Show Hide image

When Keynes went to America

The first Bretton Woods meeting was intended to establish a postwar money regime and secure funds fo

The night the Mount Washington Hotel opened in 1902, its builder, the New Hampshire coal and railroad magnate Joseph Stickney, raised a glass to “the damn fool who built this white elephant”. With its octagonal towers and 300 yards of wooden verandah, its 234 rooms each with its own bath, its telephone and mail system, and its interminable corridors, set in endless New Hampshire wilderness, this colossal monument to the Gilded Age somehow survived the Depression and wartime shortages to its appointment with financial history in July 1944.

As allied armies fought their way into Normandy, some 730 finance ministers, delegates and clerks from all 44 allied countries, including China and the Soviet Union, gathered for three weeks at the Mount Washington to plan the postwar monetary and trading order.

The United Nations Monetary and Financial Conference, better known from the hotel's railway stop and mail address as the Bretton Woods conference, established a currency regime and two powerful institutions, the International Monetary Fund and the World Bank. The role of Bretton Woods in the postwar recovery is, as always with economists, disputed but the name still evokes, for men such as Gordon Brown or Nicolas Sarkozy, an idea of order in a chaotic financial world.

The gestation of the Bretton Woods conference, as the long-serving US diplomat Dean Acheson put it, "about doubled that of elephants". It arose in the minds of two men of different temper and background but equal brilliance and arrogance: the British economist John Maynard Keynes and Harry Dexter White of the US Treasury. At their backs, like a ghost, was the German banker who served the Nazis till he fell out with Hitler in 1938: Hjalmar Schacht.

The Victorian system for settling international transactions, known as the international gold standard, had come to grief in the Depression of the 1930s. A succession of countries, led by Britain, detached their currencies from gold rather than be forced by a fixed exchange-rate to cut demand and add further to unemployment. Britain erected a trade tariff round the British empire, known as Imperial Preference, while other countries devalued their currencies to export at any price. By the summer of 1941, when Keynes retired to his country house in Sussex to think about a successor to the international gold standard, Britain was in a desperate plight, in debt not just to the US but to the countries playing host to her armies, such as India and Egypt. Without currency controls, Britain was bankrupt.

Keynes envisaged a sort of supernational bank in which trading accounts would be settled not in gold, but in a sort of artificial or bank money that would be available to members as an overdraft facility according to their share of world trade. Behind it would stand the greatest creditor nation, the United States.

As Keynes's biographer, Professor Robert Skidelsky, writes: "Provided all countries were guaranteed sufficient quantities of reserves, it might be possible to dismantle the trade barriers which had grown up in the 1930s and during the war and restore the single world which had vanished in 1914."

In devising this plan, Keynes admitted to drawing on Schacht's ingenious use of bilateral clearing arrangements to permit the Third Reich to continue importing raw materials for its military build-up in the 1930s.

Keynes, desperate to get away and rest, took the meetings at breakneck speed. On

19 July, he collapsed on the hotel stairs

In Washington, Dexter White, director of monetary research at the US Treasury, was also thinking about "future currency arrangements" but from a different viewpoint. From President Roosevelt down, the US could not care less about preserving the British empire. The US wanted currency convertibility and open markets for its exports as soon as possible. The compromise between the Keynes and White plans, which were published in 1943, became known as the Bretton Woods System.

The process began in an atmosphere of mistrust. At his first meeting with Henry Morgenthau, the US treasury secretary, Keynes tactlessly suggested that Britain would use US military aid to build up its cash balances. Keynes and his staff objected to the number of lawyers on the US side and made snide remarks about "rabbinics", by which they meant the precision and subtlety of the Jewish officials at the Treasury such as White and Edward Bernstein.

Eventually, Keynes and White devised a system in which only the US dollar would exchange at a fixed rate into gold. The allies had to make their currencies convertible into these gold dollars within 1 per cent of a fixed rate, but could draw on short-term assistance from a stabilisation fund to which all members subscribed and the US, naturally, subscribed most. In addition to this fund, now christened the International Monetary Fund, White and his staff had devised a bank to finance the rebuilding of war-damaged economies. This International Bank for Reconstruction and Development still forms the core of what is now known as the World Bank.

Lord Keynes was by now ailing and could not bear the thought of working through the Washington summer. With great courtesy, the Americans agreed to hold the drafting meetings in Atlantic City on the New Jersey shore and the main conference in the cool of New Hampshire. Arriving with Keynes by train on 30 June, Lydia Lopokova, the Russian ballerina whom Keynes had married in 1925, found chaos: "The taps run all day, the windows do not close or open, the pipes mend and unmend and no one can get anywhere."

