75 Years Ago: N.H.'s Bretton Woods Conference Reshaped World Economic Policy

Jul 8, 2019

Mount Washington Hotel in Bretton Woods.
Credit Sven Klippel / Creative Commons
 

We take a look back 75 years ago to July 1, 1944, when representatives from 44 nations convened to devise a post-World War II monetary system.

 

The location? 

 

The plush Mt. Washington Hotel at Bretton Woods,  where  delegates could work, distraction-free, to come up with a plan that would ensure post-war prosperity through economic co-operation. The United Nations Monetary and Financial Conference, known as the Bretton woods conference, would result in the World Bank and the International Monetary Fund.  

GUEST:   Kurk Dorsey - History professor in the College of Liberal Arts at UNH.

U.S. Treasury Secretary Henry Morgenthau opens the Bretton Woods International Monetary Conference at the Mount Washington Hotel in New Hampshire, July 1, 1944.
Credit The Mount Washington Hotel & Resort

This newsreel excerpt below describes the international monetary conference of 1944 held at the Mount Washington Hotel in Bretton Woods, New Hampshire. 

Transcript

This is a machine generated transcript, and may contain errors.

 

Laura Knoy:
From New Hampshire Public Radio I'm Laura Knoy and this is The Exchange.

Laura Knoy:
Seventy five years ago this month at a resort in New Hampshire's White Mountains a new global financial system was born. It was called the Bretton Woods agreement named after the town that hosted the conference at the Mount Washington Hotel. More than 700 delegates from around the world attended hoping to create new economic and financial structures that would help the world avoid another world war. Today in exchange what Bretton Woods was all about and where the system it established stands today. Let's hear from you our e-mail exchange at an NHPR York once again exchange at an NHPR . Use Facebook or Twitter and NHPR our exchange will give us a call 1 800 8 9 2 6 4 7 7.

Laura Knoy:
Our guest is Kurk Dorsey history professor in the College of Liberal Arts at U N H. And Kurk it's great to see you. Thank you for being here. It's my pleasure. So first question before we get into all the structures and systems that were set up at Bretton Woods why Bretton Woods New Hampshire why not New York or D.C. or some other place like that heat and humidity.

Kurk Dorsey:
So they did want to be in Washington D.C. for a longtime British diplomats in fact got tropical hazard pay for serving in Washington D.C. real age or so miserable before the age of air conditioning and even New York City was pretty hot in July of 44. So Franklin Roosevelt told him to go up somewhere in the northern New England region Maine New Hampshire or find a place and the Bretton Woods Hotel was the Mount Washington Hotel was in disrepair but was repairable in time. So they sent a Labor army of laborers who went and fixed up the hotel in time to get all the delegates in. And even then they couldn't get all the delegates user said there were seven hundred plus press people. So mainly I was to get out of the heat humidity the what the the east coast.

Laura Knoy:
Wow. Well our producer Jessica Hunt put some great pictures on our Web site NHPR York slash exchange you can see what it looked like. You can see the people it's really cool just speaking about why Bretton Woods. And you know what it was like for people there. Here's a newsreel from that time. This is just describing the event as it began at the Mount Washington Hotel it's here.

Archival Audio:
At Bretton Woods New Hampshire. Delegates from 44 Allied and socialist countries arrived for the opening of the United Nations Monetary and Financial Conference. They will work in the seclusion of this White Mountains resort. Delegates to this monitoring financial conference posed on the hotel lobby. These meetings are designed to promote trade and the postwar world. and to create a foundation for lasting peace.

Laura Knoy:
Hope they created the foundations for lasting peace so lofty goals there at Bretton Woods.

Kurk Dorsey:
Absolutely. There was a widespread fear in the United States that when World War Two ended they'd have a repeat of what happened after World War 1 which is the economic boom during the war and then a transition period.

Kurk Dorsey:
And the countries that had suffered the most in the war which start protecting themselves and eventually you would get more trade wars like they'd had gotten in the 1930s. And so the hope was that if the countries cooperated coming even before the war was over they could set up an economic system that would allow them to avoid war in the future. So the widespread feeling around the world is that the war was about trade relations and people trying to take advantage of each other rather than trying to build up trading relationships that would cause peace.

Laura Knoy:
Well and I want to ask you about that Kurt because that's so important and as you said that's really what this was all about recognizing the mistakes post-World War One and hoping not to repeat those mistakes. But before that I do have to note this conference took place in July of 44. Yes. So shortly after D-Day but almost a year before World War Two officially ended. So what was the thinking there.

Kurk Dorsey:
Well it's fair to say that for the U.S. government it had been involved in post-war planning since August of 1941 months before the Pearl Harbor attack. FDR was pretty sure the United States was going to get in this war in August of 41. FDR and Winston Churchill the prime minister for Great Britain announced the Atlantic Charter One of the eight points the Atlantic Charter was after the final defeat of the Nazi tyranny. But the United States wasn't even at war with Germany yet but they had already were already thinking about this. And the other points of the Atlantic Charter were in effect Woodrow Wilson's 14 Points from 1918 that the international community would have to be set up on grounds of equality the nations would have access to resources even the vanquished nations would be protected in the post-war world. I think one of the big things to keep in mind about this time period is that if you look at most Americans and say 1937 there was a poll taken in 37 and if my friend Andy Smith and polling center were here he'd say Oh you know those polls from the 30s were out of marginal value and you'd be right. But there was a poll in 1937 that suggested that two thirds of Americans thought that the getting into World War One in 1917 had been a mistake two thirds.

Kurk Dorsey:
And this is a war the United States won. So so many people in the 1930s thought that getting into the war was a mistake. But by 1941 many more Americans had concluded the mistake of in 1919 the way the war was. Solved not the war itself. And so there was a sense that the war wasn't a mistake it was Wilson's policies at the end of the war. And so now we had to rectify those. So that's why even before the war starts for the United States Franklin Roosevelt is out there trying to sell American intervention after the war in organizations like the U.N. and then what would come out of Bretton Woods.

Laura Knoy:
So what was the feeling or the consensus among leaders at that time including these who gathered at Bretton Woods. What mistakes did they think had been made after world war one that probably helped feed World War 2.

