”Keynes as a Planner and Negotiator” [2018] Toshiaki Hirai
Rosselli, A., Naldi, N. and Sanfilippo, E. eds.
Money,
Finance and Crises in Economic History, Routledge, 2019.
pp. 158-172
Chapter
12
Keynes as a planner and negotiator
Toshiaki Hirai
(Sophia University)
In
July 1940, the
Chancellor of the Exchequer’s Consultative Council was
set up to help and advise the Chancellor on special problems arising from war
conditions. Keynes accepted Council membership and was soon to find himself
engaged in a range of important assignments.
I have already dealt elsewhere (see, for example, Hirai,
2011, 2013) with Keynes’s activities in the
1940s, as a planner and negotiator in the international spheres in relation to the Relief and Reconstruction problem and the Commodity
problem. The present chapter focuses only on the role of Keynes as planner and negotiator of a new international monetary system.[1]
As a result of my
previous work, (for further information, see “Addenda” below), I have come to the
following conclusion: initially Keynes designed and put forward plans permeated
with the spirit of internationalism. As the political and economic situations
changed, however, he came to show a more pragmatic approach, giving priority to
protecting the interests of the British Empire. In both cases, his original
plans were foiled at an early stage.
The aforementioned
features are clearly recognisable, as I will show in the present contribution,
which, although intended exclusively to examine the international monetary
system, also includes a sort of summary of my comprehensive studies on Keynes’s
activities in the 1940s, which might open a new perspective.
At
an early stage of the Second World War the problem of how a new international
monetary system should be constructed for the post-war world came under the
attention of the UK cabinet and, quite separately, of the US administration.
In the UK it started with Harold Nicolson of the Ministry of Information
asking Keynes, in November 1940,
to counter Funk–Schacht’s proposal for a German “New Order.” Keynes, however,
actually approved of the German idea of substituting barter with an
international currency (gold), and eventually proposed a more elaborate
monetary system than the Gold Standard, as can be seen in Keynes’s two
memoranda (8 September 1941).[2]
In the US, meanwhile, it started with Henry Morgenthau, Treasury
Secretary, asking Harry White to prepare a memorandum on an inter-Allied
stabilisation fund, in December 1941.
White quickly drew up a 12-page memo, “Suggestions for Inter-Allied Monetary
and Banking Action.”
The
UK, as leader of the Allied Forces, had been waging a gruelling war with
Germany since September 1939,
and suffered a near-fatal defeat at Dunkirk in May 1940, subsequent
to which France was forced to surrender to Germany. In order to continue to fight
in the war, the UK, which had endured tremendous losses of foreign reserves and
accumulated huge debts, desperately needed the financial assistance of the US.
And yet the UK was set on maintaining the British Empire and its status as
world financial centre.
Contrastingly,
the US was a new world power with huge economic and military resources. In
December 1941, it finally
entered the war in response to the Pearl Harbour attack by the Japanese navy,
and became an ally of the UK. However, the top politicians in the Roosevelt
Administration – including Roosevelt himself, Morgenthau, White and Lauchlin
Currie – were averse to UK Imperialism and hoped to play a leading role in the
post-war world, integrating the Soviet Union into the United Nations.[3]
As
the war proceeded, the UK’s financial situation went from bad to worse. Given
this state of affairs, the US enacted the “Lend-Lease Act” (March 1941), which
allowed the US to send armaments to the UK only if the President regarded them
as indispensable for the defence of the US. This was an act mainly designed
with the UK in mind. Thus Anglo-American financial negotiations set in. Based
on the Lend-Lease Act, the two sides put forward proposals, and went on with
discussions until they finally reached the “Anglo-American Mutual Aid
Agreement” (February 1942).
Keynes was a leading figure for the UK in these negotiations.[4]
In
the course of the negotiations, the US asked for “considerations” as quid pro
quo for aid to the UK. The most heated debate occurred around “Article 7” in
the US plan, which contained terms like “against discrimination [in either the US or the UK] against the importation of
any produce originating in the other country.”
Some in the UK (including Keynes)[5]
suspected that the US was aiming at dismantling the Sterling Bloc, composed of
the Imperial Preferential Tariff and exchange control, as a symbol of the
British Empire.
Immediately after the War, the Lend Lease Act was terminated. The UK,
faced with abrupt financial difficulties, endeavoured to obtain financial aid
from the US, the result of which was the “Anglo-American Financial Agreement”[6]
(December 1945). Keynes was
a leading negotiator.
