The following is the conclusion of my conversation with Benn Steil. (Read part 1.) Dr. Benn Steil is senior fellow and director of international economics at the Council on Foreign Relations. His latest book is "The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order."
Mercer: After reading a negative review of your book in "The Times Literary Supplement," I decided to go cold turkey on what had been a guilty pleasure for over a decade. I did not renew my TLS subscription. The TLS had stupidly assigned the review to one Eric Rauchway, a left-coast history teacher. Rauchway would not let an argument favorable to the gold standard – yours – stand. Your case against the Bretton Woods system of "managed currencies" he turned on its head. Rauchway credited Harry Dexter White, one of Bretton Woods' architects, with helping to lift the "cross of gold" from the shoulders of the world's working classes. Since White was also a Soviet spy, Rauchway quickly concluded that the Soviets saved capitalism (an "unknown ideal" for a very long time). Sound money is suspect, but a Soviet spy is capitalism's savior. How do you unpack that!?
Steil: You can't get blood from a stone, and you can't get logic from Rauchway's review, just gobs of nonsense and libel (as I documented on on my blog ). The review's title, "How the Soviets saved capitalism," is so inane that the only explanation for it is that Rauchway, or his TLS editors, fell in love with the sheer childish cheekiness of it. It certainly bears no relation to Rauchway's account of Bretton Woods, nor that of anyone who can actually claim to know anything about it.Rauchway would no doubt mock the economist who wrote the following of the 19th century classical gold standard: "[t]he various currencies, which were all maintained on a stable basis in relation to gold and to one another, facilitated the easy flow of capital and of trade to an extent the full value of which we only realize now, when we are deprived of its advantages."Unless, that is, Rauchway knew who it was – none other than J.M. Keynes.
Advertisement - story continues below
Mercer: We can both agree that John Maynard Keynes' opposition to World War I and his "bitterness over the terms of the peace" were admirable. Priceless too was Keynes' description of President Woodrow Wilson as "slowminded and bewildered"; a "blind and deaf Don Quixote" (Pages 70-71). On the other hand, also quite admirable was the following unflattering description of Keynes' "General Theory of Employment, Interest and Money." It comes courtesy of our author: "It is only slightly outlandish to liken the book to the Bible: powerful in its message, full of memorable, mellifluous passages; at times obscure, tedious, tendentious, and contradictory; a work of passion driven by intuition, with tenuous logic and observation offered as placeholders until disciples could be summoned to supply the proofs" (Page 88). Have Keynes' disciples really delivered? It would appear that the Keynesian faithful have foisted on free-market capitalists an unfalsifiable theory. Evidence that contradicts it, Keynesian kooks enlist as evidence for the correctness of their theory.
Steil: Yes, if the economy sinks, then Paul Krugman was right about the need for massive stimulus; if it recovers in the face of plunging deficits, from spending cuts and tax increases, then Krugman was right that deficits were not a problem. Heads he wins, tails you lose.
Mercer: Keynes assessed Karl Marx's "economic value" as "nil … apart from occasional flashes of insight" (Page 87). I would venture that in the United States, Marxism has been far less destructive to free-market capitalism than Keynesianism. Marxists honestly wish for capitalism's demise and say as much. We can fight such an enemy. Conversely, Keynesians have redefined capitalism and banished our definition therefrom. The Keynesians then proceeded to cripple capitalism so as to ostensibly save it. Positively Orwellian.
Steil: Keynes said that "if economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid." Yet Keynes' "General Theory of Employment, Interest and Money" had the effect of elevating economists to the status of technocratic wizards, even saviors. At Bretton Woods, Keynes also quite literally created the persona of the celebrity economist. Today, we are used to economists like Paul Krugman and Nouriel Roubini jetting around the world with eager journalists waiting on their every pronouncement. They owe it all to Keynes.