Kurk Dorsey:
I think the biggest mistake was that the countries that left a world where one had huge imbalances when the biggest events of World War One outside the battles was the shift in creditor and debtor status between Great Britain and the United States.

Kurk Dorsey:
So before the war Great Britain was the greatest creditor nation in the world it had the most owed to it and the United States was the greatest debtor nation and it had it owed the most. But by the time the war was over the U.S. had had about a seven billion dollar swing and how much money was owed to which the U.S. exited the war in a much stronger position. But as we know Americans left road war one with this attitude of ambivalence about the European allies as shown in the rejection of the Treaty of Versailles and unwillingness to get in the League of Nations. So in many ways what the British thought the biggest mistake was that the United States didn't do its part. After the war and this was particularly true for instance in 1930 31 with passage of restrictive tariffs like the Hawley Smoot Tariff that closed off American markets just as the Great Depression was starting. So there was a widespread belief that there is a lot of dislocation caused by the war that was never really addressed. And so it was papered over in the 1920s. But when the first crisis came and crises happen all the time there was no institution in place so the stock market crash of 1929 led to a domino theory the real domino theory not the one over the guys. The Eisenhower administration but a real domino of a series of collapses by national banks and national economies that then led to the desperation of people in Germany who turned to Adolf Hitler. So they saw it as sort of a logical progression. We wouldn't have had Hitler if we'd had a better post-World War One solution.

Laura Knoy:
Well and in addition to the sort of instability or fragility of those financial structures that you talked about there's another piece of this Kurk that I would love for you to talk about more.

Laura Knoy:
You said the idea coming out of Bretton Woods was the vanquished would be protected. That's a shift in thinking isn't it.

Laura Knoy:
A remark I mean huge in terms of world history how often does that even happen that the United States or any country that anticipates victory is saying we are going to treat the vanquished peoples separate from their government.

Kurk Dorsey:
So the German people and the Japanese people will get rid of their governments but those people will be in effect quickly rehabilitated and put back into the world system. And this was obviously a sore subject with say the Soviets who did not think the Germans could be treated as you know people to be incorporated evenly. They wanted the Soviets punished. The French were not really the Germans punished. Yeah I'm sure they wanted the Germans punished and the French one of the Germans punished and a lot of people in Britain felt the same way. So the idea that it wasn't the German people was the German government and that we could get rid of the government let the German people reintegrate themselves. That was really striking and it's hard even today for countries to say well we'll get over the war and we'll get we'll get back together and we'll like each other. But this is something pretty traditional in American foreign policy where the U.S. government frames its problem with a particular government rather than those people under that government. So we can work with those people once they're bad government has taken off.

Laura Knoy:
Well it's almost Biblical. You know we will not take revenge. We will approach this with forgiveness and repair. And that was the approach with the understanding or the feeling that the punishment on Germany after World War One the reparations that people had to pay led to severe economic hardship. And again you know leading into a war too right.

Kurk Dorsey:
And there was a big split even in the United States about Germany so the Treasury secretary who ultimately oversaw a lot of the American positions at Bretton Woods was Henry Morgenthau and he had what was known as the Morgenthau Plan which was to divide Germany into a bunch of tiny little states. Would be d industrialized and and he had some support within the U.S. government is certainly within foreign governments but in the end of the day most American leaders believe that the only way to have a healthy European economy was to have a healthy Germany at its center and a healthy European economy was good for a healthy United States. So even though there are many people agreed with Morgenthau that the Germans deserved really severe punishment more people in the U.S. government said that's not going to solve our problems that's just going to make Germany at some later date reorganized re industrialized we'll be fighting them again. So we have to treat the Germans as not the problem. We have to treat their government as a problem so we can fix Germany as a whole.

Laura Knoy:
That's so interesting today it's so hard to imagine because Germany is the industrial powerhouse yes of Europe it's hard to imagine it broken up until little you know pastoral farmlands but that was the image you don't want to give them that economic might because they're just re militarized again and this and.

Kurk Dorsey:
This is particularly true as they discovered more and more about the Holocaust and and it was easier to test to want to just completely punish the Germans so it took a lot of willpower by the U.S. government to say that there is a distinction between the German government and the German people and we're going to we're going to protect the German people and help them create new governments and the same thing happens with Japan and they learn a lot about Japanese war crimes particularly in China but they still say we're going to punish the top level and then we're going to reintegrate Japan into the world system and we can't have a system with Germany and Japan as permanent enemies.

Laura Knoy:
It just won't work well and Chinese delegates were at the Bretton Woods conference.

Kurk Dorsey:
Yes and they of course we're not happy about any of this idea about working with the Japanese but at the same time they understood their position which is the United States had all the resources it was keeping Britain in the war in many ways was keeping China in the war financially. So at a certain level they understood they had to compromise with the United States.

Laura Knoy:
Given how much the Chinese suffered given how much the French and Soviets suffered and the British to those debates at Bretton Woods must have been ferocious.

Laura Knoy:
You know that the Bretton Woods negotiations themselves were more about the allied states and so they did not get directly into what would happen to Germany but the United States had made the position before the war that Germany was going to be reintegrated. So I think at a certain point they agreed they were just not going to talk about Germany Japan at Bretton Woods but everybody understood the American position or they understood at least several important Americans were prepared to reintegrate Germany. I think at a certain level the German the American government was still sorting out its Germany policy in 1944 but there was widespread understanding for instance among the British and French that if we're up to the United States probably Germany would simply be reintegrated after the war once the Nazis were cleared out again today in exchange we're looking back at the Bretton Woods Agreement it set up a new world financial system 75 years ago this month.

Laura Knoy:
So July 1944 at a conference at the Mount Washington Hotel right here in Bretton Woods New Hampshire let's hear from you what stories have you heard about this important global event. What questions do you have about the system that it's set up e-mail us exchange at an NHPR forum once again exchange at an NHPR morgue. Give us a call 1 800 8 9 2 6 4 7 7. Use Facebook or Twitter at an NHPR exchange and click with a couple of Facebook comments that I want to share with you in a moment but one more question just about who was at this conference 700 delegates. That's a lot of people. Where were they from besides obvious countries like U.S. Britain France. You mentioned China for example was the Soviet Union there.

