The New Deal and the Post-War International Monetary System

0:00We abandoned the story last night with the Genoa conference system, the Genoa system in the 1920s having collapsed with Britain having gone off the gold standard, Europe having gone off the gold standard, and then the United States finally in 30, no this was in 31, then the United States in 33, and then when the United States goes off the gold standard and the dollar devalues, the British suddenly found that the lorries of the devaluation of the pound might have another side of the coin, which is a dollar also might be devalued, and then they were in real trouble. So the British proposed a world economic conference in London in June 1933 to re-establish a workable international monetary system because what they could see looming ahead of them is what of course eventually did loom ahead of them, competing devaluations, fiat paper monies, currency blocks, exchange controls, world tariff wars and so forth and so on, leading to World War II as we'll go into them also.

0:59So they saw this prospect looming ahead and didn't like it, and then the conference was called. I can resume ruling from this tract. Preparations for the conference had been underway for a year under the guidance of the League of Nations, which reads, in parenthesis, Britain, a desperate attempt to aid the world economic and financial crisis by attempting, quote, the restoring of the currencies on a healthy basis. On the World Economic Conference, an excellent book, which I recommend by Leo Paszwolski, called Current Monetary Issues, published by Bookings in 1933, which is a detailed study of the soul.

1:44Paszwolski is one of the people at the conference, a detailed study of the whole business. The Hoover administration was planning to urge the restoration of the international and the gold standard, but the abandonment of Gold by the Roseau administration in March and April 1933 changed the American position radically. As the conference loomed ahead, it was clear that there were three fundamental positions. The gold block, a country still on the gold standard, headed by France. France had been a hard-money country since the late 20s, which desired immediate... Incidentally, France was the great French monetary advisor at the time of the Bank of France. There was Charles Riester, I mentioned, who was one. Another one was Jacques Rouef, who's still in there now in his 70s. He was de Gaulle's great gold standard economic advisor, which almost busted the dollar system in 68, which was prevented by the French Revolution of 68 or the French General Strike of 68.

2:31Maybe we work out some kind of conspiracy thing there, you know, the CIA, the CIA spurring on the malice of something in 68 and busting of de Gaulle's hard money position. that's pure speculation for us. So we have, and Jacques Rouat was still the great hard money gold standard person. It was clear that the gold block, the country still on the gold standard, headed by France, which desired immediate return to a full international gold standard with fixed exchange rates between the major currencies and gold. The United States, which now placed greatest stress on domestic inflation of the price level, So we were the most inflationist country. We are again now, by the way, since we've come back full circle from the, there's almost the cause of Bill's cyclical theory of history, except here the cycles come like every 20 years.

3:20And the British, supported by their dominions, wished some form of combination of the two things. The British, I mean, at least the United States position, although bad was coherent, and the French position was coherent, but the British position, the British somehow wanted to have that cake and eat it also. In the invitation of President Roosevelt, what was still unclear was whether a satisfactory compromise between these divergent views could be worked out. At the invitation of President Roosevelt, Prime Minister Ramsey MacDonald of Great Britain, leading statesmen of the other major countries, journeyed to Washington for individual talks with the President. All that emerged from these conversations were vague agreements of intent, but the most interesting aspect of the talks was an American proposal, originated by William C. Bullitt and rejected by the French, to establish a coordinated worldwide inflation and devaluation of currencies.

4:13Here we get to the, this is sort of the, one of the first evidences of what's really the great American dream, which is right now the great American establishment dream, which is a coordinated worldwide inflation with a world bank and that sort of stuff. The Serious Discussion of a Proposal Sponsored by the United States and vigorously opposed by the gold countries, that the whole world should embark upon a cheaper money policy, not only through a vigorous and concertive program of credit expansion and the stimulation of business enterprise by means of public works, but also through The American delegation to London was a mixed bag, but the conservative gold standard forces could take heart from the fact that staff economic advisor was James P. Warburg of Kim Morrow & Company, who had been eagerly working on a plan for international currency stabilization based on gold with new and realistic parodies.

5:25In other words, the ideas are, I forget about the old parodies, this is the same sort of thing I was talking about in the early 20s. He accepted the current devalued parodies and reestablished the gold standard at a more workable level. Furthermore, conservative professor Oliver M.W. Sprague and George L. Harrison, governor of the New York Fed, who had succeeded school, were sent to discuss proposals for temporary stabilization of major currencies who stabilized the thing until the duration of the conference. In contrast, the President paid no attention to the petition of 85 congressmen, including 10 senators, that he appointed as economic advisor to the conference the radical inflationist and anti-gold priest, Father Charles E. Coughlin. This is one of the high points in current American history. Ten senators and 75 congressmen petitioned the President to appoint Father Coughlin as his economic advisor.

6:19The World Economic Conference, attended by delegates from 64 major nations, opened in London on June 12. The first crisis occurred over the French suggestion for a so-called, a temporary so-called currency truce, a de facto stabilization of exchange rates between the franc dollar and pound in the duration of the conference. Surely eminently reasonable, the plan was also a clever device for an entering wedge toward a hopefully permanent stabilization of exchange rates on a full gold basis. The British were amenable, provided the pound remained fairly cheap in relation to the dollar. Sprague & Harrison concluded an agreement with the British and French for temporary stabilization of the three currencies, setting the dollar sterling rate at about $4 per pound, and pledging the United States not to engage in massive inflation of the currency for the duration of the agreement.

7:17The American representatives urged Roosevelt to accept the agreement, spray warning, quote, that a failure now would be most disastrous, and Warburg declaring that without stabilization, quote, it would be practically impossible to assume a leading role in attempting to bring about a lasting economic peace, unquote. But Roosevelt quickly rejected the agreement on June 17th, giving two reasons. One, that the pound must be stabilized at no cheaper than $4.25, and it goes, we can't accept a $4 pound. We're going to push the pound up again so that American exports would be stimulated and British exports stopped and restricted, and two, that he could not accept any restraint on his freedom of action to inflate in order to raise domestic prices. Roosevelt ominously concluded, quote, that it is my personal view that far too much importance is being placed on existing and temporary fluctuations, unquote, and lest the American delegation take his reasoning as a stimulus to renegotiating the agreement, Roosevelt reminded Hull on June 20th, quote, remember the far too much influence is attached to exchange stability

8:13by Banker Influenced Cabinets." Here we have a new note of anti-banker hospitality. Upon receiving the presidential veto, the British and French were indignant, and George Harrison quit on a turn home to discuss. That was the first great resignation from the Roosevelt team. But the American delegation went ahead and issued its official statement on temporary currency stabilization on June 22nd. It declared temporary stabilization impermissible, quote, Because the American government feels that its efforts to raise prices are the most important contribution it can make. That already casts a great pull on the conference, obviously. I'm not a very happy foot to start off on. With temporary stabilization scuttled, the conference settled down to longer-range discussions, most important work being set out on the Sub-Commission on Immediate Measures of Financial Reconstruction of the Monetary and Financial Commission of the conference.

9:09The British delegation began by introducing a draft resolution, one, emphasizing the importance of quote, cheap and plentiful credit, unquote, in order to raise the world level of commodity prices and two, stating that the quote, that the central banks of the principal countries should undertake to cooperate with a view to securing these conditions and should announce their intention of pursuing vigorously a policy of cheap and plentiful money by open market operations. So essentially this is sort of the bullet thing. You emphasize coordinated, all the countries get together and coordinate an inflationary policy, The British thus laid stress on coordinated inflation, but said nothing about the sticking point, exchange rate stabilization. The Dutch, the Czechoslovaks, the Japanese and the Swiss criticized the British advocacy of inflation.

9:54The Italian delegate warned, quote, that the put one's faith in immediate measures for augmenting the volume of money and credit might lead to a speculative boom followed by an even worse slump. A hasty and unregulated flood of credit will lead to destructive results, and the French delegates stressed that no genuine recovery could occur without a sense of economic and financial security, who would be prepared to lend with the fear of being repaid in depreciated currency always before his eyes? Who would find the capital for financing vast programs of economic recovery and abolition of unemployment, as long as there is a possibility that economic The American delegation then submitted its own draft proposal, which was similar to the British, ignored currency stability, and advocated close cooperation between all governments and central banks, quote, that the carrying out of a policy of making credit abundantly and readily available to sound enterprise, especially by open market operations which expand to the money supply.

