The Brave New World
THE BRETTON WOODS MONETARY CONFERENCE
By MERRYLE STANLEY RUKEYSER, Journalist
Broadcast over Station WLW, Cincinnati, Ohio, August 12, 1944
Vital Speeches of the Day, Vol. X, pp. 696-698.
IT is a human tendency—amidst the harsh realities of total warfare—to dream wistfully about the coming of a "brave new world." And in facing the prospects and attempting to keep our feet on the ground, it is well to remember the injunction of the poet, Robert Browning, who counselled that it is better to aim high and fail than to aim low and succeed.
That is good advice if applied with common sense. There is no ceiling on man's potential accomplishments, but, at the same time, it should be recognized that tangible gains must be predicated on respect for the principles of physics and chemistry on which the material world operates. To build Utopias in defiance of scientific principles is only a fool's errand, and, if false hopes are momentarily good for morale, we must ultimately pay for such folly in subsequent episodes of disillusionment, cynicism and despair. After World War I, when citizens of war-weary nations of Europe found the realities which they faced far less glamorous than the prospectuses in the story books they had read, they proved suckers for personalities and theories hostile to their own liberties. That "opera bouffe" character, now already almost forgotten, Benito Mussolini, rose to power through capitalizing the despair and pessimism of the war-weary Italian people. Shortly after his accession to leadership, one of his aides told me, while I was in Rome, that the secret of Mussolini's power was that he regarded the Italian people as children. Thus, he would relieve them of what the late Graham Wallace described as the "painful task of thinking" and he would say to them, as to children, "You may do this, but you may not do that."
From this object lesson, we see that the aftermath of feeding people pop and hocum is disillusionment and loss of confidence. The creative impulse which makes the American people great is their eternal confidence in themselves. Thus it behooves every American to undertake to conserve this precious national asset and to avoid impairing it through the glib circulation of false theories and crackpot ideologies.
I recently spent three weeks and two days at Bretton Woods, New Hampshire, where the representatives of forty-five nations met to discuss postwar financial arrangements at the United Nations Monetary and Financial Conference. It seemed to me that the Conference provided what the psychologists describe as an escape mechanism. The delegates and technicians, facing a world distorted and tremendously out of balance, dreamed wistfully of a coming world in which there would be a high degree of economic and financial stability everywhere, and in which men in all countries would be fully employed, carrying on useful work at a high level, and eternally liberated from fear of the penury of nature.
It was, of course, the American theorists and technicians who let their imaginations run most freely in this flight of fancy. Many of the foreign delegations, with less roseate postwar prospects than the United States, took a more sober view of the outlook and the problems.
The spokesmen for Great Britain, which ranks itself among the big three nations of the world, were always conscious of the devastating effect of the war on her national economy and future prospects. The British delegates knew that the United Kingdom had already paid a heavy price for her epic adventure in resisting the nefarious Axis aggression. They were aware that, among other things, the British had sold off most of their liquid and negotiable foreign investments, thus ending Britain's long and distinguished role as a great international creditor nation. They knew also that the British had accumulated on current account an unpaid war bill for materials and supplies which will amount, by the end of this year, to twelve billion dollars.
It was with full knowledge of this economic setting that Lord John Maynard Keynes, chairman of the British delegation to Bretton Woods, made less extravagant claims as to expected benefits from the new instruments of finance wrought at Bretton Woods than did Dr. Harry D. White, spokesman for the United States delegation.
Instead of echoing Dr. White's effervescent thoughts to the effect that the eight billion, eight hundred million International Monetary Fund and the nine billion, one hundred million dollar Bank for Reconstruction and Development would create full employment and unending prosperity throughout the world, Lord Keynes simply expressed his hope that these new instrumentalities would, after the war, give the weary belligerent nations what he termed "a breather."
Likewise, a grim realism was reflected in the attitude of the delegation from many other countries. For example, the delegation for Soviet Russia was in no mood for intellectual frivolity and idle theoretical speculation concerning the future. Mr. M. S. Stepanov, head of the Russian delegation, seemed sobered by a realization that his great country had to a large extent been devastated by enemy action, on the one hand, and by a scorched earth policy during retreats on the other.
Knowing that their place in the sun after the war depends on their capacity to make things efficiently, the Russians have a single-minded and passionate determination to restore their ruined factories and hydro-electric plants at the earliest possible moment after victory. Thus, while the American theorists and technicians may have dreamed glamorously about using the Fund and the Bank as instruments for manipulating a "brave new world" into existence, the Russians seemed to regard these same institutions in a more primitive way, as agencies which would provide them the dollars with which to buy in this country large quantities of machine tools, electric motors, and other mechanical aids to modern production.
Likewise, the delegation for India seemed much less interested in metaphysical speculations concerning the manipulative power of money than in their own concrete and .tangible plans to industrialize their country to a large extent after the war. They were eager above all else to induce the representatives of the other nations to use the new financial machinery under consideration as a means of helping them collect in whole or in part their frozen war debt of three billion dollars owed by Great Britain. They were especially eager to get dollars with which to buy American machinery and "know-how" after the war to implement their newly-devised Bombay Plan for the economic development of India.
Likewise, the so-called backward or raw-material nations of Latin America, through their delegations to the Conference, reflected their growing ambition to develop home industries and thus to diversify their internal economic activities. This view reflects a growing fashion of thought to the effect that a nation which is primarily agricultural and which must depend on foreign sources for processed goods is in an inferior and dependent economic position, and the exponents of this view, which is coming into increasing acceptance, can cite chapter and verse to defend their position. They remember, for example, that the Republic of Chile had long built its national economy in accordance with the Mid-Victorian free-trade theory of international specialisation. Chile long relied for her national income mainly on her world monopoly in nitrates and on her position in copper mining. But the creative mind, working in the field of science and invention, disturbed the assumptions on which Chile had made her national plans. Chemists upset Chile's monopolistic position through producing nitrates synthetically from the air. Thus, the selling price of nitrates collapsed, and Chile faced the necessity of remaking her national life.