Kurk Dorsey:
Yes and so this is one of the big surprises in fact really throughout the mid 1940s. The United States government spent an inordinate amount of time guessing what the Soviets were going to do and what they were thinking. So they weren't entirely sure whether the Soviets would send a delegation and when the Soviets did decide to decide to send a delegation the Soviets and did what they normally do at these international meetings in the 1940s which is state their position and wait for everybody to come to their position and they're the people at the conference complained that the Soviets would never cooperate with them and I wrote a book on whaling in this time period and it's the same thing at the whaling convention the Soviets say this is what we want and then they would just wait till people decided to give it to them because the idea of a post-war settlement that did not include the Soviet Union would raise the specter of yet another world war. But this time it would be with the Soviet Union so they could get the Soviets in the system. They thought there would be more hope for world peace after the war as it turned out the Soviets at the 1945 decided not to join any of the Bretton Woods institutions because they said that they thought they were sort of western capitalist traps for them but at the meeting the Soviets in and the final decision agreed that they would participate at the level that the United States had originally proposed. So the Soviets turned out to be cooperative at the 1944 meeting at the final instance but then later decided that they for large strategic reasons they weren't going to join the institutions.

Laura Knoy:
Well in a way it kind of makes sense because they had their own communist system and it did not mesh with capitalism.

Kurk Dorsey:
It really didn't because the whole idea of the International Monetary Fund and the World Bank was that countries would put in a certain amount of money based on the size of their economies but they would also have to have openness when they took money out of these banks or used the banks.

Kurk Dorsey:
So their very first loan that went out went to the French government and under this of the Bretton Woods system and the institution basically required the French government to kick kick the communists out of their government and to make sure that the World Bank got paid back first. So you know they were these institutions had a lot of power if they were going to loan you money they expected to live up to certain terms. And the Soviets were never going to agree to that kind of control.

Kurk Dorsey:
It's similar to the Marshall Plan where the U.S.. Actually issued an invitation to the Soviets to join the Marshall Plan in 1947 48. But part of the terms included that the all the countries in the Marshall Plan would have delegates who could look at in effect the country's internal economic books. The Soviets wouldn't have any of that. They couldn't have external auditors in effect.

Laura Knoy:
Well that is a lot of power. So if France had wanted to get some of these loans to help rebuild the country it had to kick communists out of its government yes. So because they were a big part of the government they were major party. They were a big part of the resistance that helped defeat the Nazis.

Kurk Dorsey:
They were really core to the resistance. Thanks for that. Exactly so. Well but by 1947 the other.

Kurk Dorsey:
The focus had shifted from the Nazis to the communists and so the comic the communist threat now seem to be very real. So the French were told if you want a loan we can't have it rest of the communists would take over the French government to show us your seriousness by removing the communist from the coalition. And did they do it. They did it. So they took the loan and removed the communist from power and you know the U.S. worked very hard to keep communists out of Western European governments. One of the CIA's first acts was to influence the Italian elections in 1948 to defeat the Communist Party so well a couple of comments on Facebook that I want to share with you.

Laura Knoy:
John from Wilma noted on Facebook another New Hampshire historical meeting with big implications. John says they also settled the Russo Japanese War at Bretton Woods in 1986. Actually I think John thank you for the note. I think it was Wentworth by the sea in Portsmouth was in Portsmouth yes.

Kurk Dorsey:
Yeah. Actually on the naval base which is in Kettering or Portsmouth depending on the state capital you're from.

Laura Knoy:
Okay but still I appreciate the comment. Yes he's absolutely right. There was another big treaty or agreement signed right here in New Hampshire with important global implications for similar reasons.

Kurk Dorsey:
Washington was miserable so let's go up north where it was a more amenable to sitting around tables for hours at a time and negotiating because that's what they did both at the Portsmouth negotiations at the end of the Russo Japanese War and in this agreement and you know these were years before air conditioning so your air conditioning was a sea breeze or a breeze off snowcapped Mount Washington so they needed that kind of situation to keep the delegates focused.

Laura Knoy:
Well thank you for the comment John and again we welcome your comments exchange at any support. Is the email the number is 1 800 8 9 2 6 4 7 7. Another big concern that the delegates were focused on at this conference. Kurk was currency manipulation and wild swings in global currency so why was that such a a big problem.

Kurk Dorsey:
So in 1930 when the U.S. government passed the Hawley Smoot Tariff there's there is a famous chart by historian Kinley Berger which looks like a spider's web and he basically is charting the decline of global trade from the passage of a Hawley smooth tariff. And it's it's like a water going down a drain it spirals around closer closer to zero. Each month there's a decline in global trade. And so when when countries are not able to trade because they're increasing tariff barriers then they often find themselves within imbalances in their currency and so they devalue their currency. So if you happen to be holding British pounds it gets devalued your pounds are worth a lot less. So for a business purpose purposes you want stability and currency. And so this is one of the biggest things they wanted to set up a stability.

Ok. That gets a little complicated but we will dive into that after a short break. How the Bretton Woods agreement tried to address this. How that system stayed in place for a couple decades but then it kind of crumbled and fell apart. We'll follow up on that after a short break and we'll take more of your comments you can send us an email exchange at an NHPR org use Facebook or Twitter and NHPR our exchange. We'll be right back.

Laura Knoy:
This is The Exchange I'm Laura Knoy today. Seventy five years ago a new world financial system was created at a conference held at New Hampshire's Mount Washington Hotel. It was called the Bretton Woods agreement. And this hour we're finding out what happened there and what remains of the Bretton Woods system today. Let's get your questions in. Send us an email exchange at any age PR dot org. What questions do you have about the system that was set up at Bretton Woods. What is still existing with this system today. What stories have you heard about this important global event that small town in northern New Hampshire. Again you can send us an email exchange at any pork you can use Facebook or Twitter at any NHPR exchange or give us a call 1 800 8 9 2 6 4 7 7. Kurk Dorsey is here history professor in the College of Liberal Arts at U.N. H. And Kurk let's jump right into it one of the huge implications and changes that came out of Bretton Woods was how currencies are I don't say created but how they interact with each other how they are manipulated.