11:04Also government expenditures and deficits should be synchronized between the different nations. So it's the same sort of thing, coordinated inflation. The difference of views between the nations on inflation and prices, however, precluded any agreement in this area at the conference. On the gold question, Great Britain submitted a policy declaration in the US, a draft resolution, which looked forward to eventual restoration of the gold standard, but again nothing was spelled out on exchange rates or on the crucial question of whether restoration or price inflation should come first. I mean, restoration or price inflation should come first. So it's sort of a pious hope about the gold standard, somewhere or from the future. In both the American and British proposals, however, even the eventual gold standard would be considerably more inflationary than it had been in the 20s. For all domestic gold circulation, whether coin or bullion, would be abolished. Gold used only as a medium for suppling international balances of payment and all gold reserve ratios

12:01to currency would be lowered. As could have been predicted before the conference, there were three sets of views on gold and currency stabilization. The United States, backed only by Sweden, favored cheap money in order to raise domestic prices, but currency stabilization would be deferred until a sufficient price rise had occurred. Whatever international cooperation was envisaged would stress joint inflationary action to raise price levels in some coordinate manner. The United States, moreover, went further even than Sweden in calling for reflating wholesale prices back to 1926 levels. The gold block attacked currency and price inflation, pointed to the early post-war experience of severe inflation and currency depreciation, and hence insisted on stabilization of exchanges and the avoidance of depreciation. In the confused middle were the British and the sterling block who wanted price reflation but also wanted eventual return of the gold standard and temporary stabilization of the key currencies.

12:52So again we have this sort of polar thing, the French and the gold block on one hand, the United States and the other pole, and the British and sterling block in the middle. As the London Conference founded on severe disagreements, the gold block countries began to panic. For on the one hand the dollar was falling in the exchange markets all this time that they were talking, thus making American goods and currency more competitive. And what is more, the general boom of the conference gave international speculators the idea that in the near future, many of these countries would themselves be forced to go off gold. Consequently, money began to flow out of the gold countries during June, and Holland, Switzerland lost over 10% of their gold reserves during that one month alone. Consequently, the gold countries launched a final attempt to draft a compromise resolution. The proposed resolution was a surprisingly mild one.

13:402001. It committed the signatory countries to reestablishing the gold standard and stable exchange rates, but deliberately emphasized that the parity and date for each country to return the gold was strictly up to each individual country. The existing gold standard countries were pledged to remain on gold, which is not difficult since that was their fervent hope. The non-gold countries were to reaffirm their ultimate objective to return the gold, to try their best to limit exchange speculation in the meanwhile, and to cooperate with other central banks in these two endeavors. The innocuousness of the proposed declaration comes from the fact that it committed the United States to very little more than its own resolution of over a week earlier to return eventually to the gold standard, coupled with a vague agreement to cooperate in limiting exchange speculation in the major currencies. This joint declaration was agreed upon by Spray, Warburg, James M. Cox, head of the Monetary Commission at the conference, and by Raymond Moley, who had taken charge of the delegation

14:33Molley was Assistant Secretary of State and had been a monetary nationalist. Molley, however, sent a declaration to Roseville on June 30th urging the President to accept it, especially since Roseville had been willing a few weeks earlier to stabilize it at $4.25 a pound, while the depreciation of the dollar during June had now brought the market rate up to $4.40. So Roseville really had nothing to gripe it back because the pound was happily more expensive than up to $4.40. Of course, the Atlantic, Undersecretary of the Treasury, Dean Gooderham Atchison, who appears for the first time as a powerful figure in the United States, influential Wall Street financier, Bernal M. Baruch, and Louis W. Douglas also strongly endorsed the London Declaration. Not hearing immediately from the President, Moley frantically wired Roosevelt the next morning that, quote, success even continuous of the conference depends upon the United States agreement.

15:23Roosevelt cabled his rejection on July 1st, declaring, quote, that a sufficient interval should be allowed in the United States to permit a demonstration of the value of price-lifting efforts which we have well in hand, the value of reflating upwards. Roosevelt's rejection of even the innocuous agreement was in itself startling enough, but he felt that he had to add insult to injury, to slash away the London Conference so that no danger might exist of currency stabilization or of the reconstruction of an international monetary order. Hansi sent on July 3rd an arrogant and contemptuous public message to the London Conference, the famous bombshell message, so named for its impact on the conference. Roosevelt began by lambasting the idea of temporary currency stabilization, which he termed a specious fallacy in artificial and temporary diversion. Instead, Roosevelt declared that the emphasis must be placed on, quote, the sound internal economic system of a nation.

16:12In particular, quote, old fetishes of so-called international bankers are being replaced by efforts to plan national currencies, the objective of giving to those currencies a continuing purchasing power, which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain in the near future. That's the old, that's the thing, the Fisher motif of stabilization of the dollar. You can see, of course, how successful Roosevelt and his successors have been at this, pegging into the price level. That objective means more to the good of other nations than a fixed ratio for a month or two in terms of a pound or a franc. In short, the President was now totally committed to the nationalist Fisher-dash Committee of the Nation program for paper money, currency inflation, and very steep reflation of prices, and then stabilization at the higher internal price level.

16:58The idea of stable exchange rates in international monetary order could fade into limbo. The Royal Economic Conference limped along aimlessly for a few more weeks, but the Roosevelt bombshell message effectively killed the conference, and the hope for a restored international monetary order was dead for a fateful decade. From here on in the 1930s, monetary nationalism, currency blocks, and commercial and financial warfare would be the order of the day. The French were bitter, and the English stricken of the Roosevelt message. The Chagrin James P. Warburg promptly resigned as financial advisor of the delegation. This was the beginning of the exit of this highly placed economic advisor from Roosevelt administration. A similar fate was in store for Oliver Sprague and Dean Acheson. You know, one peculiar thing about Dean Acheson as a sort of aside here, when I was growing up, or first entered the movement, in quotes, Dean Acheson was considered to be a commie, an international Moscow conspirator, right, because he refused to turn his back on Alger Hiss and he lost us China.

17:55And then the peculiar thing is you look at the later record of Dean Acheson, In the early 30s, he was very conservative, and he wanted to bomb the Russians everywhere, and so on, and then you say, well, maybe he left us back in the 40s, and he turned right wing, turned conservative in the 60s, 50s, and 60s, but then you look back at the early 30s, and of course he was very conservative, and he left the Roosevelt administration on the gold standard question, which seems to indicate that he was not a commie in the 40s. As for Raymond Moley, who had been repudiated by the President's action, he tried to restore himself to Roosevelt's graces by a fawning and obviously insincere telegram, only to be ousted from office shortly after his return to the United States.

18:41Playing an ambivalent role in the entire affair, Bernard Baruch, who was privately in favor of the old gold standard, praised Roosevelt fulsomely for his message, quote, Until each nation puts its house in order by the same Herculean efforts that you are performing, Baruch wrote the President, there can be no common denominators by which we can endeavor to solve the problems. There seems to be one common ground that all nations can take, and that is the one outlined by you. Here we have this fawning, bootlicking message Baruch wrote to Roosevelt at the same time he's telling his friends that it's a terrible thing and we should have gone back to the old gold standard. Expressions of enthusiastic support for the President's decision came, as might be expected, from Irving Fisher and George F. Warren, who urged Roosevelt to avoid any possible agreement James A. Farley is recorded in his memoirs that Roosevelt was prompted to send his angry message by coming to suspect a plot that influenced Moley in favor of stabilization by Thomas

19:55W. Lamont, partner of J.P. Morgan & Company, working for Moley's conference aide and White White House advisor Herbert Bayard Swope was close to the Morgans and also a long-time confidant of Baruch. This is my well account for Roosevelt's bitter reference to the so-called international bankers. The situation is curious, however, since Swope was firmly on the anti-stabilizationist side, and Roosevelt's London message was read enthusiastically by Russell Leffingwell, a partner of J.P. Morgan, who apparently took little notice of its attack on the international bankers. Apparently, it rolled right off at least Russell Leffingwell's back. Nothing while I wrote to the President after he sent his message, the bombshell message, quote, You were very right not to enter into any temporary or permanent arrangements to peg the dollar in relation to sterling or any other currency. So it's kind of a curious situation there.