They were lodged in the room above Morgenthau, and for three weeks the US treasury secretary was disturbed by Lady Keynes's dancing exercises.

With much of the main work done, the conference itself consisted mostly of a British rearguard action to delay the convertibility of its debts and much detail of a mind-numbing complexity. Desperate to get away and rest, Keynes took the meetings on the bank at a breakneck pace. As Acheson reported: "Keynes . . . knows this thing inside out so that when anybody says Section 15-C he knows what that is, but before you have an opportunity to turn to Section 15-C and see what he is talking about, he says, 'I hear no objection to that', and it is passed."

On 19 July, Keynes collapsed on the hotel stairs, and word spread that he had had a heart attack. According to Skidelsky, the German newspapers ran adulatory obituaries. On 22 July, Keynes had recovered enough to propose acceptance of the conference's final act. As he left the room, many of the delegates stood and sang "For He's a Jolly Good Fellow". Within two years, Keynes was dead and White survived only two years longer, bedevilled in his last years by allegations of disloyalty in his dealings with the Soviet Union.

Some economists, such as Milton Friedman, have questioned whether Keynes and White were correct in their analysis and, even if they were, whether Bretton Woods was the solution. Others argue that such measures as the $3.75bn American loan to Britain in 1945, the $13bn Marshall Plan of 1948 and the 30 per cent devaluation of sterling in 1949 did more to revive Europe. The system of semi-fixed exchange rates just about survived the 1960s but the US, under pressure from financing the war in Vietnam, abandoned gold convertibility in 1971. The two Bretton Woods institutions, the IMF and the World Bank, have been criticised for imposing quasi-colonial conditions on third world borrowers. The IMF is also undercapitalised in the face of the current financial crisis.

When Gordon Brown calls for a new Bretton Woods, he is evidently not calling for a currency peg or an infrastructure bank but for a halcyon age of idealism and Anglo-American amity - above all for that ideal or hero of modern times embodied in John Maynard Keynes, the economist as saviour.

James Buchan's latest novel is "The Gate of Air", published by the MacLehose Press

Thirteen things you may not know about John Maynard Keynes

  • He was born the year Karl Marx died, 1883.
  • He was 6ft 6ins tall.
  • When he took civil service exams in 1906, his lowest scores were in economics and maths because, he used to say, he knew more than his examiners.
  • Duncan Grant, with whom Keynes had a long affair, painted him writing a letter asking the US for a loan to continue the 1914-18 war.
  • At the age of 42, he married the Russian ballerina Lydia Lopokova.
  • A regular investor, he lost, then recovered, a fortune in the 1929 crashing stock market.
  • A close friend of Kingsley Martin, he joined the board of the New Statesman in 1931.
  • He bred pigs at his Sussex home.
  • He amassed one of the largest private collections of 20th-century art, with works by Braque, Cezanne, Degas, Modigliani, Picasso, and Seurat.
  • A director of the British Eugenics Society, he described it in 1945 as the most important branch of sociology.
  • During the Bretton Woods conference in 1944. he suffered a heart attack and German newspapers published his obituary.
  • At the conclusion of Bretton Woods, delegates acknowledged Keynes's achievement by singing "For He's a Jolly Good Fellow".
  • In 1946, he suffered a second heart attack and died. It was attributed by some to the effort of securing a $3.75bn loan from the US, a negotiation that Keynes himself described as "absolute hell" .


Show Hide image

Happiness is a huge gun: Cold War thrillers and the modern nuclear deterrent

For all that books and films laud Britain's strength, ultimately, they show that our power is interdependent.

Francisco “Pistols” Scaramanga, the ­assassin for hire in Ian Fleming’s 1965 James Bond novel, The Man With the Golden Gun, has invested more than money in his favourite weapon. Bond’s colleagues in the Secret Service have concluded from Freudian analysis that Scaramanga’s golden gun is “a symbol of virility – an extension of the male organ”. It is just one of many phallic weapons in the Bond saga. In Dr No, for instance, Bond reflects on his 15-year “marriage” to his Beretta handgun as he fondly recalls “pumping the cartridges out on to the bedspread in some hotel bedroom somewhere around the world”. Objectively speaking, guns comprise little more than highly engineered metal and springs, but Fleming invests them with an ­extraordinary degree of psychosexual significance.

