to facilitate that They want a post war grant actually, not just a loan. They want a grant from America. And so Keainnes has sent to Washington to negotiate this grant He is an even worse physical condition than he was last time around. And yet, for some reason He's asked to lead these negotiations. I mean, whoever did that was, I think was desperately regretting that very shortly afterwards because he then conduct some of the worst economic negotiation known to humanity and basically showed his hand right from the start. It later transpires, by the way, that he was on a type of medication called sodium ametol which was kind of a drug that was there for his heart which taken in large enough quantities actually is a truth serm So that might explain partly why his negotiation is so bad. But nonetheless, he totally flunks says goes in there hoping for a big grant from America to set up Britain to repair some of its problems during the war and ends up with this loan and a loan on quite harsh conditions that involve having to allow Stterling to be freely convertible much sooner than he would have liked which is ultimately what sets Britain on the road towards decades of economic kind of crises in the following years. That post war loan is like incredibly consequential And it was Kynes's last act really, because Shortly after that, He attends the kind of inaugural meeting in nineteen forty six of the International Monetary Fund and just makes a and there' a beautiful speech there And then shortly afterwards he on the train back to Washington, he has heart attack and then very shortly afterwards he dies. And Harry Dexter Whites,'s a similar, this is the thing that their fates are somewhat intertwined. Harry Dexter Whites at around about the same period has to testify before the House of American Activities Committee. He goes in and launches an impassioned defense that he's an American. he's proud to be an American And then a day or two later, he's found dead at home I think a hardartstack as well So the two men who were the protagonists of this story Um They die in very similar circumstances you know, en ignomy when it comes to Harry Dxter White in disappointment when it comes to John Maynard Kynes, But even so, they've kind of forged together something that, if not perfect in any kind of way was at least an attempt to go one better than what happened after World War Ine and to try to repair some of the problems, the economic problems that led to war Wow. So that's basically Kainess getting his second attempt to fix the mistakes he saw back in nineteen nineteen And in many ways, that illustrates one of the key twist of the story, which is that yes, Breton Woods to destroy the two men who created it The sacrifices in some ways weren't in vain because actually the Bretonwoods system itself, the institutions for MM ended up being very influential many would say a roaring success because it birthed the IMF and World Bank and it did stitch together the post war global economic system that didn't just perhaps help peace, but sparked a lot of growth after World War two. Although ironically, neither the World Bank nor the IMF ended up serving the purpose for which they were originally set up for The World Bank was supposed to finance the post warar reconstruction Europe. But that role got usurped in nineteen forty eight by the Marshall planlan, named after Harry Trumer's secretary of state who proposed it. As for the IMF, well That was supposed to be the referee for the system of fixed exchange rates that Breton Woods ushered in But by the early nineteen seventies, that system was also going pretty much pear shaed, right? Absolutely. And that's a story that we're going to be picking up in a future episode of the Story of Money