20:41We need some more wrapping up. From the date of the torpedoing of the London Monetary Conference, monetary nationalism prevailed for the remainder of the 1930s. The United States finally fixed the dollar at $35 an ounce in January 1934, and mounting to a two-thirds increase in the gold price of the dollar from its original moorings less than a year before into a 40% devaluation of the dollar, which had been $20.50. The gold nations continued on gold for two more years, but the greatly devalued dollar now began to attract a flood of gold from the gold countries, and France was finally forced off gold in the fall of 1936, with the other major gold countries, Switzerland, Belgium and Holland, falling shortly thereafter. While the dollar was technically fixed in terms of gold, there was no further gold coin or bullion redemption within the United States. The only significant act of international collaboration after 1934 came in the fall of 1936, at about the time France was forced to leave the gold standard.

21:47Probably to assist the French, the United States, Great Britain and France entered into a tripartite agreement beginning on September 25th, 1936. The French agreed to throw in the exchange rate sponge and devalue the franc by between one quarter and one third. At this new par, the three governments agreed not to stabilize their currencies, but to iron out day-to-day fluctuations in them, to engage in mutual stabilization of each other's currencies only within each 24-hour period. This was scarcely stabilization, but did constitute a moderating of fluctuations, as well as political-monetary collaboration, which began with the three Western countries and soon expanded to include the other former gold nations, Belgium, Holland, and Switzerland. This collaboration continued until the outbreak of World War II. So this was the United States, Great Britain, France, Belgium, Holland, and Switzerland.

22:40At least one incident marred the harmony of the tripartite agreement. In the fall of 1938, while the United States and Britain were hammering out a trade agreement, the British began pushing the pound below $4.80. At the threat of this cheapening of the pound, U.S. Treasury officials warned Secretary of Treasury Henry Morgenthau Jr. that if, quote, Sterling drops substantially below $4.80, our foreign domestic business will be adversely affected, end quote. In consequence, Morgenthau successfully insisted that the trade agreement with Britain must Human may touch only on a fascinating historical problem, which has been discussed by revisionist by the famous historians of the 1930s, to what extent was the American drive for war against Germany the result of anger and conflict over the fact that in the 1930s, the 1930s world of economic and monetary nationalism, the Germans, on the guidance of Dr. Helmar Schacht, went their way successfully on their own, totally outside the Anglo-American control of the confinements of what remained of the cherished American open door.

24:07The treatment of this question will serve as a prelude to examining the aim of the war-born second New Deal of reconstructing the new international monetary order, an order that in many ways resembled the lost world of the 1920s. German economic nationalism in the 1930s was, first of all, conditioned by the horrifying experience that Germany had had with runaway inflation and currency depreciation during the early 1920s, culminating in the monetary collapse in 1923. The whole German schtick in the depression, starting in 1931, was shocked as the economic wizard, so to speak, and continued thereafter through the 30s, was totally conditioned by this experience. The Germans were going through this fantastic runaway inflation, the first hyperinflation in modern times of an industrial nation.

24:54The mark was worth, you know, one, two billion marks were worth something like one piece of bubble gum and people were papering the war with mark notes and trillion mark notes and all the rest of it. And the Germans, the German public, matched on as sort of a symbol on the cause of all this, exchange rate depreciation, devaluation of exchange rate. So even though the Germans could cunningly increase the money supply and supply of marks in Germany, And they could not, could not, not, not, regardless of who was in power, devalue the mark. So the fixed thing, which the Germans had to face in this period, is the mark had to remain at the old par. If there was any even hint of devaluation of the mark, they would have had a revolution. So, okay, so that was their, that was their thing. Here we have a situation where the, every, currencies are collapsing, everybody goes off the gold standard, and the German mark is overvalued.

25:43What do you do about it if you can't devalue the mark? What the Germans did about it was to start, since they were outside, then, the international monetary order, since the mark was overvalued, they started a system of exchange controls and bilateral trade agreements, that they're really, in this sense, outside the multilateral system. And in the course of doing that, they were attacked bitterly by the United States as The Court was an overvalued power as each European country went off the gold standard.

26:40No German government could have politically succeeded in engaging once again in the dreaded act of devaluation. No longer on goal and unable to devalue the mark, Germany was obliged to engage in strict exchange control. In this economic climate, Dr. Schach was particularly successful in making bilateral trade agreements with individual countries, agreements which amounted to direct quote border unquote arrangements and anger of the United States and other western countries and totally bypassing gold and other international banking and financial arrangements. In the anti-German propaganda of the 1930s, the German barter deals were agreements in which Germany somehow invariably emerged as coercive victor and exploiter of the other country involved, say Bulgaria or Romania, in exchanging manufactured goods for wheat, even though they were mutually agreed upon and therefore presumably mutually beneficial exchanges.

27:28Actually, there's nothing either diabolic or unilaterally exploitive about the barter deals. Part of the essence of the barter arrangements has been neglected by historians. The deliberate overvaluation of the exchange rates of both currencies involved in these deals. And typically that would happen. The German market, we have seen, was deliberately overvalued as the alternative to the expected currency depreciation. The situation of the other currencies was a bit more complex. Thus, in the border agreements between Germany and the various Balkan countries, especially Romania, Bulgaria, Hungary and Yugoslavia, in which the Balkans exchanged agricultural products for German manufactured goods, The Balkan currencies were also fixed at an artificially overvalued rate, vis-a-vis gold, and the currencies of Britain and the other western countries. So we had the Markov's overvalued in these agreements, particularly, the Markov's overvalued, also the Bolgar and the RUM, or whatever the names of these currencies are.

28:22This meant that Germany agreed to pay higher than world market rates for Balkan agricultural products, while the Balkan countries pay higher rates for German manufactured products. And what was the point of this? What benefits from this peculiar arrangement were both currencies that were overvalued? The point was that for the Balkan countries, the point was to force Balkan consumers of manufactured goods to subsidize their own peasants and agriculturists. In other words, this is an end run by which the Romanian government forces the Romanian consumer to subsidize the Romanian peasant. The Romanian consumer who buys manufactured goods is in this way forced to sort of like a new deal of farm programs. It's done roundabout through the currency system, the exchange rate and currency system.

29:07So the Romanian urban person or whatever, a businessman who buys manufactured goods is really subsidizing the Romanian peasant and landlord. The external consequence of this was that Germany was able to freeze out Britain and other Western nations from buying balkan food and raw materials because they were paying a higher price. Germany was paying a higher price than the British would pay on the market, and since the British could not compete in paying for Balkan produce, the Balkan countries in the bilateral world in the 1930s did not have sufficient pound sterling or dollars to buy manufactured goods from the West. Thus, Britain and the West were deprived of raw materials and markets for their manufactures by the astute policies of Hilmar Schacht and mutually agreeable border agreements between Germany and the Balkan and others, including Latin American countries. May not Western anger at successful German competition through bilateral agreements and Western desire to liquidate such competition have been an important factor in the Western drive for war against Germany.

30:13Lloyd Gardner has demonstrated the early hostility of the United States toward German economic controls and broader arrangements, as attempts to pressure Germany to shift to a multilateral open-door system for American products, and the repeated American rebuffs the German proposals for bilateral exchanges between the two countries. I have some other stuff here, instead of integrating, I'll just sort of add the other stuff which I've done since this paper has come out. As early as June 26, 1933, the Influential American Consul General of Berlin, George Messersmith, was warning that such continued policies would make Germany a danger to world peace for years to come. This danger to world peace has nothing to do with any German troops marching or anything of that sort. It's German bilateral trade agreements and exchange controls.

