This paper by Professor Catherine Schenk was prepared for the Hangzhou conference held on May 17-18, 2014 in China, as part of RBWC’s initiative for celebrating the 70th anniversary of Bretton Woods.
All historians are cautious about claims of the ‘lessons of history’ – at best we can identify the reasons for the success or failure of policies and help judge whether the institutional context is now so different as to make these outcomes irrelevant. History does not repeat itself, but mistakes may be repeated if the historical record is not understood.
In the case of the Bretton Woods conference, the historic context was clearly critical to the nature and outcome. The death throws of a painful global war, the shift of political and economic power robustly to the United States of America and the fear of a looming repeat of the interwar Great Depression were all instrumental in the ‘success’ of the Bretton Woods conference in formulating institutions that achieved acceptance by enough countries to make them function. The underlying premises of the conference were very different than today. The lessons of the interwar depression lay heavily on all participants; the danger of fluctuating exchange rates, the destabilising menace of open capital markets, the damaging nationalistic fervour exhibited in and prompted by discriminatory trade practices and the need for some shared governance of the international system to avoid a repeated fall into global conflict. In 1944, the key lessons were that exchange rates should be stable and that capital markets should be controlled to promote growth of international trade that would restore and ensure full employment. It was through international trade and long term investment that all states would have the best possible chance for full employment and economic growth; the two key policy priorities that would deliver a lasting relief from the armed conflict of the previous 30 years. (…)