by Randolph T. Holhut
American Reporter Correspondent
November 2, 2008
A BRETTON WOODS CONFERENCE FOR THE 21ST CENTURY
DUMMERSTON, Vt. -- In July 1944, with victory over Germany and Japan in sight, 730 delegates from all 44 Allied nations gathered in the Mount Washington Hotel in Bretton Woods, N.H., to shape the economic system for the post-World War II world.
Out of that two week conference came the World Bank, the International Monetary Fund, the General Agreement on Tariffs and Trade, the first-ever negotiated monetary system among industrialized states and the rest of the ground rules that govern the global economy today.
The lack of a secure and predictable economic system in the years after World War I helped create the global depression of the 1930s and the rise of dictators like Hitler, Franco, Mussolini and Tojo. It made a second world war inevitable. The nations that gathered at Bretton Woods did not want to see a repeat of the economic turmoil between 1918 and 1939. They wanted a stable economic framework that would allow the market to work with minimal government intervention and with limits to barriers on trade.
The United States demanded a position of international economic leadership; the fiscally and physically weary Allies gladly and gratefully gave it. Each country had to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value. For the United States, the value of the dollar was pegged at $35 to an ounce of gold. Unfortunately, the supply of U.S. dollars grew faster than the U.S. supply of gold. Other currencies were forced to devalue themselves against gold as the United States stubbornly stuck to the $35 price.
By 1971, the U.S. was running a trade deficit, inflation was rising and international confidence in the dollar was falling fast. On Aug. 15, 1971, President Richard M. Nixon made a decision that changed the world and delivered a crushing blow to the Bretton Woods consensus. The United States suspended convertibility from dollars to gold, and the dollar's value was allowed to float on the open market. The U.S. dollar became the "reserve currency" for the world and the U.S. economy was left as the standard by which all others were valued.
With one stroke, the fixed and predictable system of Bretton Woods was replaced by anarchy.
Now, with the still-smoking rubble of the collapsed global economy all around us, the world is looking for a less U.S.-centric alternative to the current system. And unlike 1944, the world is not waiting for permission from the United States to create it.
As British Prime Minster Gordon Brown put it last week, "Sometimes it takes a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed. We must create a new international financial architecture for the global age."
A global crisis demands a global solution. That the Bush Administration, which shunned international cooperation for a go-it-alone approach to foreign and economy policy, is now willing to embrace a multinational approach to the current economic crisis is a sign of how dire things are. Suddenly, ideas such as rules governing the international flow of investment funds, improved oversight of global financial institutions and increasing the transparency of international financial transactions and markets have support from the Bush White House.
World leaders will meet Nov. 15 in Washington to address the global financial crisis, the first in a series of summits where a global solution might be crafted. While President Bush has warned that any international effort should preserve what he calls democratic capitalism - free markets, free enterprise and free trade - he has little say in what happens next. There will be a new president soon, and he will be the one that will have to confront the new reality: that no modern economy can function well without government playing a major role.
Markets are imperfect, and always have been. There has to be a new balance between the markets and government. The rest of the world sees this. French President Nicholas Sarkozy said the task ahead is to "recreate the capitalist system."
After the events of the past few weeks, the United States is no longer in a position to lecture the rest of the world about the glories of free-market capitalism. It is a multilateral world now, and if there is to be a second Bretton Woods Conference, it will be held with a humbler, less arrogant America working with its global peers to create a new financial framework for the 21st Century.
Randolph T. Holhut has been a journalist in New England for nearly 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at email@example.com.