Mercer: A busybody. A planner. A Keynesian before his time. That is the impression I got of Harry Dexter White from your penetrating study. Not even from the unpublished handwritten essay you unearthed did I get the impression that White, who spied for the USSR, was a communist ideologue. Something occurred to me as I listened to the founder of PayPal – a patriotic, productive American who professes libertarianism – tout the merits of income distribution and progressive taxation to broadcaster Charlie Rose. Mr. PayPal sounded far more socialist than White, who, to go by your nuanced portrayal, was a "tinkerer, an engineer" (Page 20). Indeed, in his statement before the House Un-American Activities Committee, White better expressed the American Creed than most Republicans could today. All this was most revealing. It told me that even those who profess a love of freedom nowadays are less familiar intellectually with the American Creed than were freedom's enemies during Bretton Woods.
Steil: In terms of the economics White advocated for, he was boringly Keynesian. Yet, as that essay you mention illustrates, he believed passionately that the bold Soviet experiment with socialist economics was a success, and that the world would be moving in the direction of greater state control of industry and trade after World War II. He was also – which was not unusual in FDR's Treasury – dangerously naïve about Soviet geopolitical ambitions and intentions toward the United States.
Mercer: How the mighty have fallen. The U.S., post-World War II, was a creditor country that ran trade surpluses and rejected the demands of the Keynes camp that surplus countries be forced to reduce their surplus positions (Page 338). Libertarians generally dismiss the gap between U.S. exports and imports as an insignificant economic indicator. To me that sounds … Keynesian. Yes, I run a trade deficit with Costco, my hair stylist or my GTI dealer. But I pay for my purchases. The data demonstrate that, in general, Americans circa 2013 don't. What's your verdict about America's aggregate, negative balance of trade?
Steil: I explain in the book's epilogue why persistent American current account deficits were an inevitable feature of a U.S.-dollar based international monetary system, and why those deficits had, ultimately, to spell the demise for Harry White's system – as it did in 1971, when President Nixon closed the gold window. Ending the dollar's convertibility into gold should have, according to White's thinking, which I explain at length in the book, ended the dollar's global monetary role and precipitated economic chaos. Yet the globe limps on, on its fiat-dollar crutch, periodic financial crises notwithstanding.
Mercer: The U.S., a world superpower, is not the only country that has fallen from grace since Bretton Woods. South Africa, the superpower of Africa, is mentioned in "The Battle" as "the preeminent gold-mining nation" (Page 165). Prime Minister Jan Smuts was something of a power player on the international stage. Other than in Africa and in Hollywood, the South Africa of Mandela, Mbeki and Zuma – exposed in "Into the Cannibal's Pot: Lessons for America from Post-Apartheid South Africa" – doesn't count economically ever since the Anglo-American axis "delivered" that country from the likes of Smuts. Your book is replete with accounts of U.S. hypocrisy. Any thoughts about my former homeland, South Africa?
Steil: You're taking me out of my depths, as I've only been to South Africa once in my life. But I would say this: One reason why I believe New York City has become so much more livable, even civil, since the Giuliani-Bloomberg era began is that tribal politics has died down immeasurably. I pray that the next mayor will be wise enough not to take us back to the bad old days of playing one group off against another for political gain. New Yorkers should be New Yorkers. Period.
Mercer: The American press' commentary throughout the battle of Bretton Woods is quite a shock to the system for what it reveals about the same press' prevailing intellectual bankruptcy in 2013. Back then, the New York Times was scathing about "the British financial expert's" advocacy of "deficit financing and cheap money." Other major media had mocked the worthless "product of the printing press." The same sources lambasted "currency devaluation and credit expansion," and warned against helping a debtor nation (Britain) at the expense of U.S. solvency (Page 166)? Have at it.
Steil: The famed Henry Hazlitt, a 19th-century style classical liberal, was from 1934 to 1946 the New York Times' principal editorial writer on economics; he wrote a weekly column along with many of the unsigned economics editorials. This almost certainly explains the Times' hostile position on Bretton Woods. It also seems fair to say that a Hazlitt could never reprise such a role at the Times today.