Laura Knoy:
So what was the problem there that Bretton Woods was trying to fix.

Kurk Dorsey:
Well the currencies Yeah so before the break we're talking about the trade imbalance. And so countries for the longest time your currency is based on precious metals. You had a certain amount of gold and you could print currency or you'd literally coin the gold and that would be your currency. So American dollars had been exchangeable for gold. For most of American history until Franklin Roosevelt took the American off the gold standard at the start of his presidency.

Laura Knoy:
So let me just stop you there because that's pretty remarkable that we were on the gold standard up until the 1940s.

Kurk Dorsey:
Yeah well well into the 30s because there was it was in the Depression when country stand got off the gold standard I say and then started manipulating their currency to try to protect their exporters so that they could hopefully export goods to try to fight unemployment at home. And so the concern of the economist at the at this meeting and its important member economists are you know trying to sort out what the postwar economy was going to look like. So this is a big challenge ahead. Was it after the war countries would naturally do what they had done before the war which is manipulate their currencies to help their own citizens even at the expense of other countries citizens. And what you would get then is almost like an arms race. Everybody would be doing it and it would hurt everybody. It's a downward spiral a downward spiral. So the agreement they came out of Bretton Woods it was most central was that the U.S. dollar would be pegged. Thirty five dollars an ounce. And so you could get a gold for 35 bucks and that would be a fixed exchange rate that the U.S.

Kurk Dorsey:
would have. And then every other currency among the Allied States or any other countries would want to join in would be pegged to the dollar. There'd be a fixed exchange rates and the hope was that this would create stability so that international businessmen could know if they were making a four or five year investment that the pound and the dollar would be at a certain fixed exchange rate for all that time. Now countries were still able to devalue their currencies from time to time but rather than doing it almost constantly at war with one another they had basically agreed to set up a system where they would all have a fairly stable exchange rate which is remarkable to us now because if you travel overseas are constantly checking The Exchange radios the dollar up is a dollar down but for most of the time after 1945 to the Nixon administration it was a fixed exchange rate and you knew what you were getting well and businesses love stability they want to be able to make long term plans and know what the deal is going to be.

Laura Knoy:
You know one two three four five years out.

Kurk Dorsey:
So yes and so and so the other institutions out of Bretton Woods one of which was International Monetary Fund was about protecting those exchange rates so that if a country was in a position where it felt for domestic political reasons it would have to devalue its currency. Instead they could get support from the International Monetary Fund to protect their currency and stabilize their system so they wouldn't have to devalue that they would not get into this downward spiral again getting back to our earlier theme.

Laura Knoy:
You know the whole idea of being global economic stability will lead to a global political stability. Absolutely.

Laura Knoy:
So were we on the gold standard or not. It sounds like gold is still playing a role but not as robust as before right.

Kurk Dorsey:
So I mean in some ways it is robust because the U.S. economy is now back on a gold standard and everybody else's currency is pegged to the U.S. dollar. So effectively the gold standard is how much gold is in Fort Knox. That's the control currency around the world. And that was why Bretton Woods was a pretty big leap of faith by these allied nations that they could trust the United States not to engage in it was called beggar thy neighbor policies that the United States would take its economic supremacy and use it to try to uplift Western Europe in particular as opposed to take advantage of Western Europe.

Kurk Dorsey:
But the Western Europeans had very little choice. They had so little reserves in 1944. I mean the French government was not even in France. It was occupy the new region government was not Norway. So these were occupy countries in effect trusting the United States to do the best it could.

Laura Knoy:
Well I want to play a little bit from John Maynard Keynes again the famed British economist. Here he is on a British newsreel and he talks about the importance of reducing gold in deterring. Currency values. When that happens he says a great weight has been relieved. Let's hear Kane's talking about his dislike of the gold standard.

Archival Audio:
There's no danger of The Exchange getting too far. There's no danger of a serious rise in the cost of living. The worst I would expect would be a return to the faces of some two years ago. Meanwhile British trade would have received an enormous stimulus much more than most of us have yet realized. The wonderful thing for our businessmen and our manufacturers and unemployed to taste a game a game that's not to allow anyone to put them back in the Birdcage where they have been pounding the hearts out all these years.

Laura Knoy:
That's so poetic than gold cage where they've been pining their hearts out after all these years. What do you think about that clip that we heard from Keith.

Kurk Dorsey:
Well partially gold is an easy thing to throw rocks at. Right. We go back to AMERICAN HISTORY 1896 William Jennings Bryan running on the Democratic ticket at the Democratic convention said You shall not crucify mankind on a cross of gold because the Democrats wanted coinage of silver not just gold. And that speech was so popular he went around for years afterwards giving the speech on the Chautauqua circuit because it was a great speech and it it it framed two people this problem. I don't have any gold so why is the gold standard good. But for so I think Cain just tried to have it both ways. He's trying to tell the British citizens you know the gold standard was the old system it didn't work. We got a depression because of that but at the same time Caines knew as well as anybody that the currency system had been set up not he didn't choose it but his assistance and his supporters in the British delegation supported it that this currency exchange system based on the amount of gold in Fort Knox was the new law of the land after World War 2. So he was trying to have it both ways. There I believe.

Laura Knoy:
Well he wanted to make one world currency called the bank thank you. So how close did this come to reality.

Kurk Dorsey:
About as close as that likelihood of a U.S. Senate vote in favor of the bank or which was none NL. And actually this is one of the things that the U.S. delegation kept telling the British but anybody who would listen that you can come up with all the wonderful ideas you want we need to get two thirds of the Senate to approve it. And and that would usually stop the more utopian visions of somehow a global currency. But there were American negotiators too thought well maybe this is a step to a global government. So we'll actually have a global economic system with more centralized governments somewhere 40 50 years down the line but they can always count on senators including Senator Toby from New Hampshire but also Midwestern isolationists who were just not going to accept a global currency. There is no way the United States would ever have the bank or as any official currency.

Laura Knoy:
Wow. Well that would be a good paper for an economic student. What. Yes. Well yeah.