31:05In pursuing this aggressive policy, President Roosevelt overrode A.A.A. Chief George Peek, who at this point becomes an, quote, isolationist, unquote, for World War II. From then on, Peek and Johnson, by the way, hive off the general liberal foreign policy as it's beginning to shape up. George Peek, who favored accepting bilateral deals with Germany, and perhaps not coincidentally, was to be an ardent isolationist in the late 1930s. Instead, Roosevelt followed the policy of a leading interventionist and spokesman for an open door for American products, Products, Secretary of State Cordell Hull, as well as Assistant Secretary Francis B. Sayre, son-in-law of Woodrow Wilson. Woodrow Wilson pops up again, if only as an ancestor. By 1935, American officials were calling Germany an aggressor because of its successful bilateral trade competition, and Japan was similarly castigated for much of the same reasons.

31:57By late 1938, G. Pierpont Moffat, head of the Western European Division of the State Department, was complaining that German control of Central and Eastern Europe would mean, quote, a still further extension of the area under a closed economy, unquote. And more specifically, in May 1940, Assistant Secretary of State Breckinridge Long warned that a German-dominated Europe would mean, quote, that every commercial order will be routed to Berlin, rooted to Berlin, and filled under its order somewhere in Europe rather than in the United States, unquote. So begin to see here that maybe the reason for the American drive to war with Germany Not for a crusade to save 6 million European Jews, but for less ideological, so to speak, less abstract ideological reasons.

32:44And shortly before American entry into the war, John J. McCloy, later to be U.S. High Commissioner, occupied Germany and the number one establishment person in the Rockefeller M. was to write in a draft for a speech by Secretary of War Henry Stimson, quote, with German control of the buyers of Europe and her practice of government control of all trade, it would be well within our power as well as the pattern she had thus far displayed, the shuttle of our trade with Europe, with South America and with the Far East, unquote. Not only were Hull and the United States ardent in oppressing an anti-German policy against its bilateral trade system, but sometimes Secretary Hull had to whip even Britain into line, even our heroic ally, Thus, in early 1936, Cordell Hull warned the British ambassador, and quote, the clearing arrangements reached by Britain with Argentina, Germany, Italy and other countries were handicapping the efforts of this government to carry forward its broad program of the favorite nation policy

33:37underlying it. In other words, the open door, multilateral, most favorite nation policy. The tendency of these British arrangements was, quote, to drive straight toward bilateral trading, and they were therefore milestones on the road to war. So here's a sort of direct angry threat that you're pursuing a policy which the Germans have been pursuing of bilateral trading and that's the road to the war and this is also going to be the road to the war, presumably with us. One of the United States government's biggest economic worries was the growing competition of Germany and its bilateral trade in Latin America. Here it gets really hairy, of course. As early as 1935, Cordell Hull concluded that Germany was, quote, straining every tendon and to undermine United States trading relations with Latin America." A great deal of political pressure was used to combat this competition.

34:24Thus, in the mid-1930s, the American Chamber of Commerce in Brazil repeatedly pressed the State Department to scuffle with Germany-Brazil border deal. That was to put enormous political pressure on the Brazilians to scuffle it, which the chamber termed, quote, the greatest single obstacle to free trade in South America. Brazil was finally induced to cancel its agreement with Germany in exchange for $60 million loans America's exporters, grouped in the National Foreign Trade Council, issued resolutions against German trade methods and pressured the government for stronger action. In late 1938, President Roosevelt asked Professor James Harvey Rogers, an economist and disciple of Irving Fisher, to make a currency study of all of South America in order to minimize German and Italian influence on this side of the Atlantic.

35:11There's no wonder the German diplomats in Brazil, Chile and Uruguay reported home that the United States was, quote, exerting very strong pressure against Germany commercially, unquote, which included economic, commercial and political opposition designed to drive Germany out of the Brazilian and other South American markets. In the spring of 1935, the German ambassador to Washington, desperately anxious to bring an end to American political and economic warfare, asked the United States what Germany could do to end American hostilities. The American answer, which amounted to the demand for unconditional economic surrender, was that Germany abandon its economic policy in favor of America. In other words, abandon its whole bilateral trading change control business and allow us export, non-discriminatory export into Germany.

35:59I'll go a little bit more into that in a minute. The second reply really meant, noted Pierpont Moffatt, quote, fundamental acceptance by Germany, and this is what we demanded in this reply, fundamental acceptance by Germany of our trade philosophy, and a thoroughgoing partnership with us along the road of equality of treatment and the reduction of trade barriers. That really means, of course, reduction of German trade barriers, our trade barriers. The United States further indicated that it was interested that Germany accept, In the spring of 1936, Secretary Hull refused to settle for a bilateral deal to sell Germany a large store of American cotton, holding The President of Brazil announced the idea as blackmail.

37:02The predictable result was, in the next couple of years, the source of raw cotton imported into Germany shifted sharply from the United States to Brazil and Egypt, which had been willing to make barter sales of cotton. And it starts the arras of the Brazilian problem. When war broke out in September 1939, Bernard Baruch's reaction, when he heard of this, was to tell President Roosevelt, quote, If we keep our prices down, there is no reason why we shouldn't get the customers of the belligerent nations that they have had to drop because of the war. That was Baruch's first reaction. And nothing about saving six million Jews. His first reaction was the commercial crush. And in that event, Baruch exalted Germany's border system will be destroyed.

37:48But particularly significant is a retrospective comment made by Secretary Hull, he made in his memoirs after the war. Quote, War did not break out between the United States and any country with which we had been able to negotiate a trade agreement. It is also a fact that with very few exceptions, the countries with which we signed trade agreements joined together in resisting the Axis. political lineup follows the economic lineup underline, underline that uh... now the thing is, you know, when I first I sort of knew about this when I was growing up in a graduate school, et cetera, and read this stuff, and I sort of the tendency that was sort of dismissed how I was sort of a free trade nut and they kept making these statements and nobody believed them and if we re- re-listen or re-read Hull's statements in this regard and begin to take them seriously and say maybe Maybe he was, after all, he was the Secretary of State during this whole period, and if he said the major cause of war with Germany was this economic struggle, maybe he was right, at least there was a chance that he might be right.

38:55Or as I say here, considering that Secretary Hull was the leading maker of American foreign policy throughout the 1930s and through World War II, there's certainly a possibility that his remarks should be taken not as a quaint testimony to Hull's edifice and reciprocal trade, but as a positive causal statement of the thrust of American foreign policy. Right in that light, Hull's remark becomes a significant admission, rather than a flight of speculative fancy. Reinforcing this interpretation will be a similar reading of a testimony before the House of Representatives in 1945 of top Treasury aide, Harry Dexter White, defending the Bretton Woods agreements he had come to, White declared, quote, I think it would very definitely have made a considerable contribution to checking the war and possibly might have prevented it.

39:44What's he talking about if the war is over with Jews and all that sort of stuff on the Rhineland and Danzig? And possibly might have prevented it. A great many of the devices which Germany and Japan utilize would have been illegal in the international sphere had these countries been participating members. Is White saying that the Allies deliberately made war upon the Axis because of these bilateral exchange control and other competitive devices, which a Bretton Woods, or for that matter, 1920s system, would have precluded? When I wind up this part of the paper, by noting the assertion of the influential London Times well after the start of the war, I quote, Quote, one of the fundamental causes of this war, said this in October 1940, has been the un-relaxing efforts of Germany since 1918 to secure wide enough foreign markets to straighten her finances at the very time when all of her competitors were forced by their own debts to adopt exactly the same course.

40:46Continuous friction was inevitable. Once again, we have the Economic Interpretation, this time a very distinguished British journal. Okay, I have more which sort of fits into this, going parallel more or less. And here I refer to this forum, this module, which I just read fairly recently by Professor Thomas Etzold. I have the title in bibliography, something like Why the United States Fought German in World War II. As a connoisseur of this, I happen to hear this undoubtedly unpublished. Professor Garrity of Columbia gave a very interesting, long paper at the OAH Organization of American Historians meeting in Chicago this April. And the paper largely focused on the comment that Hitler and the Nazis' attitude toward the New Deal in the early period, 33, 35, etc., before the friction began.