2. The International Clearing Union (the Keynes plan)
2.1. The process up until the Keynes plan
Keynes’s
plan for a new international system started with the “First Draft” (8 September
1941; CWK XXV,
pp. 21–40) for circulation within the Treasury. Then came the “Second Draft”
(18 November; CWK XXV, pp. 42–66), which became the most important for
discussion in the Treasury-Bank of England meetings. This was followed by the –
greatly rewritten – “Third Draft” (15 December; CWK XXV, pp. 68–94), and the “Fourth Draft” (January 1942;
CWK XXV, pp. 108–139), which made up paragraphs 61–134 of a memorandum by the
Treasury on External Monetary and Economic Problems.[7]
It is worth briefly taking a look at how the Keynes Plan was treated in
Whitehall.[8] The
official who criticised the Keynes Plan most harshly and continued to do so to
the end was Hubert Henderson who
supported “managed trade and bilateral barter agreements,” at the Treasury. The Bank of England at first went along with
Henderson, but later on – with figures including Thomas Catto, Harry Siepmann
and George Bolton – came round to supporting the Keynes Plan. Within the
Treasury, together with Hubert Henderson, Ralph Hawtrey and Robert Brand were
critical of the Keynes Plan. But the Treasury as a whole came to regard it as a
proposal worth presenting to the ministers.
Meanwhile
keen support, albeit with strong pressure for certain amendments, came from
Lionel Robbins and James Meade of the Economic Section, as well as Roy Harrod
(Admiralty) and Dennis Robertson (the Treasury).
In
May 1942, the Keynes
Plan, entitled “Proposals for an International Clearing Union” (CWK XXV, pp.
168–195) was finally approved by the War Cabinet. It was sent to White by
Frederick Phillips (28 August). As this is a de facto UK official plan, it is
worth showing its main features.
2.2. Principal features of the Keynes plan
(i)
<NL>To
set up an International Clearing Union (ICU), in which each central bank of a
member country is to open an account.
The account
is to be kept in terms of “bancor,”[9] an international currency used only among
these accounts. All the international transactions[10] are to be carried over to the bancor accounts
concerned, and cleared – an “international version” of a domestic banking
system (Banking Principle).
(ii)
To
allow for overdraft facilities as well as credit creation.
The ICU
allows for overdraft facilities and credit creation. It permits a member
country to use overdraft facilities subject to an agreed rule based on the
“quota,” and a member country that keeps the account in persistent credit to
grant credit to a country in need of some capital.
(iii)
To
keep each account within the prescribed range.
The plan emphasises
the prevention of persistent unbalances in the balance of payments of a member
country, either in surplus or in deficit. If the sum should exceed a prescribed
figure, a penalty should be imposed.
(iv)
To
aim at attaining growth in the world economy.
The plan aims
at facilitating growth in the world economy through the above-mentioned
mechanism.
(v)
To
aim at a new type of international monetary system.
It should aim
at a new system free from the defects of the Gold Standard as well as the de
facto US dollar system and a flexible exchange rate system.
(vi)
Parity
and its change.
The “parity”
of a member country defined as a rate between its currency and the “bancor” is
fixed on agreement. Thereafter, when fundamental disequilibrium occurs, the
country concerned is allowed to change the parity through consultation.
(vii)
To
provide funds for the primary commodity problem and the relief/and
reconstruction problem. The institutions
concerned should be allowed to open their bancor accounts.
3. The International Stabilization Fund (the White Plan)
White continued to revise his plan, and put
forward “Preliminary Draft Proposal for a ‘United Nations Stabilization Fund’
[(hereafter UNSF) White Plan [Ia]] and a ‘Bank for Reconstruction and
Development of the United and Associated Nations’ [(hereafter BRD) White Plan
[Ib]]” in April 1942.
This was the document that Keynes was mainly
to review before the
publication of the revised version of 7 April 1943. Then the US
Treasury, after discussions with nearly thirty governments, announced
“Preliminary Draft Outline of a Proposal for an International
Stabilization Fund of the United and Associated Nations” (revised on July 10, 1943;[11]
hereafter referred to as White Plan [II]).[12]
Let
us now take a look at White Plan [Ia] and [Ib].
Its principal aim is to maintain the stability of
exchange rates among the member nations, their volatility having been the main
cause of the instable world economy in the interwar period. For this
(especially, addressing the fundamental disequilibrium in the balance of payments)
the UNSF, with quotas subscribed by the member states, should buy and sell
currencies, gold and government bonds among them. It could also make loans to
them or issue bonds to acquire currencies or invest currencies into short-term
securities.
The exchange rates among members’
currencies are fixed, any
change being allowed only to correct fundamental disequilibrium in the balance
of payments. The total balance of the UNSF should remain the same, and many
decisions are made subject to
four-fifth majority votes.