Kurk Dorsey:
Bretton Woods had adopted the bank or had a good paper for American historians because the U.S. Senate has an incredible amount of power in foreign policy and the British knew this because they had on several occasions negotiate treaties with U.S. diplomats only to watch the Senate you know start fiddling with it and move pieces around or most clearly in the case the Treaty of her side just say no we don't want this and reject it. So they knew that the Senate actually said it was not a bluff.

Kurk Dorsey:
When U.S. diplomats said the Senate will never pass this let's go back to our listeners Kurk again a number here in The Exchange for you to join us with your comments about Bretton Woods or just your questions about what happened there 75 years ago 1 889 2 6 4 7 7 e-mail exchange and an NHPR and Dave is calling from hacker Hi Dave you're on the air.

Caller:
Welcome. Thank you. My question for the professors too. Does it seem to you that you really had a positive effect in substantial terms by that one agreement. No meaningful agreement. Because it seems like so many other things like terror of different countries manipulating their currency the way they want to for their own benefit still going on. And if it hadn't been for continued concerns continued meetings continued focus on those over the years the agreement by and stuff wouldn't have had much effect. My second question is I think the World Bank was also created and I have heard that there's a lot of negative projects that were funded by that negative in terms of the country's economy. And I wonder if that in your point of view has had a positive or a neutral or negative effect over time.

Laura Knoy:
Great questions Dave. Thank you so much just take the second one first because he's right. The IMF which worked more on currency stability was created at Bretton Woods but so was the World Bank.

Kurk Dorsey:
Yes. And the World Bank has had a lot of different lives in the 50s and 60s was really a development bank for what we would have called them the Third World a developing world. And the idea was to build these big infrastructure projects that would help countries become more modern and more industrialized and dams and dams and harbor railway system airports and things like that into a lot of their countries were unable to pay these things back.

Kurk Dorsey:
And there has been a lot of criticism of the World Bank not just on the grounds.

Kurk Dorsey:
Actually very similar to what the Chinese are doing at the Belt and Road Initiative their loaning lots of money to people to build infrastructural projects that sometimes the countries can't really use and then there's the question well who's going to pay these back. In the case the World Bank because was an international institution even with American power. This was not about manipulating Uruguay into doing something it didn't want. But it did cause these countries sometimes to take on debt that they couldn't pay back. And then related to that where the environmental challenges that a lot of these mega infrastructural projects like building dams on rivers had enormous environmental consequences that nobody was thinking about in the 1950s and 60s. So there was a pretty big transition in the World Bank. You know the World Bank is like any global organization. It's got a mixed record. And you know the I think mostly people working in the World Bank had their hearts in the right places they were trying to alleviate poverty and create systems of trade that would help people around the world. But. Oftentimes these projects go wrong. Even what they thought they were getting or Bretton Woods wasn't entirely what they were getting. The world changes under under your feet.

Laura Knoy:
And then the first question the first question was more about an observation and it's a great one Dave. That currency manipulation still goes on. Trade wars still go on. So there's been sort of a constant vigilance toward these issues through institutions like the World Bank and the IMF and other newer institutions.

Kurk Dorsey:
Right so I think the biggest thing out of Bretton Woods is a spirit of cooperation that the countries on the Allied side in effect we're saying we really messed up in 1919 by not having enough cooperation. And so now we're going to try to mitigate that problem by talking through our problems. And even if the solutions we came up with in 1944 were were imperfect they were still built on the idea of cooperation. And how do we work our way through these problems. You know Britain was a country that was basically bankrupt. It was living on American loans. But the United States didn't tell John Maynard Keynes tough you're going to live up to our standards. They negotiated with canes and tried to work out a system that the British could willingly buy into. And in terms of the quotas going into the World Bank the International Monetary Fund you know the U.S. drafted a schedule quotas but then negotiated with the countries. You know how much can you pay. How much do you want to pay. So the United States really made an effort at this meeting to lead cooperatively and that's huge in terms of when new disputes arise. You know the big dog the United States could have just said tough we're doing it our way and it doesn't from time to time in the post-war world but more often than not set the tone for cooperation. And you know one of the things that came out of the Bretton Woods meeting was a proposal for an International Trade Organization. It didn't get much support in the U.S. at the time but it would the World Trade Organization that we have now which is supposed to address the things that you mentioned are in fact a World Trade Organization is basically the International Trade Organization come to life. It took about 50 years but it did come to life as a way of addressing these tariff barriers in trade wars and currency manipulation to try to set a level playing field. And again it's got its flaws but it's it's about an idea that if we trade with one another we won't shoot with one another.

Laura Knoy:
Yeah. And that's also the similar idea behind the European Union.

Kurk Dorsey:
Right. And that's that's been huge progress. A Bretton Woods a central force setting the ground rules that we can talk through our economic problems and we may not all like the solutions but we will at least try to solve our problems diplomatically rather than cutting off trade with one another which then eventually leads to hard feelings and leads to countries saying well we can't trade for these goods we're going to conquer them.

Laura Knoy:
So fair enough to criticize the details and how these things worked. But you're saying Kurk let's praise and appreciate the spirit of cooperation not competition because that can lead to World War.

Kurk Dorsey:
Absolutely. So you know I was thinking about the cemeteries in France. The U.S. has a couple really major cemeteries in France. Almost all of your listeners know about the one at Normandy. They've probably seen it on TV on Saving Private Ryan or someplace like that. Many have visited. There's a larger cemetery for World War One the muse our going cemetery but almost nobody goes to. But there are more Americans buried there and those Americans were just as heroic as the ones at Normandy in terms of military history their contribution was just as important for shaping the outcome of the war. But for most Americans World War One is that war that ended with a you know it just fell apart because the post-war settlement didn't work. So I think of that comparison of those cemeteries that people forgotten the sacrifice that led to the muse our own cemetery because when the war was over the settlement was terrible. But the settlement of World War 2 worked obviously it was flawed but the Bretton Woods Agreement was really central to a post-war world that generally was peaceful and countries that had been at war decided to solve their problems in other ways.

Laura Knoy:
Well and I love that at all kind of happened right here in New Hampshire. Yes I think that's just great. So here's another comment from a listener Stuart on Facebook says the Bretton Woods conference quote put the world into a huge mess along with fractional reserve banking mess. Now for many understand fractional reserve banking that's where a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal without getting into fractional reserve banking because you're a history professor not an economics professor. You know I think there are others like Stewart who think you know Bretton Woods was a mess and these institutions that set up didn't work.

