Planning for Postwar Economic Cooperation

PLANNING FOR POSTWAR ECONOMIC COOPERATION U.S. TREASURY, THE SOVIET UNION, AND BRETTON WOODS 1933-1946 Peter Josef Acsay. B.A., M.A. A Digest Presented to the Faculty of the Graduate School of Saint Louis University in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy 2000 DIGEST 1 1 Franklin Roosevelt determined that the postwar political and economic settlement of his administration would be based on a new set of principles and assumptions. The framework sketched by FDR included collective security, mulitlateralism, and mutually beneficial economic and trade relations based on equal access to markets and raw materials, free trade, and currency convertibility. Roosevelt believed that the Soviet Union would play a constructive part and prove a willing partner in the envisioned postwar international order. Through continual demonstrations of American friendship, accommodation, and good will the suspicion and hostility that clouded the relations between the nations could be dispersed. It was the task of Treasury Secretary Henry Morgenthau Jr. to translate these rhetorical generalities, which he fully shared, into a plan for postwar international monetary cooperation. Morgenthau assigned his subordinate Harry Dexter White the responsibility for planning what became known as the Bretton Woods institutions, the International Monetary Fund (IMF) and the International Bank for Re- construction and Development (IBRD or World Bank). The dissertation closely examines the efforts of White and the administration to integrate the unique 2 2 features of the Soviet monetary and trade system with the stated principles of the IMF. In spite of the best efforts of White and the administration and numerous concessions granted during negotiations, the Kremlin ultimately decided not to ratify the Bretton Woods agreements. An assessment of Treasury’s planning and negotiations vis-à-vis the Soviet Union suggest that White’s choice to use gold as the link to connect the Soviet Union to the IMF was not practicable and was but one example of flawed Treasury negotiating strategy. This study rejects the charge that White shaped the IMF to serve the interests of the Soviet Union to the detriment of the United States. However this study does conclude that newly-available archival material demonstrates that the Bretton Woods negotiations were “compromised.” Through information supplied by White and other Treasury employees Stalin was fully informed on the American negotiating position and strategy. This new information demands a fundamental reassessment not just of the Bretton Woods negotiations, but the whole of wartime Soviet-American economic and political relations. 3 3 CHAPTER 1 BRETTON WOODS AS HISTORY The origin and operations of the Bretton Woods institutions, the International Monetary Fund (IMF), and the International Bank for Reconstruction and Development (IBRD), have received an enormous amount of attention from historians, economists, and political scientists. This is due, no doubt, to the belief that these institutions contributed to, or were responsible for, the unprecedented and sustained growth of national economies, trade, and international investment and the low rate of inflation enjoyed by the United States, Western Europe, and Japan between 1945 and the early 1970s. Bretton Woods became a shorthand way to refer to the international, multilateral, capitalist, monetary system based on stable exchange rates supervised by the supranational authority of the IMF.1 Accounts of the origin of the IMF have focused primarily, if not exclusively, on the competing versions of international monetary stabilization 1The best single work on this issue is Michael D. Bordo and Barry Eichengreen, eds., A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform (Chicago: University of Chicago Press, 1993). This volume of thematic essays considers both the historical and the quantitative dimension of the regime. For a consideration of the international monetary regime since 1971 see Harold James, International Monetary Cooperation Since Bretton Woods (New York: Oxford University Press, 1996). 