There
are other features worth noting, designed to serve the following purposes: (1)
to liberate “blocked balances” – although the US is mentioned, very much in
mind here is the UK (the “Sterling Balances”); (2) to reduce controls over foreign
exchange and foreign trade, and to eliminate bilateral clearing arrangements,
although the White Plan does not pursue a “Free Trade” policy, arguing that any such policy is based on unreal and unsound
assumptions (see Horsefield,
1969, p. 70). Its basic stance is: “The task before us is not to prohibit instruments of control but to
develop those measures of control …, as will be the most effective in obtaining
the objectives of world-wide sustained prosperity” (ibid., p. 64).
The Plan strongly encourages participation on the part of the Soviet Union, stating that the USSR
“despite her socialist economy could both contribute and profit by participation” (ibid., p. 72).
The main objectives of the BRD are to provide long-term capital for
economic reconstruction, to supply short-term capital for foreign trade and to
eliminate the danger of worldwide financial crises. It also aims at addressing issues regarding
commodities and raw materials – it could organise and finance an “International
Essential Raw Material Development Corporation” and an “International Commodity
Stabilization Corporation.”
The BRD has the powers to make short-term and
long-term loans, to guarantee loans made by private investors, to issue its own
demand currency (“international unit”[13] appears for the first time in White Plan
[I]).
It could make loans, dividing them into two
parts: local currency and international units. It could buy, sell, hold and
deal in gold, as well as the obligations and securities of any government.
By August, the Keynes Plan and the White Plan
had been sent to the counterparties. On 3 August Keynes sent a memo on the
White Plan to Frederic Phillips and Harry Hopkins, remarking that the general
attitude of mind is helpful, while the actual technical solution is quite hopeless – a version of the
Gold Standard.[14] In October, Keynes and White met unofficially
in London. Keynes suggested holding a direct meeting between the two countries
in advance of an international conference, but in vain.
Instead, October and November saw the UK
discussing post-war planning with the Dominions and India. Keynes grew
suspicious of the US attitude, and asked Phillips to hold a sort of
Anglo-American commission, to which Phillips responded that Washington would
not accept it.
In February 1943, the State
Department sent the (eighth draft) of the White Plan (which dropped the plan
for the Bank for Reconstruction and Development)[15] – without consultation with the UK – to
Britain, Russia and China as a “basis of discussion,” proposing to invite
thirty-seven experts individually.
The UK, in return, sent the Keynes Plan to
Russia and China, and initiated discussion with the finance ministers of the
West European Allies. The US sent a representative, but turned down the UK
suggestion that the US should send the White Plan for comparison.
Then, on April 7 the Stabilization Fund Plan, and on April 8 the ICU Plan (Cmd. 6437) were
publicised.
4.2. The ICU plan as publicised
Keynes wrote the preface to the ICU Plan (CWK
XXV, pp. 233–235), stating that there were four international spheres to be
provided for: (1) a currency and exchange mechanism; (2) a framework for
commercial policy, (3) primary commodities and (4) aid to investment.
As important conditions in setting
up international economic institutions for these spheres, the following needs
are mentioned:
(i)
to
minimise interference with domestic spheres;
(ii)
to
devise a planning technique applicable irrespective of the types of member
countries;
(iii)
to
ensure that administration and management of the international institutions be
genuinely international;
(iv)
to
give the member countries a withdrawal option;
(v)
to
gear planning to the overall interests and particular benefits of the member
countries.
The preface contains four important
points. Firstly, Keynes reveals his vision of international economic systems.
Secondly, he gives priority to the ICU plan which should provide a desirable
currency and exchange mechanism. Thirdly, the ICU should be regarded as an
institution for promoting economic growth. Fourthly, he might contemplate
something like the Bank for Reconstruction and Development.
Keynes wrote “Notes on C.U. and S.F.” (16
April; CWK XXV, pp. 245–249) in which he reviewed the [I]CU Plan and the [I]SF
Plan. The following, except for the headings, is a summary.
(i)
<NL>Voting Power. The CU Plan does not take a rigid stance on voting powers, while the
SF Plan does.
(ii)
Gold. The SF
Plan makes no provision for changing the gold value of unitas, unlike the CU
Plan. Unitas needs, somehow or other, to be activated.
(iii)
Multilateral Clearing. The SF Plan, unlike the CU Plan, makes no provision for multilateral
clearing, and should therefore be revised.
(iv)
The Scale of Quotas. The fundamental difficulty with the SF Plan is that the demand for the
currencies of certain creditor countries might far exceed the Fund’s capacity
to provide for them.
(v)
The “Abnormal War Balances” Problem.