Kurk Dorsey:
Sure and it's impossible to know what would have happened coming out of World War 2 if we hadn't had Bretton Woods or Dumbarton Oaks setting up the U.N. at the other important piece of 1944 as the G.I. Bill to help you again these are but these are all set up by American leaders who are worried about a return to the Great Depression and they're trying to come up with a set of policies that will allow countries to cooperate whether that rather than struggle with one another.

Kurk Dorsey:
So I mean he may be right in the sense that maybe without Bretton Woods things would have been better but the reality is from 1945 to 1970 the world had pretty much unbroken economic growth. And the major powers stayed out of war with one another which was good. Given the size of the armies and their nuclear weapons. So for those 25 years after World War 2 the Bretton Woods system worked. I think pretty well. There are a lot of criticisms of the World Bank International Monetary Fund it certainly countries gave up their sovereignty the banking rules changed. But at the same time it's hard for me to imagine a system that would have worked better coming out of a global war than the system they came up with.

Laura Knoy:
Real quick you mentioned Dumbarton Oaks some listeners may remember that that's tied with Bretton Woods at all kind of happened around the same time in the summer of 1944. But just remind us real quick where Dumbarton Oaks is and what happened.

Kurk Dorsey:
So it's a big estate in Washington D.C. and the United States wanted to host meetings in the fall of 1944 among the major powers to set up rules for the new United Nations. So first the Americans British and Soviets met and then the Soviets left the Chinese came in because the Soviets and Chinese could not talk to each other because the Soviets were not fighting the Japanese. So they were actually not allies in 1944. So at Bretton at places like Dumbarton Oaks and the Tehran conference the Chinese and Soviets would not be in the same way we had to have two separate meetings separate meetings. So by it's still the idea was let's set the framework for what a new League of Nations only we'll call it the United Nations will look like in terms of who will have the power in this organization what countries will have voting rights.

Kurk Dorsey:
Well the Soviets have one vote or a whole bunch of votes with the British Empire have one vote or a whole bunch of votes. And that in particular would there be a Security Council who would be on it would certain states have vetoes so Dumbarton Oaks enough in the late summer and early fall of 1944 was central for having the great powers work out what the U.N. would look like after World War 2. And again this is part of post-war planning before the war is over right.

Laura Knoy:
That's what's so remarkable. Whereas Woodrow Wilson waited till the war was over and then tried to negotiate it all Paris and and failed.

Laura Knoy:
Well coming up we will talk about when the Bretton Woods system started to break down in 1970s why but also and you alluded to this earlier. Kurk what replaced it. What remains so we'll talk about that after a short break. This is The Exchange on New Hampshire Public Radio.

Laura Knoy:
This is The Exchange I'm Laura Knoy. Tomorrow in The Exchange. National Public Radio's public editor takes your questions so send them in by email before the show to exchange at an NHPR . And join us tomorrow morning live at 9. This hour the seventy fifth anniversary of the Bretton Woods Agreement as well we're too was winding down this agreement set up a new international financial system in the hopes of avoiding another world war. We're finding out more about what happened and we've been hearing from you send us an e-mail exchange at an NHPR org use Facebook or Twitter and an NHPR exchange or give us a call 1 800 8 9 2 6 4 7 7. Kurk Dorsey is here history professor in the College of Liberal Arts at U.N. H. And Kurk let's talk about when things started to unravel in the 1970s. You often see summaries that that's when Bretton Woods ended. I'm sure you'd dispute that a little bit.

Laura Knoy:
But what was happening in the late 60s early 70s where a lot of people started to say oh this Bretton Woods system just isn't working.

Kurk Dorsey:
Well the biggest problem the United States was at pegging gold to thirty five dollars an ounce was deflationary. So as the economy grew and as inflation set in if you were still holding gold at thirty five dollars an ounce from 1945 it was worth it which should be worth a lot more. By the 1960s and particularly when the United States was spending a lot under Lyndon Johnson first of all the Vietnam War but also his social programs you know if you go through the Johnson papers it's remarkable you we're authorized to under a million dollars for a desalination plant in Israel and 20 billion dollars for this anatomy.

Kurk Dorsey:
Johnson his budget guy most had a huge ulcer but so the U.S. government was spending a lot of money and that but the gold standard was keeping the American currency in check. So there was a great deal of inflation in the United States and it simply wasn't accurate to say the gold was worth thirty five dollars an ounce anymore or that the dollar could be converted. So Nixon had to make a decision whether to stick to that to come up with a new value was some of his advisers suggested doubling it to 70 dollars an ounce or to just say OK. The the financial system has Bretton Woods has done its work. We've had 25 years of prosperity. Now it's time to go back to the old ways where a currency is easily exchanged but it also is flexible and it depends on the health of a world economy.

Kurk Dorsey:
So in 1971 he announced that the United States government was going off the gold standard there would no longer be thirty five dollars an ounce exchange rate that the United States was not going to keep sending gold out of Fort Knox because that's what it was doing because people were. The United States had to send gold overseas it was becoming I should step back for the first time since the late eighteen hundreds. The United States was actually running a trade deficit they're running a trade surplus almost constantly since the 80s and 90s and now in there around 1970 it starts running a trade deficit and it's only going to get worse. They can see the U.S. is importing an enormous amount of oil for instance. So Nixon simply made the decision that the Keynesian system was no longer working. That's funny because when he was elected he said we're all Keynesians now and they were the first things he did was get out of the Bretton Woods currency exchange rates Keynesian so much.

Kurk Dorsey:
Yes.

Laura Knoy:
Well let's hear a little bit from President Nixon This is August 15th 1971 this is a big big speech that he made announcing dramatic changes in economic policy. As you said Kurk including some of the structures of the Bretton Woods international monetary system and Nixon says in this speech he's doing it to protect the dollar from currency speculators.

Archival Audio:
Accordingly I have directed the secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets. The United States has always been and will continue to be a forward looking and trustworthy trading partner and cooperation with the International Monetary Fund and those who trade with us. We will press for the necessary reforms to set up an urgently needed new international monetary system.