41:37And it was laudatory. Hitler and the Nazis loved to do the, kept praising Roosevelt for doing in the United States what Hitler was doing in Germany and then fixing up the economic system and corporatizing it and putting in, saving capitalism or whatever, whatever the praxeology was, it was laudatory in the extreme. Okay, what went, for the things that went wrong in this multilateral business, deals Deals with the whole tariff question, basically. One of the problems was that by German law, this had nothing to do with Hitler, this was the German system, tariffs were not a legislative matter, they were treaties negotiated with each country. So Germany would settle a tariff with Britain by having a treaty negotiation and find out the tariff there and so on. In the United States, of course, tariffs are outside treaties. Tariffs are passed by Congress and so here we have this peculiar system. First of all, the United States, you see, can then insist that everybody else be multilateral, because we're multilateral, we're not discriminating against German exports or French exports, and we raise our tariff 200%, we're keeping at everybody equally, we're not discriminating against any foreign country. So we can take a very high moral tone about non-discrimination and multilateralism. Anytime the poor Germans did not have this kind of system, but it says they negotiate a treaty of

43:01and the tariff is negotiated with each country, they can't be multilateral, it's almost impossible to be multilateral in the same sense. So we have this culture clash, and from the very beginning, from 1931 on, this whole thing collapses, the monetary thing collapses, the United States is constantly attacking Germany for discriminating against American products, and because of the way their thing is structured and not giving us this benefit of multi, misfavor of nation clauses and so forth, and the Germans Germany has been accusing us of being hypocritical because they don't care that we're also keeping out Bulgarian products with our high tariffs. They're worried about the fact that German exports are being kept at. We say, who cares about Bulgarian tariffs? That's a legislative matter. The point is we're not discriminating against you personally. So this goes on for the whole 1930s, this whole communication gap, if you want to call it that.

43:49More specific, during the late 1920s, during the great foreign lending boom, Germany had has been one of the largest debtors in the United States, a close symbiotic debtor-debtor relationship between the United States and Germany. By the time of the 1931 crash, American creditors had almost $700 million in German short-term securities and over $1.2 billion in long-term German securities. So we were virtually the biggest creditors and comes the crash and comes the overvalued markets and the Germans have great difficulty in getting dollars up to pay the American creditors.

44:35This is another big, one problem was the whole tariff caper, the other problem was the whole devaluation, over-evaluation of bilateral agreements with Eastern Europe and Latin America and the third problem was the American creditors, the American creditors are only on the German And the Germans are griping because our tariffs keep going up, so how can they acquire dollars in a rather sensible position? We're telling them to get dollars and pay off American creditors, and they're saying how can we acquire dollars if you won't buy German, allow us to sell German products in the United States? The German exports in the United States kept falling because of the higher U.S. tariffs, the Smooth Holy Tariff, for example, 31, which ended in this period, and the Germans now put on exchange controls to limit foreign exchange payments, because they have this, the mark being overvalued, they have the usual effect of that, which is a foreign exchange shortage.

45:34And the Germans, by 1933, the Germans reduced their service, in other words their debt service, their debt payment on medium and long term German bonds, which are mostly debts of German municipalities, which we daily gave them during the Great Foreign Lending Movement in the 20s. The bankers would go over to Germany and practically force them to borrow from them and build these city halls and German municipal works and that sort of thing. And the shock that was in this bind and the policy, and shock blamed, I mean, excuse me, how to blame Hitler because the Germans had reduced American debt payments in 1933, actually Germany was shocked. Hitler was in favor of servicing paying American debts, and shock told them, no, I can't do that because we haven't got the money. Shock had been running this thing since 1931. And then Germany goes over by the summer of 1933 this bilateral system where they announced that Germany would only buy abroad what it could pay for. It

46:50would limit its imports, the classical mercantilist thing, if you're in this bilateral thing, To limit their imports from each nation, depending on the balance of trade, in other words, to try to have a balanced balance of payment with each country. To quote an American, they had a big balance of payment deficit with the United States, Germany at this point, so they had to coercibly reduce American exports to Germany. Hull of course protested very bitterly and we had this whole culture conflict. Culture dash, you can know my conflict. And Hull was constantly attacking Germany for these quotas of reducing American exports to Germany and so forth. There's also a whole complicated deal here which I'm not going to go into where the German export, how the way German exchange Control Works, and it was a whole complicated scheme, which the Americans write that, because again, it's limited American exports to Germany.

47:53Meantime, to aggravate all this, in 1933 and 1934, the United States discovered that Germany was paying their full debt service, the full debt charges, to other countries like Britain, Holland, Switzerland. So we got very riled up about this, and the demand and explanation for shocks and shocks as well. When we have a dollar shortage, we have huge deficits in the balance of payments by the United States because he's on this bilateral ambit. And the United States is vastly illegal and all that sort of stuff. Hull gets very legalistic, of course, at all times, especially when it fits his export ideology. And then we have this whole tariff thing and all that, which I mentioned before.

48:41In March 1935, the Germans get panicky because the United States is getting more and more aggressive on this thing, refusing any kind of compromise. And Germany finally is ready to capitulate. They say, okay, we accept the first-favorite nation principle. In the spring of 1935, to show their good faith, Germany resumes partial debt service on some of the The U.S. held bonds, the German bonds, and Schott even sent word to the United States that he was ready to adopt a whole United States program, even the Reciprocal Trade Treaty, because at this time they were getting pretty scared. So Holt decides to, quote, test, quote, German good faith. As noted in June 2835, he demands that Germany allocate foreign exchange and quotas and give the United States' commerce its proportional share in the German market, and give an immediate quota, something like the equivalent of affirmative action plans in the American university system, and give an immediate quota for proportionate share in the German market, and make reductions in German tariffs and US exports.

49:48And we insisted, not only did we insist on this sort of overkill thing, unconditional economic surrender, as I mentioned before, but Helen insisted, this is typical of Hellenism, Germany would have to meet every one of these demands before we could even talk about it. This is the origins of this famous non-negotiable demand of the New Left. First you split your throat and then we'll sit down and talk about the whole thing. So this fantastic ultimatum, really, on the German multilateral system, in which every cause has to be met before negotiating. Germany agreed to meet all the conditions except one. They said they couldn't allocate dollars in advance. In other words, they couldn't before, they can't promise us, guarantee us foreign exchange, in other words, dollars to pay back our creditors, in advance of payment because they don't know how much dollars they're going to get. They don't know how they'll be able to do in the trade system and so on. So they can't guarantee this in advance of

50:55Trade and Investment, because they couldn't be sure of trade surplus with other countries so they can maneuver around and get dollars. Hover of fuel, so that's it. We tested that good site and had it and from now on everything is up to shoot. And this is when J.P. or Paul Moffatt come out, we had the man of the unconditional economic Surrender, and the first thing that was the end of that. Okay, that's a new deal on our national monetary system in the thirties. Now let's press on to Bretton Woods.

51:42And interestingly enough, the whole controversy among American diplomatic historians about what was America's war aims during World War II. I'm not, you know, my expertise is not diplomatic history, but Harry M. Barnes, for example, claimed that our war aims are simply maximum killing of all Germans, you know, as many Germans as possible. Whether or not that was true, we did have very definite economic monetary war aims, which we were very firm about from the very beginning of the war. Whether, to one extent, German economic nationalism was a cause for the American drive toward war, at one point Well, anyway, at one point it was clear that we had a clear war aim, an economic monetary war aim, and the war aim was to reestablish an international monetary system, this national Competing National Devaluation Currency Center hadn't worked, it brought about war, but we're going to reestablish a genoa type system with a couple of key differences.

53:00One difference was no more of this nonsense about domestic, because before that in the 20s the United States had redeemed in gold, the only currency redeemed in gold. Now we have differences, nobody's going to redeem in gold domestically. The only gold reduction would be in foreign transactions, as the United States did in the 30s. The second difference is more politically far-reaching, for instead of two joint partner key currencies, the pound and the dollar, for the dollar's workhorse, Junior Subaltern, the only key currency now is to be the dollar, which is to be fixed at $35 for the gold balance. So now we have the new Bretton Woods, the so-called Bretton Woods, which has become the Bretton Woods system. The same gold exchange standard is going on, same business. The pound had had it. Just as the United States was to use the Second World War to replace British imperialism with its own far-flung empire, So in the monetary sphere, the United States was now to move in and take over, with a pound no less subordinate than all the other major currencies.