So overpowering is this Latin American urge to develop home industry that the delegates from the Republics south of the Rio Grande, though enthusiastic enough for the International Stabilization Fund, were cool towards proposals for the World Bank. It apparently reflected their belief that the facilities of the Bank for making and guaranteeing long-term foreign loans would be used more to rebuild devastated areas of Europe and Asia than to develop backward regions of Latin America.
In connection with the unmistakable aspirations of many of these raw-material countries to diversify their economic life, it becomes clear that, in discussing tariffs and free trade, the delegates were thinking in terms of a double standard—one for themselves and a different one for the United States. There was enthusiasm for inducing the United States to lower its tariff barriers so that other countries could rehabilitate their economies through enriching themselves by sales to Americans. They did not want, however, to apply such a doctrine to their own situations, arguing instead that, since they had infant industries to protect, they needed tariffs.
I mention this surging of national ambitions because I think it helps to give us a realistic preview of the future.
Although the day-to-day press accounts from the Bretton Woods sector magnified the differences of opinion concerning the set-up of the institutions which were tentatively created there, it was obvious to me, from the outset, that agreements would be reached. The compelling forces moving in the direction of agreement were overwhelming. In the first place, with the war still actively raging, it was essential for morale purposes for the United Nations to give at least a show of unity. Secondly, in unilateral conferences held with various nations during the last two and a half years and in a preliminary roundtable of some fourteen principal nations held at Atlantic City prior to the Bretton Woods meeting, agreement on broad principles had already been reached. Thirdly—and most important of all—every other nation, recognizing the primacy of the United States as a producer of goods and as a possessor of loanable funds, wanted to keep the United States interested in proposals for post-war financial amelioration of the world. In the circumstances, it was unthinkable that representatives of any of the nations which were invited to participate in the Conference would kick Santa Claus.
Of course, it should not be overlooked that the seal of approval placed on the blueprints for the Stabilization Fund and for the World Bank were tentative in character. Each delegation merely agreed to submit the understandings reached at Bretton Woods to their respective governments for final determination. President Roosevelt and Secretary Morgenthau, who was chairman of the United States delegation and president of the Conference, made it perfectly clear that the proposals adopted at Bretton Woods would be submitted to Congress for acceptance or rejection. Robert F. Wagner, Democratic senator from New York, in his
role as Chairman of the Senate Committee on Banking and Currency, announced that action in the Congress would be delayed until after the election.
Since operation of either the Bank or the Fund without United States participation would be analogous to playing "Hamlet" without Hamlet, it is deemed likely that Congress may, instead of frankly accepting or rejecting the proposals, undertake to make revisions and alterations in both structures.
But what about the larger significance of these financial undertakings? They can be useful only to the extent that they are divested of extravagant promises. Of and by them-, selves, they can do little more than give war-weary nations a chance to catch their breath.
If reliance is to be placed primarily on the manipulation of money and exchange rates through the Fund and the Bank, then we will be building the "brave new world" on quicksand. The Fund can provide a semblance of such stability as may be desirable in a changing and dynamic world only if member nations pursue policies which are conducive to stability. Specifically, no manipulative pegging of exchange rates can long stand up in face of failure of a nation involved to put its own financial house in order. Fundamental rehabilitation requires prudent national financial housekeeping, including balanced budgets. Externally, stability must be related to a recognition on the part of each nation of its obligation to make payment for imports of goods and services with exports. Loans and overdrafts can temporarily delay these adjustments, but they cannot obviate the ultimate need for them. If all the nations thus play the game fairly, the Fund can operate successfully. But this is faint praise, because, under such circumstances, there would be little need for elaborate financial machinery for stabilization.
As for the long-term World Bank, that is largely a device to make foreign lending in the United States seem more attractive to individual and institutional investors. In view of the defaults on loans by individuals and by the Government to foreign nations and companies which occurred between the two wars, considerable resistance has developed in this country to conventional international lending. The proposed World Bank was designed to provide new atmosphere and some new window dressing. The Bank provides, for example, that only those foreign loans which are approved by the home government of the borrower can be made or guaranteed through the Bank. In addition to approval, the home government must also guarantee repayment of principal and interest. Eighty per cent oi the resources of the proposed World Bank would be used for additional guarantees of such loans. Each member country would participate in the liabilities incidental to the guarantees in proportion to their subscription to the Bank. At a time when foreign credit is not likely to be too good, these various types of guarantees are designed to make such loans more enticing. Of course, it should be recognized that the resources of the Bank are relatively small in relation to the needs. The Bank would be entirely loaned up if it met the demands for funds from Russia and China alone.
From a long-term standpoint, the chief significance of the Bretton Woods meeting was in focussing attention on the need after the war of picking up the loose threads in the fabric of international trade and finance. The threads have been broken during the war years when there has been a serious destruction of physical resources and financial credit.
The Fund and the Bank represent theoretical approaches to this larger problem, which will long be with us, of trying to bring order out of chaos in a war-torn world. In spite of obstacles, the job can be done, but we should not rely too much on financial manipulation. The task of reconstruction calls instead for the spirit of thrift and industry—for the sweat and groan of human labor, aided by an abundance of mechanical energy and modern tools and machinery. Our forbears built up the United States the hard way, and their experience should be an inspiration and a guidepost to other nations.