The Banks and Bretton Woods

Rising from his labors at Bretton Woods last July, England's Lord Keynes challenged the critics of the Keynes-White plan (for an international Fund and Bank -- TIME, July 31). Said he, in sum, the critics must do more than criticize; they must show a better program. Last week W. Randolph Burgess, vice chairman of the National City Bank of New York, accepting the presidency of the American Bankers Association, accepted the challenge. Banker Burgess may have been disturbed by U.S. bankers' criticisms of the Bretton Woods plan -- which in general have not offered a constructive substitute.

Admittedly most of the criticisms had come from conservative elements, which are most vocal. But Banker Burgess wanted to be constructive. Forthwith he set an A.B.A. committee to the task of restudying and possibly drafting simplified or alternative ideas to the Bretton Woods proposals.

To the currency stabilization fund blue-printed at Bretton Woods, the U.S. banker-critics who have thus far spoken have raised four major objections.

First Objection. The Bretton Woods proposals, they admit, might work in a stable, orderly world. But the postwar world will be neither stable nor orderly. Some countries will be heavily in debt, while others enjoy vast spendable resources. What they term the "delicate" Keynes-White mechanism is not designed to bridge the gap between these two extremes. As an alternative, the bankers advance the "key country approach." Most of the world's trade, they argue, is carried on in pounds and dollars. Therefore, the dollar-pound rate should first be stabilized, providing a nucleus to which other currencies could anchor at proper levels.

Second Objection. Step No. 1, say the bankers, is for each country to get its budget under control, stabilize its own price level, and roughly balance its external payments and receipts. The Bretton Woods effort to fix exchange rates, even flexibly, they say, is only a third step which must be preceded by political and economic stability, nation by nation.

The fixing of exchange rates was at tacked savagely by hard-money Economist Dr. Benjamin M. Anderson, of the University of California at Los Angeles. Wrote Professor Anderson: "Fixed rates in the foreign exchanges are eminently desirable. A temperature of 98.6 in the human body is eminently desirable, but a rigging of the thermometer so that it will always record 98.6 regardless of the fluctuations in the temperature of a sick patient is a rather futile performance."

Third Objection. The banker-critics see at Bretton Woods a credit institution controlled by borrowers rather than by creditors. They cite U.S. banking history as evidence that would-be borrowers should not pass on loan applications. They also think that too great latitude is allowed on exchange rates. Under the Keynes-White provisions, a nation may devalue its currency 10%, and then return to present its case for another cut to countries that might want a favorable vote on devaluation for themselves. The banker-critics, further, interpret the Keynes-White provisions to mean that devaluation will be the usual recourse of hard-pressed countries, rather than the last resort.

Fourth Objection. Finally, say the bankers, the purpose of the Fund and Bank is to help re-establish international trade on a sound basis. But the machinery to attain this goal already exists in the central banks of the world, acting through the Bank for International Settlements, which, they hold, can do the job better. Some changes in the B.I.S. would be needed, but it would be easier to make such changes than to set up a new organization.

Through all the U.S. arguments runs the thread of gold. At Bretton Woods, the currencies of the world were not hitched firmly enough to gold to suit conventional U.S. finance.

British Objection. English public opinion also balks at the Keynes-White position on gold. But the English balk for just the opposite reasons : to them Bretton Woods is just the old gold standard in new kid gloves -- and the British emphatically don't want the old gold standard.

So emotional is the word gold that even Keynes, caught in the U.S.-British cross fire, was forced into doubletalk. In England he termed the plan "the opposite of the gold standard," while at Bretton Woods he recognized gold as "the constitutional monarch."

Last week the debate over Bretton Woods waxed in England. British opinion fears being tied too closely to an inflexible standard of any kind, arguing that England must export. When she finds she is not selling enough abroad, she can cheapen the pound and thus cheapen her goods to her customers. Deprived of devaluation as a sales weapon, she could cheapen her exports only by cutting wages and prices at home.

Another general British fear, as ex pressed by a London financial editor, is: "We don't mind tying ourselves to America when you're going skyhigh, but we can't afford your economic hangovers. The less closely we are tied to an excitable, emotional economy like yours the better." Like the London Economist, the London Times is chary of the Bretton Woods plan. The Thunderer advocates bilateral trade agreements, based on the British Empire as a unit.

But Bretton Woods has friends in England. Last week Chancellor of the Exchequer Sir John Anderson rose in the House of Commons, stated that, while the plan advocates gold as a standard of value, "that fact does not in any way justify the assertion that acceptance of the plan would involve a return in this country to the gold standard." Generally, the liberal and middle-ground economists are less suspicious of the plan than economists of either the extreme right or left wings.

Banker Burgess' committee, aware of all this--and of the fundamental necessity for a workable international fiscal arrangement--would have its hands full for many weeks to come. But, as Banker Burgess well knew, the very appointment of this committee should serve to make the critics patient for a time.

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