This Soviet spy created the US-led global economic system


“Russia is the first example of a socialist economy in action… and it works!

These were not the words of a Bolshevik revolutionary or an intellectual on the Left Bank, but of the American who wrote the rules of international finance for the 20th century: Harry Dexter White. White was the United States’ representative at the Bretton Woods conference, the birthplace of the World Bank and the International Monetary Fund.

The story of this conference comes almost entirely from Benn Steil’s epic battle for Bretton Woods. Although a number of books on this subject have been written, this is the only high-profile story published after a number of important documents behind the mystery of White’s Soviet partnership, rich in evidence, were declassified. primaries ignored by previous authors.

The Battle of Bretton Woods

The world in 1944 was marked by an extreme economic imbalance: as the world war faded, the United States had become both a geopolitical and financial superpower, controlling nearly 80% of all the monetary gold in existence. The Bretton Woods conference was organized to formalize the conditions under which Americans would become creditors around the world.

The Battle of Bretton Woods, named after the quaint New Hampshire town in which the conference was held, was largely a battle between a nascent superpower and a declining empire. The tension emerges from the cognitive dissonance of part of the British representative, John Maynard Keynes. On the one hand, the British were forced to beg for even the most basic principles of aid. On the other hand, they saw Bretton Woods as a discussion between two great equals, deciding the fate of the world.

The central problem concerned the relationship between creditor and debtor. Depleted of its gold reserves, Europe was heavily indebted to its Western partner. A debtor nation is ultimately bound by its budget constraint, so it was necessary for the British to export more than they import for a period of time to settle their debt. A country in this position has two, and only two, choices: deflate or depreciate. In other words, to achieve a trade surplus, the British could either regain competitiveness by lowering the cost of their goods on the international market through deflation, or increase the relative purchasing power of foreign consumers by depreciating its currency.

In a fixed exchange rate environment like the gold standard, the latter was not an option. This was a problem for Keynes, who had first-hand experience of the painful deflation that Britain suffered after gold flew to the United States during World War I. Keynes – like White – also hated the alternative of “competitive devaluation,” where countries facing a budget constraint would devalue their currencies at will. Both saw that this was a serious threat to free trade and monetary stability, the very institutions that Bretton Woods was striving to protect.

For Keynes, this meant that the world had to trust the creditor country to lend its reserves in times of trouble. Indeed, in his historical treatise, The General Theory of Employment, Interest, and Money, Keynes blamed the “American propensity to hoard” the influx of gold between 1929 and 1932, which exported its domestic deflation to debtor countries in Europe. The Achilles heel of the old system, for Keynes, was then the asymmetry between borrower and lender: “The adjustment process is compulsory for the debtor and voluntary for the creditor. Only one faced an impending budget constraint.
Therefore, Keynes wanted an international fund that would force a creditor country to lend its reserves and penalize it for having a persistent surplus, dividing the cost of adjustment between the two parties.

White didn’t see it that way. Whatever the source of the disagreement, however, we know it was more prescriptive than descriptive. Indeed, despite his allegiance to Soviet spies, White’s diagnosis of the world economy was, in Steil’s words, “totally Keynesian.” It was no coincidence that he was part of an administration that adopted historically unprecedented public spending plans with the aim of achieving full employment. However, his motives were markedly different from Keynes’s. While both wanted monetary stability, Americans saw it as an opportunity to cement the dollar at the epicenter of monetary affairs and further defend American interests.

Foremost among these was the issue of free trade, which attempted a “magical coincidence between the far right and the far left”. The State Department, headed by Cordell Hull, wanted a world free from all trade barriers, such as tariffs and subsidies. This was at odds with Britain’s imperial preference system, which offered its exporters a captive market across the Empire and was biased against American business. On the other hand, the Treasury Department, infected with the Communist sympathies of its main technocrat, viewed the imperial preference system as one of the few things that made maintaining an empire financially worthwhile.

In the same vein as anti-imperial minds in the Soviet Union, the socialists in the Roosevelt administration viewed the British Empire as a grotesque violation of democracy and self-determination. The tradition of anti-imperialism has a long history of suspicion of exporters. Indeed, John Hobson, the Victorian-era economist fiercely critical of imperialism, saw empire as the natural evolution of capitalism – the perpetual accumulation of capital would no longer have any productive domestic application, forcing the foreign investments by national capitalists:

When production capacity grew faster than consumer demand, there was very quickly an excess of this capacity and therefore, there were few profitable domestic investment opportunities. Foreign investment was the only answer. But, to the extent that the same problem existed in all industrialized capitalist countries, such foreign investment was only possible if non-capitalist countries could be “civilized”, “Christianized” and “elevated”, that is. – whether their traditional institutions could be destroyed and the people coercively subjected to the domain of the “invisible hand” of market capitalism. So imperialism was the only answer.

Hobson would become very influential in the Marxist critique of capitalism and the resulting vicious cycle that White wanted to moderate.

This brings us to the most fascinating part of Steil’s story.

White was actually red

The clearest observation of White’s ideology comes from an unpublished, previously overlooked screed that Steill found in the archives of Princeton University, titled “Political-Economic Int. Of Future.” In the essay (interspersed with pink-tinged observations like “the trend in Russia appears to be towards greater freedom of religion. The constitution guarantees this right”), White concludes that only a permanent union between the United States and its future cold fighter could suppress the imperialism which caused two deadly wars.

Throughout the essay, White not only saw a Soviet partnership for the material benefit of America, but also sympathized with its greater cause. His support was so strong that he convinced Treasury Secretary Henry Morgenthau – against British and American preference – to let the Soviets print US-sponsored currency in the new Germany. In return for this favor, the Russians put into circulation nearly 80 billion marks, more than eight times the American emission. Eventually bought back by the Americans at the exchange rate set by White, that amounted to more than $ 6 billion in today’s dollars. In other words, the United States gave the Soviets twice as much in 1944 as it did to Israel last year.

White’s ideology had less impact in the aftermath of Bretton Woods itself. While he was just as sympathetic to the Russians as he was wary of the British – blithely advocating a cheap $ 10 billion loan to the former and forcing the latter to beg a third as much – it wasn’t long before his history does not take hold of him. with him. Suspected of being a Soviet spy, White had been under the surveillance of J. Edgar Hoover for months before Harry Truman intended to appoint him managing director of the IMF. Although Hoover submitted a report to the President just a day after appointing White an executive director, the political ramifications of the FBI report were enough for Truman to rescind his plan to put White in charge of the infant.

It would be a shame to admit to the world that the American who designed the international economy was a mole, but you can’t name another American above White without raising an eyebrow. Instead, Truman pursued perhaps the greatest acts of false altruism of his life by claiming, in Steil’s words, “That wouldn’t be ‘correct’, [he] had concluded with an unusual impartiality, “to have Americans at the head of both organs”.

Indeed, one of White’s enduring legacies is the anachronism of a US-led World Bank and a European-led IMF.

If it hadn’t been for the uproar over its espionage, the white-led IMF could have had a profound impact on US-Soviet relations and the most important geopolitical moment in the history of the two nations. Instead, the relentless technocrat is a footnote in economic history. But an important one. As the heart and soul behind Bretton Woods, White foiled Keynes by creating an unmistakably American monetary regime that persists to this day.


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