Size matters in the Bond novels – a point made by a furious Paul Johnson in a review of Dr No for this paper in 1958 (“everything is giant in Dr No – insects, breasts, and gin-and-tonics”). One of the Bond stories’ biggest weapons is a rocket carrying an atomic warhead: the Moonraker, which gives its name to the third Bond novel, published in 1955. The most important thing about the Moonraker is that it is apparently British – a gift to a grateful nation from the plutocrat Sir Hugo Drax. And, like Bond’s Beretta, it is freighted with psychosexual significance. When Bond first lays eyes on it there is no doubt that this is an erotically charged symbol of destructive power. “One of the most beautiful things I’ve ever seen,” Bond says, with a “rapt expression”:

Up through the centre of the shaft, which was about thirty feet wide, soared a pencil of glistening chromium [. . .] nothing marred the silken sheen of the fifty feet of polished chrome steel except the spidery fingers of two light gantries which stood out from the walls and clasped the waist of the rocket between thick pads of foam-rubber.

The guns in the Bond books can be seen as expressions of their bearer’s power – or, as with Scaramanga’s golden gun, compensation for a lack of virility. The Moonraker is equally symbolic, but on a far larger scale: an expression of a nation’s geopolitical power, or compensation for its impotence.

As what is known officially as Britain’s independent nuclear deterrent (“Trident” to everyone else) returns to the top of the political agenda, the cultural dimension of the debate will no doubt continue to be overlooked. Yet culture matters in politics, especially when the issue is a weapon. As the guns in the Bond novels remind us, weapons are not merely tools, they are also symbols. Trident is not just a system comprising nuclear warheads, missiles and four Vanguard-class submarines. Its symbolic meanings are, to a great extent, what this debate is about. Trident stands for Britain itself, and it does so for different people in different ways. Your opinion on whether to cancel or replace it depends to a great extent on what kind of country you think Britain is, or ought to be.

The Cold War British spy thriller is particularly topical because it developed in tandem with Britain’s nuclear programme through the 1950s and 1960s. Moonraker was published just weeks after Churchill’s government announced its intention to build an H-bomb in the 1955 defence white paper, and three years after Britain’s first atomic test on the Montebello Islands, Western Australia. These novels drew on technological reality in their plots concerning the theft of nuclear secrets or the proliferation of nuclear technology, but they influenced reality as well as reflected it, with stories of British power that helped create Britain’s image of itself in a postwar world.

The main theme of the genre is the decline of British power and how the country responded. Atomic or nuclear weapons serve this as symbols and plot devices. Len Deighton’s debut novel, The Ipcress File (1962), for instance, concerns a plan to brainwash British scientists to spy for the Soviet Union, and has as its centrepiece an American neutron-bomb test on a Pacific atoll, observed by a British double agent who is transmitting Allied secrets to an offshore Soviet submarine. The novel’s technical dialogue on nuclear technology, and its appendices providing a fictionalised account of the Soviet Union’s first atomic bomb test and a factual explanation of the neutron bomb, are in the book not merely for verisimilitude: Deighton’s British spies are observers or victims of the nuclear arms race between the US and the USSR, agents with remarkably little agency.

A more dour variation on the theme is John le Carré’s The Looking Glass War (1965), in which the prospect of obtaining information on Soviet nuclear missiles in East Germany provokes “the Department”, a failing military intelligence organisation, to try to regain its wartime glory with an intelligence coup. This hubris leads to tragedy as its amateurish operation unravels to disastrous effect, le Carré’s point being that military and economic might cannot be regained through nostalgic wish-fulfilment. These novels situate British decline in the context of superpower domination; their characters recall the technological and operational successes of the Second World War but seem unable to accept the contemporary reality of military and geopolitical decline. For Deighton and le Carré, Britain simply doesn’t matter as much as it used to, which is why, in le Carré’s later Smiley novels and Deighton’s Game, Set and Match trilogy (1983-85), the spymasters are so desperate to impress the Americans.

Fleming is usually seen as a reactionary, even blimpish writer – his England was “substantially right of centre”, Kingsley Amis remarked – and he signalled his own politics by making a trade unionist the ­villain of his first novel, Casino Royale (1953). So it might seem surprising that he was as concerned as his younger contemporaries Deighton and le Carré with British decline. The historian David Cannadine, for one, emphasises that although Fleming may have been aghast at certain aspects of postwar change such as the welfare state and unionisation (opinions that Bond makes no secret of sharing), he simply refused to believe that Britain was in decline, a refusal embodied in Bond’s very character.