54:17It was truly a triumph in dollar-imperialism, the parallel of the imperial-American thrust in the political sphere. As Secretary of the Treasury Henry Morgenthau Jr. was later to express it, the critical and eminently successful objective was, quote, to move the financial center of the world, unquote, from London to the United States Treasury. This is what was done. We might not have been successful in the political sphere, but we were certainly very successful, at least within this framework of our goals, in achieving them. And all this was eminently in keeping with the prophetic vision of Cordell Hull, a man who, in the words of Gabriel Coco, had, quote, the basic responsibility for American political and economic planning for the peace. for Holland urged upon Congress as far back as 1932, way, way back, that America gird itself, quote, gird itself, yield to the law of manifest destiny, or we heard that before, and go forward as a supreme world factor economically and morally, unquote. World War II is the occasion

55:16for a new coalition to form behind the New Deal. I'll get back to the domestic New Deal later. A coalition which reintegrated many conservative internationalists in, quote, This reintegration of the entire conservative financial community was particularly true in the field of international economic and monetary policy. Here Dr. Leo Paszwolski, a conservative economist who had broken the New Deal on scuttling the London Economic Conference, returned to a crucial role as Secretary of Health's special and Postwar Planning. Dean Atchison, also disaffected by radical monitoring measures in 1933-34, was now back as Assistant Secretary of State for Economic Affairs, playing a key role.

56:06And when the alien Cordell Hull retired in late 1944, he was replaced by Edwards de Teneas, son of a Morgan partner and himself former president of Morgan Oriental United States Steel. De Teneas chose as Assistant Secretary for Economic Affairs, the man who quickly became William L. Clayton, former leader of the Anti-Nuclear Liberty League and chairman and major partner of Anderson Clayton Company, the world's largest cotton export firm. Clayton's major focus in post-war planning was to promote and encourage American exports, with cotton not unnaturally Even before America entered into the war, U.S. economic war aims were well defined and rather brutally simple. They hinged on a determined assault upon the 1930s system of economic and monetary nationalism so as to promote American exports, investments and financial dealings overseas. In short, the open door for American commerce. In the sphere of commercial policy, this took the form of pressure for reduction of tariffs on American and the elimination of quantitative import restrictions on those products.

57:15The Allied sphere of monetary policy is meant to break up a powerful nationalistic currency bloc and the restoration of an international monetary order based on the dollar, in which currencies would be convertible into each other at predictable and fixed parities and would be a minimum of national exchange control over the purchase and use of foreign currencies. And even as the United States was prepared to enter the war to save its ally Great Britain, it was preparing to bludgeon the British at a time of great peril to abandon their sterling Law, which they had organized effectively since the Ottawa agreements of 1932. World War II would presumably deal effectively with the German bilateral trade and currency menace, but what about the problem with Great Britain? How do you solve that? British economists would urge the policy of all-out economic and monetary nationalism on behalf of inflation and full employment. It'd go on so far as to hail Roosevelt's torpedoing of the London Economic Conference, because the path is then clear for economic nationalism. Keynes's visit

58:06in Washington on behalf of the British government in the summer of 1941, now spread gloom about the British determination to continue their bilateral economic policies after the war. High State Department official J. Pierpont Moffat despaired, quote, the future is clouding up rapidly and despite the war, the Hitlerian commercial policy will probably be adopted by Great Britain. So what do we do about this? Are we going to start bombing Britain after The United States responded by putting the pressure on Great Britain at the Atlantic Conference in August 1941. Under the Secretary of State Sumner Wells insisted that the British agree to remove discrimination against American exports and abolish their politics of autarky exchange controls and imperial preference blocks. Prime Minister Churchill partly refused, but the United States was scarcely prepared to abandon its crucial aim of breaking down and the Sterling Block.

59:00As President Roosevelt privately told his son, Eliot, at the Atlantic Conference, this was in the days when Eliot's books were authorized by FDR and such, right? quote, it's something that's not generally known, this is Roosevelt talking to his kid at his knee,

59:20it's something that's not generally known, but British bankers and German bankers have had world trade pretty well sewn up in their pockets for a long time. Well now, that's not so good for American trade, is it? If in the past, German and British economic interests have operated to exclude us from world trade, kept our merchant shipping closed down, closed us out of this or that market, and now Germany and Britain are at war, what should we do? So Roosevelt, at least, apparently, in addition to Hull and these other guys, are also thinking of economic determinists, foreign trade, except for monetary terms, rather than high moral principles. Assigning one lease agreement was the ideal time for wringing concessions from the British, but Britain consented to sign the agreement's Article VII, which merely involved a vague commitment to the elimination of discriminatory treatment in international trade, only after intense pressure by the United States.

1:00:11The agreement was signed at the end of February 1942, and a return on the State Department pledged to the British that the US would pursue a policy of economic expansion and full employment after the war. It means inflation, in parenthesis, inflation. Even under these conditions, however, Britain soon maintained that the Lend-Lease Agreement committed to virtually nothing, after all. To court al-Hall, however, the agreement on Article 7 was decisive and constituted, quote, a long step toward the fulfillment, after the war, of the economic principles for which I had been fighting for half a century. The United States also insisted that other nations receiving Lend-Lease sign a virtually and the identical commitment to multilateralism after the war, so this is part of the quid pro quo from Lynne Lees.

1:00:58The first major public address, you notice how hard-headed and consistent we are on this aspect of our foreign policy. This first major public address in nearly a year, Hull in July 1942, could now look forward confidently to quote, leadership toward a new system of international relationships and trade and other economic affairs will devolve very largely upon the United States because of our great economic strength. We should assume this leadership and responsibility that goes with it, primarily for reasons of pure national self-interest.

1:01:30In the post-war planning for economic affairs, the State Department was in charge of commercial and trade policies, while the Treasury conducted the planning in the areas of money and finance. In charge of post-war international financial planning for the Treasury was the economist Harry Dexter White. In early 1942, White presented its first plan, which was to be one of the two major foundations of the post-war monetary system. White's proposal was, of course, within the framework of American post-war economic objectives. The countries of the world were to join a stabilization fund, totaling $5 billion, which would lend funds at short-term to deficit countries to iron out temporary balance of payments difficulties. But in return for this provision of greater liquidity and short-term aid to deficit countries, exchange rates of Currencies were to be fixed in relation to the dollar and hence the gold, with the gold price to be set at $35 an ounce, and exchange controls were to be abandoned by the various nations.

1:02:21While the White Plan envisioned a substantial amount of inflation to provide greater currencies and liquidity, the British responded with a Keynes Plan that was far more inflationary. By this time, Lord Keynes had abandoned economic and monetary nationalism for Britain under severe American pressure, and his aim was to salvage as much domestic inflation and The Keynes Plan, a vision of an international clearing union, which in return for agreeing to stable exchange rates between currencies and the abandonment of exchange control, provided a huge loan fund to its members of $26 billion, in contrast to the $5 billion white plan. The Keynes Plan, moreover, provided for a new international monetary unit, the Bancor, which could be issued by the clearing union, and such larger masses to provide almost unchecked

1:03:35The World Bank issues more unitas or bank wars than ships them to the United States. The United States ships them to Germany, and Germany is stuck with the unitas. And then the World Bank can coordinate a worldwide inflation, like the Federal Reserve is coordinating a nationwide inflation. So this is the great objective and goal, to coordinate a worldwide, unlimited inflation of the American Monetary Establishment, the Keynes Plan, the nations would consult with each other about correcting balance of payments disequilibria through altering their exchange rates. The Keynes Plan furthermore provided automatic access to the fund of liquidity but none of the embarrassing requirements is included in the White Plan for deficit countries to cease is creating deficits by inflating their currency. Whereas the White Plan authorizes the Stabilization Fund to require deficit countries to cease inflating in return for fund loans, the Keynes Plan envisioned that inflation would proceed unchecked, but all the burden of necessary adjustments would be placed on the hard-money creditor countries. This is now popping up

1:04:42in the idea that Japan and Germany have to keep raising their value there of the mark and the yen, et cetera, instead of the dollar being devalued. The hard-money creditor countries The White Plan was stringently attacked by the conservative nationalists and inflationists in Britain, particularly G.R. Boeckby, Lord Beaverbrook, the London Times and the London Economist. The Keynes Plan was attacked by conservatives in the United States, as was even the White Plan for interfering with market forces and for automatic extension of credit to deficit countries. Critical of the White Plan were the guaranteed survey of the guaranteed Trust Company, and the American Bankers Association. Furthermore, The New York Times and The New York Tribune call for the return of the classical gold standard and attack the large measure of government financial planning envisioned by both the Keynes and White proposals.