Laura Knoy:
Okay so again that's Richard Nixon saying in 1971 a lot of it was set up at the Bretton Woods agreement is no longer see. He says the Don't worry though international partners we're going to set up a new monetary system. Did they do so.

Kurk Dorsey:
Not really it became just open exchange so that people. The funny thing is if you're a currency expect a speculator. This was a lot better for you because as we've seen since 1971 currency speculators have started following almost every currency in the world to look for potentially overvalued currencies or undervalued currencies that they could make money trading whether it's shorting it or buying it when it's cheap. Nixon was particularly concerned that 35 dollars in 1971 was worth a lot less than it had been in 1945. So speculators could just buy gold literally buy gold for thirty five dollars an ounce and then expect that it would get more more valuable. So he had to get off that system. And since then they basically have just decided that we're going to trust that the dollar is worth something based on the American economy and it's still most global currencies are pegged to the dollar. Informally if not formally most people think about what houses compared to a dollar even the euro in many ways is is pegged to the dollar that way but that's the one currency that maybe has some independence from the U.S. dollar.

Laura Knoy:
So this newer system even though Nixon said he was doing it to protect the U.S. dollar from currency speculators actually made life easier for currency speculators.

Kurk Dorsey:
Yeah. So I think it did both. I think it protected the dollar because it freed up the dollar to be a representative of the strength of the U.S. economy.

Kurk Dorsey:
And so they in effect that what they came up with was thinking about the money supply and you could control the amount of money in the economy you could control interest rates. So we're seeing that the news the Fed sets interest rates they basically decided that there were other ways to control the value of the dollar short of a very fixed gold standard. And you know it's generally worked obviously there've been crises 2008 they didn't get it right. And here is a case in the 1990s for instance when Thailand its currency got destroyed by international speculators so the idea is the International Monetary Fund should be able to help countries like that by shoring up their currencies.

Laura Knoy:
But it's almost impossible to do you know that's interesting because recently I don't remember any sort of major currency crises. But you're right listening to you Tucker. We have had these in the past decade or two. I remember a big one I think in Asia. And so we haven't seen you know crazy crazy amounts of crises. Nixon says you know there was one every week for the past seven. One every year for the best seven years but we have seen some of these but not as much as maybe you might think.

Kurk Dorsey:
Right. And I think it's partially because the central bankers and countries around the world have had to figure out how to make the system work. And so if you have a false value to your currency you either have to stop your currency from being traded on international market. And some countries have done that you can't trade North Korean.

Kurk Dorsey:
I'm not sure whether North Korea would say yes.

Kurk Dorsey:
You can't trade that you can't trade Cuban currency on international Mark. So there are certain closed economies where their currency is not freely convertible. But if you're if your currency is freely convertible anybody out there can go buy it. So you have to actually engage in policies that make your currency worth what you say it's worth. And if you say it's worth something but speculators can look at your bottom line and say there's no way it's worth it you'll get punished. So I think what's happened is that central bankers have had to learn the hard way not to participate in in fraudulent schemes that they are. Eventually they will be caught out in their currencies those will be ruined and then they'll be in trouble.

Laura Knoy:
So you have to keep your books in reasonable order so that your currency doesn't get devalued it almost makes you do what you should do anyway.

Kurk Dorsey:
I think so I mean in a weird way it's globalization which again Bretton Woods was part of Bretton Woods as part of making sure that countries around the world don't think they can close themselves off and be prosperous they have to engage in the global system. And if they engage in a global system they'll be happier trading with one another than they'll ever be shooting at one another. And then the whole technology of globalization which is separate from the policy allows traders in New York to know what's going on with Cambodian currency or Thai currency or Indian currency and say well we can make a lot of money if we buy a Thai currency because in six months it's gone down or was going up and you know so they had that kind of information.

Kurk Dorsey:
So I don't think governments can now successfully and continually protect their currencies in a way if they're freely convertible so a country like China can get away with it. But most countries can.

Laura Knoy:
Is anybody calling for the gold standard today.

Kurk Dorsey:
Oh from time to time a politician will do it but they're usually dismissed as cranks because you know it's so old fashioned and people don't put value in gold quite the same way. Plus if you watch the gold market you know one day it's up to twelve hundred dollars and then a couple weeks later it's down to nine her dollars an ounce gold is is fluctuates quite a bit and how people value it. So I think there is marginal support for the gold standard but it's not coming back anytime soon.

Laura Knoy:
So if the IMF role as created by Bretton Woods was to keep currencies from going wild and thereby destabilising economies and governments then we went off the gold standard. So what does the IMF do now.

Kurk Dorsey:
What if anything is more important because the IMF I think helps countries see where there are these potential discrepancies are arising and encourages countries to avoid them. But also if they get themselves in a tight spot they can turn to the IMF to help for loan for loans for it mainly for loans after currency stabilization loans to sort of tied governments over you know currency devalues when people are when governments usually and government are spending more than they have access to and so they start printing more currency and so the IMF comes in it's usually not very popular in and recent years think about what happened in Greece. You know the whole idea obviously Greece in the eurozone so it can't quite have the same national discipline as a country outside the eurozone. But to come in to say to Greece. You know you can't continue to spend all this money that you don't have by borrowing from the Europeans. We're gonna have to set you on a course of economic austerity which is never popular. But the alternative is bankruptcy or getting out of the euro and trying to make it on your own. So usually austerity is bad but all the solutions other than austerity are worse. And so the IMF is in many ways almost like an international consultant to help countries trying to avoid getting into those situations.

Laura Knoy:
So it makes loans for currency stability and it kind of heavily suggests that currencies get their books.

Kurk Dorsey:
Yeah I think I think that's a good way to put it. So the IMF is truly international. I think the president is French and they work hard to try to keep stability and economic system again on the theory that stability in the long run is better for everybody and the World Bank today kind of does the same thing.

Laura Knoy:
But I feel like it's sort of changed its focus from these megaprojects that please. Yes you know powerful leaders in in developing nations and has focused more on the the micro loans the sort of direct to people loans and paying more attention least to the idea of sustainability if we can figure out what that means that that these mega-projects aren't really sustainable in many countries.