As the war proceeded, the UK, for example, came to owe huge debts to, among
other countries, India. If India were to sell them for dollars, the UK would
come up against serious financial difficulties – the “Sterling Balances Problem.”[16]
(vi)
The Rationing of Scarce Currencies. Without this provision, the logic of the SF
Plan would collapse.
(vii)
Subscribed Capital vs Banking Principle. If the former were to be adopted rather than
the latter (of the SF Plan), compromise would be possible in other matters.</NL>
The most essential points of
contention were focused on the Banking Principle and Multilateral Clearing.
5. The integration process between the two plans
In May 1943,
an informal monetary meeting was held between the two Treasuries in Washington.
Robertson, who was present, sent a suggestion to Keynes in London that it
should be reasonable to accept the SF Plan, and then persuade the US to turn
“unitas into a real medium of exchange”[17] – i.e. preserve “some of the
elegance of C.U.” In fact, Keynes himself had written to Harrod: “I fully
expect that we shall do well to compromise with the American scheme and very
likely accept their dress” (CWK XXV, p. 268), for he thought that “The real
risk, …, is that they will run away from their own plan, let alone ours. By
continuing to press ours, there is at least a little chance that they may
develop some patriotic fervour for their own” (CWK XXV, p. 268). It was agreed
in the meeting that the CU Plan would be a non-starter.[18]
The integration process can be divided into two
phases: the “monetisation of unitas” and the final phase of the negotiations.
Keynes
prepared a memorandum entitled “The Synthesis of C.U. and S.F.” (29 June; CWK
XXV, pp. 308–314). Far from reflecting the title, it was based on the SF Plan,
putting the CU Plan on the shelf, and yet advocating that the SF Plan should
adopt unitas as international money.
Reading
the SF plan (10 July. This should be White Plan [II] – a revised version of the
White Plan [7 April]),[19]
Keynes sent a letter to Wilfrid Eady (CWK XXV, pp. 316–320). Firstly, he was
prepared to “accept the substance of White’s essential conditions”
(subscription principle, the limitation of liability, the general shape of
S.F., etc.). Secondly, he argued that the SF Plan should be revised by
replacing the “entirely unacceptable features of30 … [the SF Plan]” (CWK XXV, p. 318) with the UK’s three essential
conditions as follows:
(i)
<NL>to make change in the value
of a member’s currency more elastic;
(ii)
that the Fund should monetise unitas
and perform multilateral clearing;
(iii)
gold subscription for a member should
not be 25% but 12.5% of the quota.</NL>
In a letter to White (21 September), he sent a memo, “Suggestions for
the Monetisation of Unitas” (CWK XXV, pp. 342–344). The gist was an attempt to
transform unitas into bancor. Each member country would be allowed to open an
account within the Fund. Although the quota remained, the banking principle
would be introduced as the main framework. More precisely, each country would
obtain unitas, initially, by subscribing the quota with gold and securities,
but thereafter would be allowed to sell their currency to other members and buy
their currency in exchange for a transfer of unitas subject to certain
conditions. The Fund would be able to buy gold from a member at its par value
in exchange for unitas, which would induce a member holding a large amount of gold
to sell to the Fund. He stated that “[t]his appears to me to get over the
objection you raised the other day, … since gold obtained under this clause
would be free gold it would be available … to deal with the scarce
currency problem” (CWK XXV, p. 341).
In
September, meetings of the two nations were held at the US Treasury. Keynes
argued that, although several points were “translatable into S.F. terminology,”
the following were not so easily addressed:[20]
(i)
unqualified multilateral clearing;
(ii)
the duty of members to maintain
exchange stability (management of foreign exchange markets remained important
in the SF plan);
(iii)
the passivity of the Fund.
In a letter to Eady (3 October; CWK XXV, pp. 352–357), Keynes reported
the situation in Washington, pointing out the problems difficult to agree upon,
namely:
(i)
the British claim that gold
subscription should be regarded as collateral;
(ii)
the US claims that the Fund should be
given more discretion in members’ way of using it (the British claims that the Fund should act passively);
(iii)
the US opposition to unitas monetisation.
In particular, (iii) was a major point of contention.[21]
From
late September to early October, Keynes grew distrustful of this US attitude. A
dismal atmosphere was in the air.[22]
Keynes’s “explosions,” however, finally brought about a “new American draft.”[23]
5.2. The final phase of the negotiations
In the meeting held in October it was agreed to
“prepare directives for the Drafting Committee that would meet to draw up
finally the details of the Fund and to draft in terms of a Stabilisation Fund”
(CWK XXV, p. 365). After the meeting Keynes wrote a letter to White explaining
the view of the British Government (pp. 366–368), stressing:
(i)
preference
for a system under which an alteration in the exchanges requires only
consultation;
(ii)
to
aim at unitas monetisation;
(iii)
subscription
in gold should be regarded as collateral.</NL>
On point (ii), Keynes stated that:
“London emphasises that they are not at present prepared to release us from our
instructions to aim at the monetisation of unitas …” (p. 367). Work on the draft proceeded, resulting in the
“Anglo-American Draft Statement of Principles” (October 12; CWK XXV, pp.