1:05:32After negotiating during 1943 until the spring of 1944, the United States and Britain hammered out a compromise of the White and Keynes plans in April 1944. The compromise was adopted by a World Economic Conference in July of Bretton Woods, New Hampshire. It was Bretton Compromise established an international monetary fund as a stabilization mechanism. Its total funds were fixed at $8.8 billion, far closer to the White than the Keynes prescriptions. Its balance of IMF international control as against domestic autonomy lay between the The White and Keynes Plan, leaving the whole problem highly fuzzy. It was very fuzzy about how much control the IMF would have over the deficit countries and how much could they force them to stop inflating and so forth. On the one hand, national access to the fund was not to be automatic. On the other, the fund could no longer require corrective domestic economic policies of its members. On the question of exchange rates, the Americans yielded to the British insistence in allowing room for domestic inflation even at the expense of

1:06:38stable exchange rates. The compromise provided that each country could be free to make a In order to make a 10% change in its exchange rate, the larger changes could be made to correct fundamental, quote, fundamental disequilibria, unquote, and ensure that a chronically deficit country could devalue its currency rather than check its own inflation, at least by 10%. And then we're actually more than that, if there's so-called disequilibria fundamental to what that means. Furthermore, the United States yielded again on allowing creditor countries to suffer, and committing deficit countries imposed exchange controls on so-called scarce currencies. After World War II, for example, it was the dollar that was scarce, because the dollar was harder in other countries, and so we permitted, in this agreement, we permitted European deflationary countries to put exchange controls on the dollar. This meant, in effect, that the major European countries whose currencies would be fixed at existing highly overvalued rates in relation to the dollar, in those days the dollar was the hard money,

1:07:30must be permitted to enter the IMF with chronically overvalued currencies and then impose exchange controls on scarce undervalued dollars, so-called scarce dollars. But despite these expensive concessions, there is no bank core, no Keynesian bank core, the dollar fixed at $35 per gold ounce is now to be firmly established as the key currency base of the new world monetary order. The size for the dollar to be undervalued and other major currencies to be overvalued greatly spurs American exports. So this is hot char for American exports, which is one of the basic aims of the entire operation. U.S. Ambassador to Great Britain, John G. Wynant, reported the deceptive hostility to the Bretton Woods Agreement by the majority of the directors of the Bank of England. For these men saw, quote, says Wynant, that if the plan is adopted, financial control will leave London and sterling exchange will be replaced by dollar exchange.

1:08:19Quote, the proposed International Monetary Fund ran into a storm of conservative opposition The American attack on the IMF was essentially launched by two major groups, conservative eastern bankers and midwestern isolationists. Among the bankers, the American Bankers Association attacked the unsound inflationary policy of allowing debtor countries to control access to international funds. And W. Randolph Burgess, president of the American Bankers Association, denounced the provision for debtor rationing of scarce currencies as an abomination. The New York Times urged rejection of the IMF and proposed making loans to Britain in exchange for the abolition of exchange controls and quantitative restrictions on imports.

1:09:04Another banker group came up with the so-called Key Currency Proposal as a substitute for Bretton Woods. This Key Currency Plan was proposed by economist John H. Williams of Harvard, also Vice President of the Federal Reserve Bank of New York, and endorsed by Leon Fraser, President of the First National Bank of New York and by Winsor W. Oldridge, head of the Chase National Bank. This envisioned a bilateral pound-dollar stabilization, really getting back to the old Genoa thing. Fueled by a large transitional American loan or even grant to Great Britain, thus the key currency people were ready to abandon temporarily not only the classical gold standard, but even an international monetary order, and to stay temporarily in a modified version of the world in the 1930s. The Midwestern isolationist critics of the IMF were led by Senator Robert A. Taft, Republican of Ohio, would charge that while the bulk of the valuable hard money placed in the fund were the American dollars, the dollars would be subject to international control by the fund authorities and therefore by the debtor countries.

1:09:58The debtor countries could then still continue exchange controls and sterling block kind of practices. Here Taft failed to realize that formal informal structures in the Bretton Woods design would ensure effective United States control of both the IMF and the Allied International Bank, which we don't have to go into. The administration countered the critics of Bretton Woods with a massive propaganda campaign, which was able to drive the agreement through Congress by mid-July 1945. The campaign emphasized that the U.S. government would have effective control, at least of its own representatives, of the fund. It played up, in what proved to be gross exaggeration, the favorable aspects of the various ambiguous provisions, insisting that debtor access to the fund would not be automatic, and exchange controls would be removed, and exchange rates would be stabilized. It pushed heavily the vague idea that the fund was crucial to the post-war international cooperation to keep the peace.

1:10:48Particularly interesting was the argument of William L. Clayton and others that Bretton Woods would facilitate the general commercial policy of eliminating trade discrimination and barriers against American exports. This argument was put particularly boldly by Secretary of Treasury Morgenthau in a speech to Detroit industrialists. Morgenthau promised that the Bretton Woods agreement would lead to a world trade free from exchange control and depreciated currencies, and this would greatly increase the exports of American Automobiles. Since the fund would begin operations the following year, by accepting the existing grossly overvalued currency parity that most of the nations assisted upon, this method Morgenthau might have known whereof he spoke. For if other currencies are overvalued and the dollar undervalued, American exports are indeed encouraged and subsidized.

1:11:35It's perhaps understandable that not only the major foreign labor and New Deal liberal American approval in mid-1945 was followed after lengthy soul-searching by the approval of Great Britain at the end of the year. By the end of its existence, therefore, the Second New Deal had established a triumphant dollar as the base of a new international monetary system. The dollar had displaced the pound and within the general political framework in which the American Empire had replaced the British. Moving forward perceptively to the post-war world in January 1945, Lamar Fleming Jr., president of Anderson Clayton Company, wrote to his long-time colleague William Clayton that the, quote, the British Empire and British international influence is a myth already, unquote. This is for our heroic allies, that nasty tone there.

1:12:27The United States would soon become the British protector against the emerging Russian landmass, prophesied Fleming. This will mean, quote, the absorption into the American Empire of the parts of the British Empire which we will be willing to accept, unquote. As the New Deal came to a close, the triumphant United States stood ready to reap its fruits on a worldwide scale. Well, let me get to the consequences maybe tomorrow, since I'm on a monetary kick.

1:13:12I read you the epilogue also. Bretton Woods' agreement established the framework of the international monetary system down to the present day. I mean, he's now in 1971. This was written a couple of years ago. The new and more stricted international dollar-gold exchange standard has replaced the collapsed dollar-pound-gold exchange standard of the 1920s. During the early post-war years, the system worked quite successfully within its own terms and the American banking community completely abandoned its opposition. With the European currencies inflated and overvalued and European economies exhausted, the under-evaluated dollar was the strongest and hardest of world currencies, the world dollar shortage prevailed and the dollar could base itself upon the vast stock of gold in of the United States, much of which had fled from war and devaluation, devastation and ruin. But in the early 1950s, the world economic balance began slowly but emphatically to change.

1:14:00For while the United States, influenced by Keynesian economics, proceeded blithely to fight the dollar, seemingly relieved of the limits imposed by the classical gold standard, several European countries began to move in the opposite direction. Under the revived influence of conservative free market and hard money oriented economists in such countries as West Germany, France, Italy and Switzerland, these newly recovered countries began to achieve prosperity with far less inflated currencies. Hence, these currencies became ever stronger and harder, while the dollar became softer and increasingly inflated. In this connection, the key people, interestingly enough, in this whole thing, leading these various countries toward much harder money and less inflation, were all students of Ludwig von Mises, the last Austrian economist on the board.