Kurk Dorsey:
So what would be sustainable. So both the World Bank and the IMF are with us the World Trade Organization is very powerful and it's a product of Bretton Woods first it was the proposal for the IPO and then global Great General Agreement on Tariffs and Trade which came out of Bretton Woods and eventually morphed into the World Trade Organization. So Bretton Woods is still with us and still influencing our economic decisions and with the same goal of 1944 which is to try to smooth out the bumps and prevent I come to your country from collapsing and then potentially turning to desperate measures.

Laura Knoy:
How do you approach this topic with your students.

Kurk Dorsey:
Well most of the students are not aware of the Bretton Woods meeting they are aware of the creation of the U.N. and certainly they've heard of the G.I. Bill. So I first I just try to start with the basics that this is about the U.S. government and to a large extent U.S. systems making a decision that the mistakes have been made in 1990 and not 1917. So what are the what are the solutions to those mistakes. So I just try to lay out the framework for why a World Bank or an IMF would be important and then also why would other countries want to join an American led institution. What does this tell us about their power but also their need to trust the United States because there is an enormous amount of trust behind these organizations particularly not so much the U.N. because the U.N. is more of a political organization. But for the financial organizations the U.S. put in the plurality of the money for the World Bank and the IMF. Both of them are set up in the United States with American leadership and there in D.C. They're in DC. And so you know these countries just sort of had to trust that the United States was going to lead an international system that was not just about the United States. And I put it in a larger framework.

Kurk Dorsey:
And one of the things I emphasized for the students is that it's remarkable and U.S. foreign policy how often American leaders come back to this idea of universal human values that there are values that people around the world share the United States stands for those are in the Declaration of Independence and its foreign policy imperfect as it is frequently comes back to these ideas of well what can we do to promote universal values. And even Barack Obama as he was leaving office he gave that interview in the Atlantic with Jeffrey Goldberg and I was just stunned they're in the middle he's talking about the United States has stood for universal values and you know this is something even as he's leaving office this is something we need to be continue to do. And so even Barack Obama who was elected in 2008 at a time where that didn't look like the U.S. had a lot of universal values are not around the world it didn't appear that way. Came back to this idea that this is what the United States in its past keeps fighting for and so countries around the world can see the United States as representing world interests and not just U.S. interests. Well yeah good idea. But still yeah at least as an idea it's something worth striving for.

Laura Knoy:
Well it's interesting too that they've heard of the United Nations but they have not heard of the IMF or the World Bank.

Kurk Dorsey:
I think they know about that but many of them know about the World Bank or IMF but couldn't tell you where it came from or that these were World War Two institutions about bringing peace and stability. So if they've heard about the World Bank I'd say more often than not the environmental critique of the World Bank and these huge megaprojects in there and their problems the IMF they might have heard of you know an econ fallen for 2 kind of class but the origins of them and the centrality to making something good out of World War Two is usually quite surprising to them.

Laura Knoy:
When you present for the first time and you kind of alluded to this already Kurk what strikes your students as interesting or unusual.

Kurk Dorsey:
I think they find it remarkable usually because they've just read about the isolationist period in the mid 1930s that so quickly after that the U.S. government has turned around and has shed almost all of its isolationism and has become the leader even on economic grounds. It is a pretty remarkable transition in popular support. You know when the Bretton Woods Agreements go to Congress that Congress votes overwhelmingly for them. Even people who had been strong isolationist in the 30s vote for them. So I think they're shocked by how quickly the American attitude towards these institution shifts. And then I think the other thing that surprising is because we know what happens next is that 1944 they're working so hard to get the Soviets onboard and they see they really do see the Soviets as people they can hopefully work with in setting up this new world order. I think that there are a lot of realists in the U.S. government who recognize even in the summer of 1944 that when the war is over there's going to be a breakdown with the Soviet Union and you don't put a lot of faith in Soviet promises. Mark Stoller who was at the University of Vermont for many years wrote this great book called allies and adversaries about how the U.S. military high command as early as 1942 is planning for a post-war dispute with the Soviet Union. And when they're advocating landing in France in 1942 it's because they want to get into France before the Soviets overrun from the other direction.

Laura Knoy:
Sure. So there's already communists to take over exactly there's that fear again.

Kurk Dorsey:
Exactly. They they don't see Stalin is any better it just because it's 1944 they. He's still the guy they didn't like in 1937. So there are a lot of realists in the American government but there are other people saying we have no choice but to work with the Soviets let's see if we can come up with a system that we will both.

Laura Knoy:
We can both make work and I've always been struck by the fact that all this was going on your justice earlier but all this is going on while there was still lots and lots of fighting left to go right July of 44 of the war is not over yet.

Kurk Dorsey:
D-day has happened but the war is far from over and the war in the Pacific is really far from over. You know in the summer of 45 they're anticipating months of fighting in Japan and the war before they know the atom bomb will work and that the Japanese will change their policies in the aftermath of the bomb and the Soviet declaration of war. They're anticipating the war in the Pacific going on at least until December of 1945 1946. So you know they're not saying oh this war is almost over. They're thinking how close are we.

Kurk Dorsey:
Year two years maybe more. So he's pretty far sighted. Well this is a big seventy fifth anniversary period that we're heading into we just had D-Day now we've got Bretton Woods will be a lot of seventy fifth anniversaries over the next year.

Laura Knoy:
Kurk So I think we'll be seeing you again. My pleasure. We really appreciate you being here. Thank you so much. Thank you. That's correct Dorsey history professor in the College of Liberal Arts at U.N. H. Once again a reminder that NPR's public editor will join us tomorrow. It's her job to hear from listeners comments concerns praise and criticisms. Send them in to exchange at an NHPR record. The Exchange is a production of New Hampshire Public Radio. The engineers Dan Colgan our senior producer is Ellen Grimm. The producers are Jessica Hunt and Christina Phillips. Theme music was composed by Bob Lord. And I'm Laura.

The views expressed in this program are those of the individuals and not those of an NHPR bar its board of trustees or its underwriters. If you missed part of today's program listen to The Exchange. Any time at an NHPR board dot org or subscribe to our podcast search Apple podcasts Google Play or stitcher for an NHPR bar exchange.