Bond the man is more than the “anonymous, blunt instrument wielded by a ­government department” that Fleming described to the Manchester Guardian in 1958. He is an expression of the British state itself, demonstrating Britain’s toughness while besting its enemies – the Russian agents of SMERSH and, later, the international criminals and terrorists of SPECTRE. He is supported by a formidable apparatus of technological and logistical capability that mythologises British research and development, which had peaked during the Second World War (a point made more obviously in the film franchise when Fleming’s Armourer becomes the white-coated Q, heir to Barnes Wallis and the ingenious technicians of the Special Operations Executive). And, as Cannadine astutely observes, “this comforting, escapist theme of Britain’s continued pre-eminence” is most evident in Bond’s relationship with the United States. The Americans may have more money, but they cannot spy or fight anywhere near as well as Bond, as is made plain when the hapless Felix Leiter, Bond’s friend in the CIA, literally loses an arm and a leg to one of Mr Big’s sharks in Live and Let Die (1954).

Moonraker, however, exposes a more complex and sceptical side to Fleming’s Bond. It is significant that this emerges in a book that is explicitly about Englishness and the Bomb. The rocket is being built atop another symbol: the white cliffs of Dover, prompting some surprisingly lyrical passages on the beauty of South Foreland coast. And yet, though replete with emblems of English tradition and bursting with hatred of ugly, evil-minded foreigners, this novel has an unmistakable political subtext that undermines its apparent confidence in British power. Drax, it turns out, is a patriot – but a patriot of Nazi Germany, which he had served as an SS officer and plans to avenge with a missile that is pointing not, as everyone believes, at a test site in the North Sea, but at central London, the intended Ground Zero being a flat in Ebury Street, Belgravia (the location, incidentally, of Fleming’s own bachelor pad in the 1930s and 1940s). The missile has been designed and built by engineers from Wernher von Braun’s wartime rocket programme, and its atomic warhead has been generously donated by the Soviet Union, which is looking to bring Britain to its knees without having to go through the rigmarole of fighting a war.

The Moonraker, we are told repeatedly, will restore Britain to its rightful place at the global top table after its unfortunate postwar period of retrenchment and austerity. But the rocket is not British, except in being built on British soil, and the aim of the man controlling it is to destroy British power, not project it. The implication is that Britain is not only incapable of looking after its own defences, but also pathetically grateful for the favours bestowed on it. After the missile is fired, its trajectory diverted by Bond back to the original target (thereby fortuitously taking out a Soviet submarine carrying the fleeing Drax), the government decides to cover it all up and allow the public to continue believing that the Moonraker is a genuinely British atomic success.

One of the ironies of the Bond phenomenon is that by examining the myths and realities of British hard power, it became a chief instrument of British soft power. Of the first 18 novels to sell over a million copies in Britain, ten were Bond books, and Moonraker (by no means the most successful instalment of the saga) was approaching the two million mark 20 years after publication. The film franchise continues to offer Cannadine’s “comforting, escapist” image of Britain (the two most recent pictures, directed by Sam Mendes, are especially replete with British icons), but the novels are altogether more uncertain about Britain’s role in the world. Moonraker is full of anxiety that the myth of British power is nothing more than a myth, that Britain lacks the industrial and scientific wherewithal to return to greatness. It even conjures up an image of the apocalypse, reminding readers of the precariousness of those cherished British values and institutions, when the love interest, the improbably named Special Branch detective Gala Brand, imagines the terrible consequences of Drax’s plan:



Even though their plots ensure that apocalypse is averted, Cold War thrillers thus made their own contribution to forcing us to imagine the unimaginable, as did more mainstream post-apocalyptic novels such as William Golding’s Lord of the Flies (1954), Nevil Shute’s bestseller On the Beach (1957) and The Old Men at the Zoo (1961) by Angus Wilson. In Desmond Cory’s Shockwave, first published in 1963 as Hammerhead and featuring the Spanish-British agent Johnny Fedora (whose debut preceded Bond’s by two years), Madrid is saved from destruction by a nuclear bomb that the Soviet master spy Feramontov almost succeeds in delivering to its target. As he contemplates his objective, Feramontov muses that, in the “bomb-haunted world of the Sixties”, death in a nuclear fireball “might even come as a release, like the snapping of an overtautened string; and after the rains of death had flooded the Earth, those who survived in the sodden ruins might think of him as a benefactor of the race”.

