“Loyalty, Treachery, and Economic Nationalism”

a review by Matthew Linton

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order
by Benn Steil
480 pages. Princeton University Press, 2013.

Benn Steil opens The Battle of Bretton Woods not during the Great Depression, but in 2008 as the United States settled into its most severe economic downturn since the 1970s. In the scramble for solutions, economists and financial leaders including George Soros, Joseph Stiglitz, and Fred Bergsten looked to the financial restructuring that occurred at the Bretton Woods Conference as “blueprints for revamping the international monetary system” (2). The spirit of cooperation that supposedly defined Bretton Woods made it especially attractive. Any substantial 21^st century international economic reform would have to accommodate the growing economic might of the People’s Republic of China (PRC) and its particular blend of communism and capitalism.

The crucial question Steil poses is “can the story of Bretton Woods light the way” to international economic reform in the 21^st century (2)? To Steil, looking to Bretton Woods – and the debates of its two principle protagonists Englishman John Maynard Keynes and American Harry Dexter White – for the clues to how to reform the world out of its economic slowdown evinces a fundamental misunderstanding about the historical circumstances that brought about the Bretton Woods Conference and what occurred at the Conference itself. Steil challenges the popular narrative of Bretton Woods by arguing that it was competition and rivalry, not cooperation and goodwill, that categorized British and American economic relations during World War II.  Instead, Bretton Woods was a conflict between a declining world power, Great Britain, and an ascendant power, the United States, who had divergent visions of the postwar world.

Steil personifies Great Britain and the United States in his two main characters: acclaimed English economist John Maynard Keynes and scrappy bureaucrat Harry Dexter White. Steil sees both men as ideal representatives of the national characteristics of their two respective countries. Keynes, despite his internationalism, is depicted as “thoroughgoingly British, and it was the British problems of his day that drove his theorizing” (93-94). Born into wealth and “raised comfortably” in Cambridge, England, his natural gifts combined with his pedigree – his father was Cambridge University economist John Neville Keynes – to make is rise to fame seem “effortless and preordained” (61). By the time he started debating White in the 1940s, Keynes’ The General Theory of Employment, Interest, and Money had catapulted him to international renown for proposing managerial solutions to the Great Depression. But as Steil points out, with Keynes’ success came ideological rigidity (88-89). Like Great Britain’s unwillingness to let go of its overseas empire despite its baleful effect on its international profile, Keynes would not compromise on the central tenets of his General Theory despite mounting evidence against it during World War II.

Steil’s portrait of White highlights both his differences from Keynes and the different political positions of Great Britain and the United States during Bretton Woods. White’s rise to prominence was hardly preordained. The youngest son of Lithuanian Jewish immigrants, White grew up with few privileges and planned to become a farmer, enrolling in the Massachusetts Agricultural College in 1911 (17-18). After serving in the American infantry in France during World War I, he moved around the northeastern United States until he “decided to make a go at an academic career” in 1922 by enrolling first at Columbia University and then at Stanford University (19). At Stanford, White became fascinated by economics and showed enough promise to pursue a doctorate at Harvard University in 1925. Unlike Keynes, White’s published work struggled to find an audience. With few opportunities available to him in academia, White quit teaching for government work in the Department of the Treasury. His combination of intelligence, combativeness, and hard work ensured White’s rise in the Treasury Department, but that was not enough for White. It is around this time – between 1935 and 1936 – that White’s accusers like Whittaker Chambers claim he became involved in spying for the Soviet Union. Steil shows restraint in balancing the claims made by Chambers and others with the facts of White’s non-Marxist economic beliefs and support of American democracy (39-44). In the end however, Steil’s portrait of White focuses on his Soviet ties for so long as to leave little doubt in the reader’s mind that he believes White to have been a Soviet agent. Keynes may have been arrogant, but he was never disloyal. White’s treachery in the 1930s foreshadows both the failure of Bretton Woods to achieve American economic aims and the Cold War.

The personification of Great Britain and the United States in Keynes and White is a strength of The Battle of Bretton Woods, but it also contributes to many of its weaknesses. Steil is a gifted writer, particularly at rendering seemingly esoteric economic debates understandable and relevant. I was particularly impressed by his discussion of what Keynes’ proposed universal exchange currency – the unitas – was and why it was ultimately rejected by White and the Americans in favor of the dollar (147-149). Attaching aspects of the debate to his two main characters, Steil is able to make the economic wrangling surrounding Bretton Woods less abstract and more intelligible to readers without an economics background. His willingness to engage in the more obscure parts of the Bretton Woods debates, and to do so with such skill, is the book’s greatest asset and probably the reason it has reached such a wide non-academic audience.

Unfortunately, personification also has a cost in The Battle of Bretton Woods. Steil’s main characters do not map perfectly on the story of Bretton Woods he wants to tell. Keynes is absent much of the conference recovering from a heart attack. He then dies fifty pages before the book ends, dramatically shifting the book from Anglo-American economics to American domestic politics (305). White spends much of the time operating in the shadow of his superior Henry Morganthau, who Steil portrays as an empty suit with little understanding of theoretical economics. The final chapter, on the investigation into White’s relationship with the Soviet Union, is tangential to the larger story of Bretton Woods and at times seems to be a way to explain White’s failure to recognize the superiority of free market economics despite his intelligence. It also doesn’t engage with much of the academic literature on the Hiss Trial or the postwar Red Scare.

Since neither Keynes nor White is seen as a hero by Steil, at times it appears that the reason Bretton Woods failed was because of Keynes’ egotism and White’s admiration (and possible spying) for the Soviet Union. Part of Steil’s criticism of Keynes and White is bound up with his rejection of market regulation in favor of free market principles – in the epilogue the reader is treated to a roll-call of Steil’s heroes who opposed the Bretton Woods system including Milton Friedman, Jacques Rueff, Paul Volcker, and Robert Triffin. I think this problem is rooted it the books dual nature of having an argument about contemporary politics – in this case rejecting calls for a new Bretton Woods between the PRC and the United States – and a historical setting.

The Battle of Bretton Woods’ dual nature leads to other problems with historical context. In several chapters, Steil has trouble integrating the economic and political parts of his argument with the historical context. He fights to strike a balance between historical, political, and economic aspects of his argument, but too often – as the lengthy chapter “Whitewash” demonstrates – he keeps the three domains separate. Ultimately, Steil’s problems with contextualizing his argument are because Bretton Woods uses history only as a means to illuminate economic and political questions. Steil is not a trained historian and most of his previous work has focused on economics. Whether it’s discussing fixed bilateral exchange rates or the particular economic philosophies of Keynes and White, Steil never seems committed to writing history. As his lengthy epilogue suggests, The Battle of Bretton Woods has more value as a cautionary tale than as a historical episode.

Steil’s book has and will continue to find an audience among subscribers to The Economist and Foreign Affairs. His easy style and political message will assure The Battle of Bretton Woods a wide readership, particularly among intelligent, non-academic readers. The book has already been embraced by the financial community, its dust jacket adorned by glowing blurbs from Alan Greenspan and Paul Volcker. While Steil’s book has its merits and may be viewed as a groundbreaking work in other disciplines, it is unlikely to find advocates among professional historians because of both its methodological shortcomings as a work of history and the efflorescence of brilliant economic histories by the likes of Angus Burgin, Jonathan Levy, and Daniel Stedman Jones in recent years.

Matthew Linton is the Barbara and Morton Mandel Graduate Fellow in the Department of History at Brandeis University.  His work focuses on the rise of China studies programs as a means of understanding the mid-20th century liberal consensus.