Today marks the 70th anniversary of the Bretton Woods Conference. The New Hampshire convention is little known, but to this day remains a critical event in the formation of the modern world economy. It was here that Western leaders and economists – including legendary and controversial British economist John Maynard Keynes – began charting the course for international trade, finance, and currency policies in the second half of the 20th century.
The most notable achievements of the Conference were the creation of the International Monetary Fund (IMF) and the World Bank. These institutions grew out of fear of another Great Depression (and the subsequent world war) and were designed to facilitate trade and economic cooperation between nations, while minimizing economic uncertainty, particularly in difficult times. The IMF was built to be the lender of last resort to developed nations, while the World Bank’s primary purpose was to aid developing nations with various loans and developmental benchmarks. Both were created with strong free market inclinations. The Conference also saw the establishment of international currency norms. Before the Depression worldwide currencies largely functioned independent of each other and their values were difficult to assess, plus national governments often manipulated their own currencies to boost exports. As a consequence, during the depression they fluctuated wildly both internationally and domestically, making trade more difficult and further complicating a dire situation. To prevent a recurrence of this, leaders established the U.S. dollar as the global benchmark currency, with the value of all other currencies pegged to it. The value of the dollar itself was determined via the gold standard (President Nixon abolished the gold standard in the U.S. in 1971 in favor of a floating currency, however all world currencies are still assessed relative to the dollar).
Critics point to this conference as the beginning of corporatist hegemony. The first example of elite financiers, in conjunction with political leaders, rigging the system for their own ends. Many people believe that the IMF and World Bank have long outlived their original charters and no longer make sense in a more globalized world no longer dominated by the West. They point to a democratic deficit in these institutions, saying they are accountable to no one. Perhaps they are right. Perhaps the roots of our deep inequality problem and the relative value of capital versus labor lies with the decisions made at this conference. At the very least it seems certain that both of the Western dominated institutions will require serious changes to adapt to the modern multipolar world, specifically the rising economic might of China. However, it’s undeniable that the decades following the war saw the greatest global economic expansion in world history and there has never been a world war since. Correlation never equals causation, but it’s definitely true that things could have been a whole lot worse in the 70 years since Bretton Woods.
It seems more likely that our current problems are more a function of complacency and our lack of ability to adapt to new norms and make corresponding adjustments to the appropriate institutions. New problems require new thinking and we should move beyond debates of the past.