379–392). An odd feature of the main text (pp. 379–389) was that it was
virtually the SF Plan minus unitas. Before presenting “the main text,” the
following paragraph was inserted as the “UK reservation”: “[The following
draft] … is expressed in terms of a Fund which holds members’ currencies. This
… expression has been used to meet the convenience of the United States
Treasury and in no way commits the British representatives …” (pp. 379–380).
Then “the main text” by the American group is
stated. Following it, there comes “The Draft Statement of Principles in terms
of a monetised unitas” (CWK XXV, pp. 389–392) by the British group, beginning
with the following paragraph: “In order to express the substance of the Draft
Statement of Principles in terms of monetised unitas, the following paragraphs
should be substituted for those carrying the same number in the Draft discussed
with the American group” (p. 389).
In his letter to Opie (7 December; CWK XXV, pp.
393–394), astonishingly, Keynes toned down his stance, stating that there was
no need to stick to the monetisation of unitas and that the need was, rather,
to be clear “about what happens during the transitional period.” Keynes wrote
that, although he “vastly” preferred the monetised version, the difference with
the non-monetised version was not “really
such as to make it a justifiable reason for an ultimate breach. The emphasis on
the transitional period, on the other hand, … [seems to be] … justified and important” (pp. 393–394; emphasis added).
Keynes thus approved the US plan fully in the
section drafted by him (“II. The Main Objects of the Plan” (7 February 1944; CWK XXV,
pp. 399–408), and yet stated:
we cannot
enter into this scheme [IMF system] unless there is an assurance of our not
being expected to use its facilities prematurely, and that we cannot have any
such assurance until they have given us some indication of the financial régime
succeeding the lend lease phase ….
(Keynes,
CWK XXV, p. 407)
It should be noted that he even held
that the two set-ups should be the same in substance (p. 405) – quite contrary
to the view strongly expressed so far.
Furthermore,
Keynes showed “some ardour in favour of the new institution (the IMF system),”
stating that it was “a concrete example of international agreement for post-war
economic policy” and “not mere words” (p. 408).
What
all this adds up to is that Keynes fully supported the SF Plan, putting
priority on the assurance of financial assistance from the US in the
transitional period. His activities as a system designer came to an end. From
now on, he was to act as a supporter of the Bretton Woods system as well as
defender of the interests of the British Empire.
Concerning the situation of the Treasury, Lord Cherwell reported to the
Prime Minister, on February 9, that there were two rival factions: one headed
by Keynes with most of the Treasury, the Economic Section and the Board of
Trade, the other by Henderson and Eady, supported by the Bank of England (p.
408).
During
the first 5 months, Keynes was forced to fight virtually single-handed to
protect the Anglo-American Draft Statement from the rival faction within the
Treasury, the Bank of England and other widespread political hostilities.[24]
The
Bank of England, for example, strongly opposed the Draft for the following
reasons: the power of discretion which it had enjoyed might be greatly reduced;
the sterling balances problem, doubt of the “passiveness” of the Fund and the
fear that management of the Fund, might be taken over by the US.
On
February 11, the War Cabinet agreed to set up a “Committee on External Economic
Policy” to determine how it should issue an instruction “on the assumption that
Britain would proceed with the scheme” (CWK XXV, p. 408). The Committee allowed deliberations to proceed “on the basis that
Britain eventually would see its way clear to enter into the proposed post-war
arrangements” (p. 409).
Keynes’s
stance was a pragmatic one, seeking to establish an “Anglo-American Bloc
Offered as an International Scheme” (p. 411). With it the UK could maintain the
dignity of the British Empire as a central player together with the US, and yet
it could be proposed as an international scheme.
In a
letter to White (on March 18), Keynes wrote that he would not make the unitas
problem a condition for concluding an agreement[25] (on
April 22 he publicly stated in Cmd. 6519 that there was no need for either
bancor or unitas[26] – which
meant a total defeat for the CU Plan).
From
October 1943 to April 1944, the Draft
was revised seven times. Moggridge (1992,
pp. 728–733) sums up the negotiation process, which clearly shows that almost
all the points of revision came from the US side and were accepted by the
British side.
