In the time period immediately after World war II the Allies as the victors faced many problems most of which involved the economic revival that needed to happen in most areas of the world to bring the world economy back into a stable and long-term position. What the world powers wanted to avoid was another situation like the one that arose following World War I. In the aftermath of World War I the victors imposed harsh sanctions on the defeated powers including Germany. The sanctions included Germany having to pay vast amounts of war reparations to the Triple Entente, the reparations devastated the German economy and led to massive inflation. Throughout this struggle the German people looked for a new leader to take control and lead them out of depression, this opening allowed Hitler and the Nazi party to come to power in the 30’s. The last thing that the new world powers wanted in the aftermath of World War II was to create another economic situation that would lead to a political vacuum in the defeated states and cause yet another totalitarian movement in war torn countries trying to rebuild. The Bretton-Woods Agreement was the economic solution brokered between nations by British economist John Maynard Keynes that attempted to solve postwar monetary policy issues and reinstate peace, civility and equality to the world economy.
John Maynard Keynes, a British economist born in 1883 was a large critic of the postwar economic policies following World War I as well as the way governments handled the problems presented by the depression of the 30’s. When German economist Walther Funk presented his plan to overhaul the outdated gold standard in the German empire in 1940 the English government asked Keynes to develop a “Counterscheme” to this plan and Keynes used this opportunity to put forward his ideas on how to reconstruct the world economy without devastating the axis powers economy and perpetuating poverty in already impoverished countries at the Bretton-Woods Conference. “Keynes insisted that any response could not offer reconstruction as it had been done after the First World War.3 He did not want the solution that the United States preferred, extensive trade liberalization, as that would simply open up other, less competitive, economies to a renewed onslaught of the forces of depression. Bretton Woods was about reconstructing a system that had not been adequately reconstructed in 1919.” Treasury Secretary Henry Morgnthaeu stated at the Beginning of the conference “Prosperity, like peace, is indivisible. We cannot afford to have it scattered here or there among the fortunate or to enjoy it at the expense of others. Poverty, wherever it exists, is menacing to us all and undermines the well-being of each of us.” This statement reflects the goals of the conference and sheds light on the reasoning behind the ideas produced there. Keynes believed that the basis of reorganization of the world economy could not be based on trade liberalization because it would lead to the exploitation of disadvantaged countries. “3 He did not want the solution that the United States preferred, extensive trade liberalization, as that would simply open up other, less competitive, economies to a renewed onslaught of the forces of depression.” With this idea Keynes steered the conversation to currency stabilization.
Keynes believed that in the post-war world people were “craving for social and personal security”, James says that Keynes objective was to find a way that international monetary policy could provide this. What Keynes came up with was an international bank with a new international currency. The system would allow countries among other things to devalue their currency relative to the international currency in times of crisis, but the Bretton-Woods system was to be based on “a worldwide agreement on the control of capital movements, which was presented as a ‘permanent feature’ of the post-war system.” The agreements led by Keynes instituted The international Monetary Fund (IMF) and implemented an adjustable International exchange rate that would allow countries to devalue currency to fix problems within their national economies. In the end the Bretton-Woods Agreements would change international monetary policy for decades to come.
file:///C:/Users/Hunter18/Downloads/H%20James,%20The%20Multiple%20Context%20of%20Bretton%20Woods,%20Past%20and%20Present%20210,%20supp.%206%20(2011).pdf
I think you make a really good point about how the countries worked together to stop another economic disaster and refrained from letting another Hitler come to power. I agree with Keynes that the people of Europe were craving a sense of security after all the pain and sorrow they felt for half a decade.
You sir, have a great post here. Keynesian economics is what helped the most. I wrote about this in my article briefly about government structure and how the economy became more predictable or as you said in you post “personal security.” I am firm believer in his economic regulation rather than the freshwater economics. I think it was much needed for the post war period because without regulation and a sense of structure there was a strong possibility for corruption and spending waste. The Bretton-Woods agreement did help and I think was a key part in securing a future for Europe as well as the United States. His whole economic premise proved successful.
You did an excellent job of posting a blog, rather than an article summary. You took what you knew previously and expanded upon that using the readings in order to argue a point. This post was enjoyable to read because it was much more than a dry summary of the same articles that we all have already read. You gave new insight into Keynesian economics and it’s role in post war reconstruction that I was yet to think of. I like how you argue that Keynes directed post war economic policy towards monetary stabilization in an effort to avoid a repetition of post world war European economic depression.
I find it very interesting how the people of Europe back then viewed the creation of an IMF-like organization in a positive light. Often now, we hear how the IMF has made it difficult for countries that are struggling economically. Recently, we’ve seen this happen in Greece, for example. The IMF and other monetary institutions can significantly hamper a nation’s sovereignty. Yet, perhaps this was acceptable after such an event as WWII, where nationalism and other ideas were contributing factors.