But where the post-apocalyptic dystopias might be viewed as an argument for nuclear disarmament, later Cold War thrillers such as Cory’s usually accepted the fact of mutually assured destruction – and that British peace and prosperity were guaranteed by US nuclear firepower. Nowhere is this more apparent than Frederick Forsyth’s 1984 bestseller, The Fourth Protocol, which turns the Labour Party’s famously unilateralist 1983 election manifesto into a uniquely party-political espionage plot. In it, the general secretary of the Soviet Union conspires with the elderly Kim Philby to smuggle into Britain a small, self-assembly nuclear bomb that a KGB “illegal” will put together and ­detonate at a US air force base in East Anglia.

Unlike in Moonraker and Shockwave, however, the objective is not to provoke hostilities or prompt military capitulation, but to persuade the British public to vote Labour – by provoking horror and outrage at the risks of US nuclear weapons remaining on British soil. However, the new and moderate Labour leader, Neil Kinnock, will have a scant few hours in Downing Street, as a hard-left rival under Soviet control (such as a certain Ken Livingstone, whom Philby describes as “a nondescript, instantly forgettable little fellow with a nasal voice”) will at once usurp Kinnock and reinstate a policy of unilateral disarmament, leading to the removal of the US missiles.

The ideological force of Forsyth’s novel is clear enough: Britain is beset by enemies within and without, and must arm itself morally and politically against communism. But although this is an insistently, even tiresomely patriotic novel, its plot makes no attempt to conceal Britain’s relative military weakness and dependence on the United States, though disaster is averted by the combined brilliance of MI5, MI6 and the SAS. The Fourth Protocol thus becomes an allegory of this country’s world-leading “niche capabilities”, which maintain Britain’s prestige and relevance despite its declining military and economic might.

Today, the political argument remains on much the same terms as at the start of the Cold War. Whichever way you look at it, Trident symbolises Britain. To its supporters, it is symbolic of Britain’s talent for “punching above its weight”, and its responsibility to protect freedom and keep the global peace. To its opponents, it is an emblem of economic folly, militaristic excess, and a misunderstanding of contemporary strategic threats; it is an expression not of British confidence but of a misplaced machismo, a way for Britons to feel good about themselves that fails to address the real threats to the nation. One academic, Nick Ritchie of York University, argues that Britain’s nuclear policy discourse “is underpinned by powerful ideas about masculinity in international politics in which nuclear weapons are associated with ideas of virility, strength, autonomy and rationality”.

In 1945, shortly after Hiroshima became a byword for mass destruction, George ­Orwell predicted in his essay “You and the Atom Bomb” that nuclear weapons would bring about what he was the first to call a “cold war”. Because an atomic bomb “is a rare and costly object as difficult to produce as a battleship”, it could be produced at scale only by countries with vast industrial capacity; this would lead to the emergence of two or three superpowers, confronting each other in a “peace that is no peace”.

Orwell’s point about industrial capacity helps explain why Trident is totemic: it is proof that our industrial might has not entirely vanished. Alternatively, it can be seen as a consolation for industrial decline. This may be why the huge cost of the Successor programme – one of the main arguments wielded by Trident’s opponents against replacement – appears to be a source of pride for the government: the Strategic Defence and Security Review proclaims that, at £31bn, with a further £10bn for contingencies, Successor will be “one of the largest government investment programmes”.

Clearly, size matters today as much as it did when Fleming was writing. But Moonraker again helps us see that all is not what it seems. Just as the Moonraker is a German missile with a Soviet warhead, even if it is being built in Kent, so the missiles carried by the Vanguard-class submarines are, in fact, made in California, Britain having given up missile production in the 1960s. The Trident warheads are made in Berkshire – but by a privatised government agency part-owned by two American firms. Trident may be British, but only in the way Manchester United or a James Bond movie are British.

The Cold War spy thriller presciently suggests that true independence is an illusion. Britain may consume the most destructive weapons yet invented, but it can no longer produce them or deliver them without America’s industrial might. British power is interdependent, not independent: that is the Cold War thriller’s most politically prescient message.

Andrew Glazzard is a senior research fellow at the Royal United Services Institute and the author of “Conrad’s Popular Fictions: Secret Histories and Sensational Novels” (Palgrave Macmillan)