On
April 14, the British Cabinet agreed to make public announcement of the “Joint
Statement.” On May 23, Keynes made a speech in the House of Lords (CWK XXVI,
pp. 9–21), in which he emphasised that the Joint Statement Plan was superior to
either the CU Plan or the SF Plan.
6. The Atlantic City, Bretton Woods and Savannah conferences
Keynes’s activities from the Atlantic City
Conference between the US and the UK (June) to Bretton Woods Conference (July)[27] were characterised by flexibility on his part;
that is, Keynes emerged as a political pragmatist. The principal task there was
to breed a “dog of mixed origin”[28] – born from the SF plan and the CU
plan and agreed upon in the Joint Statement.
Points of dispute and the claims made by each
side in Atlantic City ran as follows: (i) To what degree is the IMF plan a
return to the Gold Standard? (ii) Where should authority be endowed? (iii) The
size of the Fund, and (iv) the length of the transitional period.
Keynes and White were able to
determine the essential matters between them, so the Bretton Woods Conference
was a formal rather than a substantial occasion.[29] And yet the most contentious and difficult issues
were the Sterling Balances, the transitional period and the amount of quota
allocated.[30]
On June 7, 1945, the US
House of Representatives passed the Bretton Woods Agreement Act. Then, at the
Savannah Conference (March 1946)
the final agreement was concluded among the participating countries.[31] On March 9, Keynes’s speech at the inaugural
meeting of governors of the IMF and the IBRD concluded with irony and cynicism,
using the story of Sleeping Beauty. Keynes issued a warning:
I am hoping
that Mr Kelchner [the convenor] has not made any mistake and that there is no
malicious fairy … whom he has overlooked and forgotten to ask to the party. For
if so the curses which that bad fairy will pronounce will … run as follows: “You two brats shall
grow up politicians; your every thought and act shall have an arrière-pensée”.
CWK (XXVI, p. 216)
If
that should happen, the best is “for the children to fall into an eternal
slumber, never to waken or be heard of again in the courts and markets of
Mankind” (pp. 216–217).
7. Keynes’s stance shown in the international monetary system
How should we evaluate Keynes’s stance over the
whole process. First Keynes put forward the ICU Plan permeated with
internationalism. As the negotiation proceeded, however, his stance began to
change. Around April 1943
Keynes agreed that the White Plan should be a starter, so he prepared a
memorandum in June based on it. In the meeting in Washington in October, Keynes
made a great effort, pressing for the monetisation of unitas, but in vain.
However, in December he expressed the view that there should be no need to
stick to monetisation; the need was, rather, to think about the transitional period (in
April 1944 the UK gave
up the idea of monetisation). Moreover, Keynes came to appreciate the IMF system not only as a
concrete example of international agreement (February 1944), but also as
a “dog of mixed origin” (May).
Thus Keynes failed to have the essential
elements of the ICU Plan incorporated into the White Plan. Keynes’s strategy
dramatically shifted to focus on how the UK could get financial assistance from
the US in the transitional period. White summarised what had been achieved in
Washington thus: “It is a part compromise, but much more like the American
plan” (Skidelsky,
2000, p. 320).
Keynes might have been hoping for some sort of
international monetary system after the failed Rescue/Reconstruction and
Commodity Plans. His temperament was such that, when his ideal plans failed to
get through, he tried to revise them, getting advice from various quarters. But
once his efforts proved unavailing, he then changed his strategy and was able
to work as a pragmatist as well as defender of the British Empire[32] through the negotiations, putting his failure
as a theorist aside.
Keynes had been much concerned that, without
help from the US, the British Empire might collapse.[33] He himself was, in fact, a leading figure in
the loan negotiations with the US subsequent to abrupt termination of the
Lend-Lease Act in 1945
(CWK XXIV, Ch. 4).
Let us take an example of Keynes’s grasp on
world geopolitics in the draft for “The Savannah Conference on the Bretton
Woods Final Act” (27 March 1946).
He emphasises affirmation of the position of the British Empire relatively to
the US “by making use of” international institutions.
Nothing can suit us better, therefore, than that
international institutions, where we are free to play a very important part,
should administer what will be largely American funds for the succour of these
regions. …
I firmly believe that the
whole of the British Commonwealth and the Sterling Area and of Europe stood
closer to us than to the Americans and looked to us, rather than to them, for
leadership. CWK (XXVI, pp. 230–231)
8.1. Relief and reconstruction
In October 1941, Keynes put
forward the Central Relief and Reconstruction Fund (CRRF) Plan permeated with
internationalism, tasked to manage a joint fund comprising money donations or
contributions in kind from various countries. The basic principle behind the
CRRF was to create an ideal international organisation to distribute
commodities, efficiently and with humanitarian criteria, among countries in
need of relief.