1:14:46West Germany, the key, the West German policy, both in free trade and free market and hard money, of Ludwig Erhard was essentially influenced by his theoretician economist, Alfred Müller-Armack, who was a student of Wilhelm Röpke in Switzerland, who in turn was a student of von Mises in Austria. So they have this whole Mises-Röpke-Miller-Romar connection. In France, Jacques Rouef was hard at Work, and I mentioned before, he was also a Mises student. And in Italy, Luigi Arnotti, president of Italy, had a great deal of influence on shifting Italy rightward after World War II. He was also a friend and colleague, and we found a student who was closely associated with Mises from a long time in Italy. So, this is sort of like the last gasp of the old Austrian influence. Continuing inflation of the dollar began to have two important Consequences. One, that the dollar was increasingly overvalued in relation to gold, and two, that the dollar was also increasingly overvalued in relation to the West German mark, the French

1:15:50and Swiss francs, the Japanese yen, and other hard money currencies. The result was a chronic and continuing deficit in the American balance of payments beginning in the early 1950s and persisting ever since. The consequence of the chronic deficit was a continuing outflow of gold abroad and a heavy piling up of dollar claims in central banks of the hard money In short, just as inflation in England and the United States during the 1920s led finally to the breakdown of the international monetary order then, so has inflation in the post-war key country, the United States, led to increasing strains and fissures in the triumphant dollar order of the post-World War II world. A footnote to that, of course, led now to the breakdown of that system too. has become increasingly evident that an ever more inflated and overvalued dollar cannot continue as a permanently secure base of the world monetary system, and therefore, this ever more strained and insecure system cannot long continue in anything like its present form, written like six months or a year before a big crash.

1:16:52In fact, the post-war system has already been changed considerably in an ultimately futile attempt to preserve its basic features. In the spring of 1968, a severe monetary run on the dollar by Europeans redeeming dollar claims led to two major changes. One was the partial abandonment of the fixed $35 per ounce gold price. Instead, a two-price or two-tier gold price system was established. The dollar and gold were allowed to find their own level in the free gold markets of the world. With the United States no longer standing ready to support the dollar in the gold market at $35 an ounce. On the other hand, $35 still continues as a supposedly eternally fixed the price for the world's central banks were pledged not to sell gold in the world market or to buy it either. It's supposed to be completely sealed off from the free gold market. Keynesian economists were convinced that with the dollar and gold severed on the world market, and also the Freemanites too,

1:17:41the price of gold would then fall on the freely fluctuating market. And all these guys were predicting, except for a couple of us crazy gold bugs, all the top economists in the country were predicting the price of gold now that it was no longer supported by the dollar. The price of gold will fall to its natural, industrial price, you know, for jewelry and teeth and all that sort of stuff, of $10 an ounce. That was the firm prediction of Mofflop and Friedman and all these other guys. Of course, we now know it's something like $120 an ounce, so never fall below $35, it's skyrocketed. The reverse, however, has occurred since the world market continued to have more faith and the soundness and relative hardness of gold and an increasingly inflated dollar. The second change is the creation of special drawing rights, a new form of paper gold, of newly created paper which can supplement gold as an international currency reserve behind each currency.

1:18:35While this indeed put more backing behind the dollar, the quantity of SDRs has been too limited to make an appreciable difference to a world economy that trusts the dollar less with each passing year. Understatement at this point. These two minor repairs, however, failed to change the fundamental over-evaluation of the ever more inflated dollar. In the spring of 1971, a new monetary crisis finally led to a massive revaluation of several of the hard currencies. If the United States suddenly refused to lose face by raising the price of gold or by otherwise devaluing the dollar down to its genuine value in the world market, then the harder currencies, such as West Germany, Switzerland and the Netherlands, found themselves reluctantly forced to raise the value of their currency. This course has been continuing since then, too. Their alternative, a massive The calling upon the United States to redeem in gold, thereby the smashing of the façade of dollar reduction in gold, was too much of a political break with the U.S. for these

1:19:23nations to contemplate. Actually, this is what they did, apparently, in August 71, I wrote this obviously in the spring of 71. By August 71, the central banks in Europe were beginning to say, look, we have 80 billion dollars piled up of dollars here, and you've got only 10 billion or 9 billion dollars worth of gold to redeem it, we're going to start cashing in, we're sick of piling up the dollars. For the United States to preserve the façade of gold redemption at $35 has been using intense political pressure on its creditors to retain their dollar balances and not to redeem them in gold.

1:20:10In the late 1960s, General de Gaulle, under the influence of classical gold standard advocate Jacques Rouef, was apparently preparing to make just such a challenge, to break the dollar standard as a move toward restoring the classical gold standard in France and much of the rest of Europe. But the French domestic troubles in the spring of 1968 ended that dream, at least temporarily, as France was forced to inflate the franc for a time in order to pay the overall wage increase and agreed upon under the threat of a general strike. What happened there, of course, is the workers are insisting on a general wage increase of The French finally agreed to pay it, and they inflate the currency by 14%, and prices go up by 14%, and by the end of the year, a year or so, the French workers know better what they were before, and the French franc has been softened. Despite these hasty repairs, it is becoming increasingly evident that they are makeshift

1:20:58stop gaps and that a series of more aggravated crises will shake the international monetary order until a fundamental change is made. A hard money policy in the United States that put an end to inflation and increased the soundness of the dollar might sustain the current system, but this is so politically remote it would be hardly a likely prognosis. There are several possible monetary systems that might replace the present deteriorating The new system desired by the Keynesian economists and by the American government would be a massive extension of paper gold to de-monetize gold completely and replace it by new monitoring units such as the Keynesian bank core and a paper currency issued by a new World Reserve Bank. If this were achieved, then the new American-dominated World Reserve Bank would be able to inflate any currencies indefinitely and allow inflating currencies to pay for any new oil deficits on infinitum. While such a scheme embodied in the Triffin Plan, the Brinstein Plan and others is now

1:21:45and now the American Dream has met the term in opposition by the hard-money countries and it remains doubtful that the United States will be able to force these countries to go along with the plan. The other logical alternative is the Ruach Plan returning to the classical gold standard after a massive increase in the world price of gold, known as jack it up to $150, $200 an ounce, $300 or whatever and then go back to the gold standard. But this too is unlikely, especially under over-powerful American opposition. Borrowing acceptance of a new world currency, the Americans would be content to keep inflating and simply force the hard-money countries to keep appreciating their exchange rates. But again, it is doubtful that German, French, Swiss and other exporters may tend to keep crippling themselves in order to subsidize dollar inflation. We still, of course, have that problem. Perhaps the most likely prognosis is the formation of a new hard-money European currency block which might eventually be strong enough to challenge the dollar, politically as well as economically.

1:22:36In that case, the dollar standard will probably fall apart. We may see a return of the currency blocks in the 1930s, of the European Bloc, this time on a harder and quasi-gold basis. It is at least possible that the future will see gold in the hard European currencies at last be thrown with triumphant but increasingly uneasy dollar. But what we have now is essentially a 1930s bank again, with shifts back and forth and then temporary. But we're getting to a prognosis for the monetary future, which is a pretty bleak one, because what we have is a situation where the whole currency media have broken down and we have exchange rates shifting back and forth from fluctuating to fixed and various combinations of so-called dirty float where the exchange rate is supposedly fluctuating freely but then the central bank sticks its nose in and interferes with its clean float, some quotes.

1:23:28And what we can envision in this thing, because there doesn't seem to be any hope of restoring any kind of stable system, what we can envision is going back to the thirties, currency blocks, Competing devaluations, export industries in control of the governments, and we're going to have one more devaluation of high-popular exports, higher tariffs, exchange controls, keeping out Japanese products, and all the rest of it. And if Kodahal was right, that the political conflict follows economic conflict, we'd expect some hefty international wars, perhaps. One of my sort of quasi-jokes, which really is only a half-joke at best, is the darn good thing that Japan isn't very fully armed yet. Otherwise, we could have provoked another Pearl Harbor and had another war against the evil grinning Japanese, which would be coming back.

1:24:21So I hope that Japan continues to be relatively unarmed to avoid this kind of setup. Ok, this sort of covers the New Deal internationally. I'm going to try again with some New Deal domestic stuff now.