4 4 suggested by John Maynard Keynes of Great Britain and Harry Dexter White of the United States Treasury. The consensus is that the Bretton Woods institutions are more the product of White’s proposals than Keynes’, though important concessions were made by the Americans during the negotiations. White “won” the struggle to supply the blueprint and framework for the postwar international monetary system.2 However White was not able to secure another goal of equal significance, the participation of the Soviet Union in the postwar monetary regime. For White, Henry Morgenthau, Jr., the Secretary of the Treasury, and President Franklin Delano Roosevelt, the monetary negotiations offered the first opportunity to realize their goal of securing the peace through multilateral agreements among the Allied powers. Bretton Woods was to serve as the basis for postwar monetary and economic 2Two recent works are Armand Van Dormael, Bretton Woods: Birth of a Monetary System (London: Macmillan, 1978), and Georg Schild, Bretton Woods and Dumbarton Oaks: American Economic and Political Postwar Planning in the Summer of 1944 (New York: St. Martin’s Press, 1995). Van Dormael focuses on the Anglo-American rivalry, Schild on the competing visions of State and Treasury, or political and economic, in postwar planning. Earlier accounts include Richard N. Gardner, Sterling Dollar Diplomacy in Current Perspective (New York: Columbia University Press, 1980); idem, Sterling-Dollar Diplomacy (New York: McGraw-Hill, 1969); and Alfred Eckes, A Search for Solvency: Bretton Woods and the International Monetary System, 1941-1971 (Austin: University of Texas Press, 1975). The semi-official history of the IMF is J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, 3 vols. (Washington D.C.: International Monetary Fund, 1969). For a 5 5 cooperation as the later Dumbarton Oaks arrangement would serve for diplomatic and political.3 The Soviet Union participated in the Dumbarton Oaks meetings, attended the San Francisco Conference, and joined the United Nations. The Kremlin participated in negotiations prior to the Bretton Woods conference, played a substantial and conspicuous role in the July 1944 meetings, and endorsed the agreements reached at the end of the conference, but never ratified the agreements, allowing the deadline to pass without action or comment. The story of the administration’s efforts to secure Soviet participation in postwar monetary and economic institutions and the Kremlin’s apparent initial interest and ultimate indifference or aversion has been almost completely overlooked or neglected by historians, economists, and political scientists. It is understandable that economists and political history of the IBRD see Robert Oliver, International Economic Cooperation and the World Bank (London: Macmillan, 1975). 3For American planning during the war see Harley Notter, Postwar Foreign Policy Preparations 1939-1945 (Washington D.C.: Department of State, 1950), for the UN Ruth Russell, A History of the United Nations Charter: The Role of the United States 1940-1945 (Washington D.C.: Brookings, 1958). For the transformation from isolationism to internationalism Robert Divine, Second Chance: The Triumph of Internationalism in America During World War II (New York: Athenaeum, 1967). For FDR’s changing and sometimes contradictory views on postwar arrangements see Gaddis Smith, American Diplomacy During the Second World War 1941-1945 (New York: John Wiley and Sons, 1965) and Robert Dallek, Franklin D. Roosevelt and American Foreign Policy 1932-1945 (New York: Oxford University Press, 1995). 6 6 scientists with their bias toward the practical, utilitarian, and functional should find little of interest in the failed American-Soviet Bretton Woods negotiations.4 It is harder to understand why historians have not investigated this episode in American-Soviet diplomatic and economic history. The Kremlin and Bretton Woods appear in two types of works, those dealing with the origin of the “Cold War,” and those which examine the growth of American economic “hegemony.”5 There is apparently one issue on which the various “schools” of Cold War history can agree, that the Kremlin’s initial interest in and ultimate rejection of the IMF and IBRD does not merit a significant place in the narrative tracing the transformation of close wartime collaboration into postwar hostility and the Cold War.6 4However an account of these negotiations appeared in a volume sponsored by the World Peace Foundation in which a number of American-Soviet exchanges were considered. See Raymond Mikesell, “Negotiating Bretton Woods, 1944,” in Negotiating With the Russians, eds. Raymond Dennett and Joseph E. Johnson (Boston: World Peace Foundation, 1951), 101-118. 5As will be explained this term is used in both the descriptive and the pejorative sense. 6Bretton Woods appears as a peripheral issue in the only book that focuses closely on American-Soviet economic relations 1941-1945 Leon Martel’s, Lend Lease, Loans, and the Coming of the Cold War (Boulder: Westview Press, 1979). Pollard notes that “Moscow’s failure to ratify Bretton Woods provides important insights to the origins of the Cold War,” but does not provide much in the way of primary source research or analysis. Robert Pollard, Economic Security and the Origins

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