In February 1942, however, he
abruptly abandoned the Plan and took a pragmatic line mainly dependent on the
newly concluded “Anglo-American Mutual Aid Agreement” (February), due to the
severe economic decline weighing on the British Empire, which threatened to
embroil it in the humiliating situation of having to provide figures on gold
and foreign resources, showing that the UK could not pay cash for what it
needed (CWK XXVII, p. 65).[34]
Keynes put forward the Fifth Draft of
International Buffer Plan (April 1942),
which was very clear and excellent in that it enhanced price stabilisation
through a buffer stock management system named “commod control.” However, as the Sixth, Seventh and Eighth Draft followed, due to criticism from
various governmental departments, restriction on output came to be increasingly
emphasised to the extent that the first principle of the Fifth Draft was lost.
And yet we have no evidence
of Keynes’s dissatisfaction with this transformation. He seems, rather, to have gone on
working in the spirit of a political pragmatist.
Although the
Eighth Draft was accepted by the War Cabinet (May 1944), the US
took a negative stance on the buffer stock plan in the Anglo-American
Conference in September. The agreed document itself came in for staunch
opposition from the Ministry of Agriculture and the Bank of England.[35]
Cesarano, F. (2006). Monetary theory and Bretton Woods. Cambridge: Cambridge University Press.
Hawtrey, R. (1946). Bretton Woods. Longmans, Green and Co.
Hirai, T. (2011).
Keynes and the
transmutation process of the plan for commodity control
scheme.
Paper presented at the XV Annual Conference of the European Society for the
History of Economic Thought (ESHET) Competition,
Innovation and Rivalry, Boğaziçi
University, Istanbul, 19–22 May.
Hirai, T. (2013).
International design
and the British Empire: Keynes on the relief problem.
History of Economics Review, 57 (1), 63–83.
Hirai, T. (2015).
Keynes’s battle over
international monetary system.
Paper presented at the
XIX Annual Conference of the European Society for the History of
Economic Thought
(ESHET) Great Controversies in Economics, Roma Tre University, Rome, 14–16 May.
Horsefield,
J.K., ed. (1969).
The International Monetary Fund 1945–1965: twenty years of
international monetary
cooperation, Vol. III: Documents. Washington, DC: International
Monetary Fund.
Available at: http://www.elibrary.imf.org/staticfiles/IMF_History/IMF_45-
65_vol3.pdf.
Keynes, J.M. (1930). A treatise on money. London: Macmillan.
Keynes, J.M. (1980a).
The collected writings of John Maynard Keynes, Vol. XXIII. Activities
1940–1943: external war
finance (E. Johnson and D.E. Moggridge, eds). London:
Macmillan.
Keynes, J.M. (1980b).
The collected writings of John Maynard Keynes, Vol. XXIV. Activities
1944–1946: the transition to peace (E. Johnson and D.E. Moggridge, eds). London: Macmillan.
Keynes, J.M. (1980c).
The collected writings of John Maynard Keynes, Vol. XXV. Activities
1940–1944: shaping the
post-war world: the Clearing Union (E. Johnson and D.E.
Moggridge, eds). London: Macmillan.
Keynes, J.M. (1980d).
The collected writings of John Maynard Keynes, Vol. XXVI. Activities
1941–1946: shaping the post-war world: Bretton Woods and reparations (E. Johnson and D.E. Moggridge, eds). London: Macmillan.
Keynes, J.M. (1980e).
The collected writings of John Maynard Keynes, Vol. XXVII. Activities
1940–1946: shaping the
post-war world: employment and commodities (E. Johnson and
D.E. Moggridge, eds). London: Macmillan.
Long, D. and Wilson, P., eds. (1995).
Thinkers of the twenty years’ crisis: inter-war idealism
reassessed. Oxford: Clarendon Press Oxford.
Markwell,
D. (2006). John Maynard
Keynes and international relations.
Oxford: Oxford
University Press.
Mikesell,
R. (1994). The Bretton Woods
debates: a memoir.
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International Finance
Series, no. 192.
Princeton, NJ: Princeton University, Department of
Economics,
International Finance Section.
Office
of the Historian (1942). Foreign relations
of the United States: diplomatic papers,
1942, General; the British
Commonwealth; the Far East, Volume I, Document 148.
Available at: https://history.state.gov/historicaldocuments/frus1942v01/d148.
Skidelsky,
R. (1983). John Maynard
Keynes: hopes betrayed, 1883–1920.
London:
Macmillan.
Skidelsky,
R. (2000). John Maynard
Keynes: fighting for Britain, 1937–1946. London:
Macmillan.
Steil, B. (2013).
