“Money is of secondary importance, the management of the economy comes first. When the economy is not healthy, the currency cannot be healthy. In the framework of a healthy European economy and of an intelligent division of labour between the various European countries, the monetary technique. Obviously, the Reichsmark will have a dominating position. The formidable increase of the power of the German Reich will naturally result in the strength of its currency.”
-Walther Funk, Minister for Economic Affairs and President of the Reichsbank July 25, 1940
Released during a press conference in Berlin, shortly after the Battle of Britain began, Funk was outlining “The New Order” economic plan for the reconstruction and organization of Europe upon the conclusion of World War II.1 In November 1940, in response to the broadcasting of “The New Order”, the British Ministry of Information felt it necessary to respond to German postwar economic propaganda with a different economic agenda of British origins. Turning to John Maynard Keynes for assistance in formulating an alternative post-war international economic agenda, the planning of post-war activities and institutions commenced.2 This preamble to the events which unfolded over the course of the next ten years led to the creation of the current international organizations of the International Monetary Fund (IMF) and World Trade Organization (WTO).
The establishment of the originating principles of the IMF and WTO were not entirely the result of academic and political prose-swapping; rather both resulted from reality-based influences and constraints. By the end of 1940 and the beginning of 1941 Britain was in urgent need of imported wartime supplies, however, the cost of the war had left Britain in a drastic financial position.3 Britain required imports for which they could not pay under the existing gold standard system of international payment since the British treasury was nearly exhausted.4
Turning to the United States for assistance in 1941 the Lend-Lease Act and the Mutual Aid Agreement were signed by President Roosevelt, allowing the exportation of American goods to Britain on a type of international credit basis. It was this “credit basis” and the method of postwar repayment by Britain to the United States after the war that led to the development of two controversial competing plans during the negotiations prior to the Bretton Woods conference, namely the White Plan (US) and the Keynes Plan (Britain).5
Both plans were published on April 7, 1943. The Keynes Plan was to establish an International Clearing Union while the White Plan called for the establishment of an International Stabilization Fund and World Bank. Both plans dealt with issues of international liquidity, elimination of exchange restrictions on current transactions, outlawed bilateral payment arrangements and other discrimination. However, both vastly differed in their respective methods of exchange rate stability, elimination of exchange restrictions, discriminatory payments, and balance of payment assistance. Where the White Plan was more rigid in its application, Keynes seemed to be technically superior but not as precise in the obligations to which member countries would be subjected.6
In July 1944, at the Bretton Woods Conference, both sides made some compromises, however, it was a revised White Plan that was adopted in the formulation of the International Monetary Fund. Since the Bretton Woods conference, the IMF has undergone some fundamental changes from the adopted White Plan, however, the primary objective of the IMF has remained the same.7
The Lend-Lease Agreements that provided the British with desperate American financial assistance created the incentive to push ahead with another internationalism framework to deal with the elimination of trade barriers, resulting from the outbreak of World War II, which would allow international commerce to begin flowing more freely upon the conclusion of the war. In 1946, the United States Department of State drafted the Suggested Charter for an International Trade Organization of the United Nations. This draft set in motion what became one of the most comprehensive economic cooperative agreements in the history of international affairs. The Suggested Charter for the ITO objective was to create an international organization that would support and strengthen both the IMF and the International Bank of Reconstruction and Development (IBRD) in the post-war economic environment.
On March 24, 1948, the Charter of the ITO was finally executed in Havana, after a series of international conferences under the United Nations, which had commenced in 1946 in London and was subsequently reconvened in Geneva in 1947. The Havana Charter consisted of six different agreements covering the areas of trade policy, cartels, commodity agreements, employment, economic development, and international investment. The Charter’s members were to commit to policies such as non-discriminatory custom taxes and regulations, along with the application of a uniform set of principles dealing with international trade between private and public enterprise. However, the Charter’s underlying theme was to establish an international institution for the integration of global trade.
Indirectly, the convention held in Geneva in 1947 resulted in the drafting of The General Agreement on Tariffs and Trade (GATT). The GATT was to be used as an interim agreement until the ITO Charter was executed and ratified by ITO participating members.
Although more than 53 nations had signed the Havana Charter in 1948 very few nations ever ratified the document.8 Thus the ITO Charter remained idle until its silent passage into the annals of history in 1950 when the United States, under President Truman, withdrew the Charter from Congress and it was never resubmitted. At the time, the United States was experiencing a slight recession creating above-normal levels of unemployment, thus creating poor public opinions on imports, subsequently creating a lack of support for the Havana Charter. Once the United States had withdrawn most of the remaining members never ratified the Charter. As the Havana Charter faded, its interim agreement the GATT continued to operate.
Keynes, White, and many others were active participants whose visions, although differing in details, provided the underlying objectives and building blocks that are present in modern international organizations, such as IMF and WTO.
- The New Order included the development of the existing bilateral economic relations into a multilateral system of trade where balances would be settled through an exchange clearing system.
- Keynes responded with a temporary solution, however, his plans for an International Financial System did not commence until 1942.
- Required supplies not only included military units, but basic commodities such as tea and wool, etc.
- At the time of American aid to Britain, the British only had approximately $50,000,000 worth of gold remaining in the treasury.
- The White Plan was created by U.S. treasury department official Harry White in response to a request of Secretary Morgantheau’s idea of a postwar single international currency for conducting trade.
- The Keynes Plan was particularly liberal in the obligations of member countries exchange-rate stability and exchange controls.
- Establishment of Special Drawing Rights (SDRs), Establishment of a Trust Fund to provide balance of payments assistance to developing country members with profits of the sale of gold.
- Liberia and Britain ratified the Charter unconditionally, while Austria and Sweden ratified on a conditional adherence basis that the United States would also ratify the Charter.
- Bordo, Michael D. and Eichengreen, Barry ed., A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, Chicago: The University of Chicago Press, 1993.
- Brown, William Adam Jr., The United States and the Restoration of World Trade, Washington: The Brookings Institution, 1950.
- Cortney, Philip, The Economic Munich: The I.T.O Charter Inflation or Liberty The 1929 Lesson, New York: Philosophical Library, 1949.
- Diebold, William Jr., Essays in International Finance: The End of the I.T.O., New Jersey: International Finance Section, Department of Economics, Princeton University, 1994.
- Mikesell, Raymond F., Essays in International Finance: The Bretton Woods Debates A Memoir, New Jersey: International Finance Section, Department of Economics, Princeton University, 1994.
- Pass, Christopher and Lowes, Bryan, Collins: Dictionary of Economics 2nd ed., Glasgow: Harper Collins Publishers, 1993.
- Scammell, W.M., International Monetary Policy 2nd ed., London: MacMillan & Co. Ltd., 1961.
- Shields, Murray ed., International Financial Stabilization: A Symposium, New York: Irving Trust Company, 1944.
- U.S. Department of State, Havana Charter for an International Organization, The Department of State, 1948.
- U.S. Department of State, Suggested Charter for an International Trade Organization of the United Nations, Department of State, 1946.
- Van Dormeal, Armand Bretton Woods: Birth of a Monetary System, London: The MacMillan Press Ltd., 1978.
- Wilcox, Clair, A Charter for World Trade, New York: The MacMallan Company, 1949.
- Wilgress, Edward Dana, A New Attempt at Internationalism; The International Trade Conferences and the Charter. A study of ends and means, Paris: Societe D’Edition D’Enseignement Superieur, 1949.
- Wonnacott, Paul and Wonnacott, Ronald, Economics, New York: McGraw-Hill Book Company, 1979.