The battle of Bretton Woods: John Maynard Keynes, Harry Dexter White
and
the making of a new world order. Princeton, NJ: Princeton University Press.
Thirlwall, A.P, ed. (1982). Keynes as a policy adviser. Basingstoke: Palgrave Macmillan.
Turnell, S. (2002).
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Economics Research Papers, no. 7. Sydney: Macquarie University, Department of Economics.
Wilson, P. (1995).
Leonard Woolf and
international government.
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Wilson,
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28.
[1] Fundamentally based on Hirai (2015).
[2] As reprinted in The Collected
Writings of John Maynard Keynes, henceforth CWK followed by the Roman
numeral of the volume: CWK XXV, pp. 23–24 and 32.
[3] For Roosevelt, see Wolfe (1995), and for White, see Skidelsky
(2000, p. 242).
[4] Keynes drew up a draft for the Chancellor
(CWK XXIII, pp. 137–140).
[5] See CWK XXIII, pp. 175–177.
[6] See CWK XXIV, Ch. 4.
[7] In the three earlier drafts the viewpoints
from the UK side are more striking than in the Fourth, which reveals his
political stance.
[8] See Skidelsky (2000, Ch. 6, V).
[9] “S.B.M.” in Keynes (1930, Ch. 38) was to be a precursor of bancor.
[10] All the current balances and capital balances
for secure investment only are considered. Speculative capital movement and
capital flight should be controlled, the method being left to each
member country.
[11] The White Plan went on to be revised to meet the
opposition from the State Department and the Federal Reserve Board. This was
mainly done by E.M. Bernstein. See Mikesell (1994, p. 16).
[12] For White Plan [Ia] and [II], this chapter
refers to Horsefield (1969), while for White Plan [Ib], to Office of the Historian (1942).
[13] This is to be named “unitas” in White Plan [II].
White himself was, in fact, critical of this idea, believing that the dollar
should be an international money. The idea comes from Morgenthau and Roosevelt.
See Steil (2013, p. 148).
[14] See Moggridge (1992, p. 687). For Keynes’s confused view on the Gold Standard,
see Steil (2013, pp. 137–139).
[15] For how the Bank Plan evolved after White Plan
[Ib], see Mikesell (1994, pp. 36–39).
[16] Keynes took this seriously in 1941. For June
1942, and for May 1943, see CWK XXIII, respectively, p. 233 and p. 267.
[17] See CWK XXV, p. 292.
[18] See Skidelsky (2000, p. 301).
[19] In White Plan [Ia], the term, “new
international unit” appears without explanation, while in White Plan [Ib], the
term is explained very roughly as international money (see II.7). White Plan
[II] is, contrastingly, unique in “III. Monetary Unit of the Fund” where unitas
is introduced (albeit as a unit of account).
[20] See CWK XXV, p. 348.
[21] See CWK XXV, p. 359.
[22] See CWK XXV, pp. 364, 370–372.
[23] See CWK XXV, pp. 370–371.
[24] Eady’s note (19 January; CWK XXV, pp.
395–398) describes the situation vividly. He points out that the attitude and
technique behind the White Plan consistently reflect the principles of the
Equalization Fund (p. 397).
[25] See CWK XXV, pp. 427–428.
[26] See CWK XXV, p. 438.
[27] Just before it, New York bankers tried to offer a
huge loan to the UK in return for opposition to a new international system. See
Steil (2013, p. 153).
[28] See CWK XXVI, p. 10.
[29] See CWK XXVI, p. 61 and 70.
[30] See CWK XXVI, pp. 77–83.
[31] Hawtrey (1946) harshly criticises the Bretton Woods Agreement
which fatally neglects the fundamental theme that “the money units linked by the
rates of exchange should themselves be stabilised in their wealth-value” (p. v) while he values positively the ICU plan
because it embodies the theme, which is embodied in the Jenoa Plan (see pp. 26,
28 and 29).
[32] Skidelsky (1983) states that “[Keynes] assumed the Empire as a fact
of life” (p. 91). Contrastingly, Hawtrey (Hawtrey Papers 12/2, Churchill College,
Cambridge University) criticised Imperialism on ethical grounds, as resting on
“false ends.” Leonard Woolf, advocating an idea of the international government
for the Labour Party, took a critical stance on Imperialism (see Wilson, 1995, p. 83). Turnell (2002) interprets Keynes’s IC Plan as a truly
liberal adjunct to his realism in the sense of E.H. Carr.
[33] For Keynes’s view (on 23 April 1944) on
Anglo-American co-operation, see CWK XXV, pp. 446–447.
[34] For details, see Hirai (2013).
[35] On this, see Hirai (2011).
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