[OPE] Keynes's balance of payments solution

George Monbiot writes:

As Keynes recognised, there is not much that the debtor nations can do.
Only the countries which maintain a trade surplus have real agency, so
it is they who must be obliged to change their policies. His solution
was an ingenious system for persuading the creditor nations to spend
their surplus money back into the economies of the debtor nations. He
proposed a global bank, which he called the International Clearing
Union. The bank would issue its own currency - the bancor - which was
exchangeable with national currencies at fixed rates of exchange. (...)

The head of the US delegation at Bretton Woods, Harry Dexter White,
responded to Lord Keynes's idea thus: "We have been perfectly adamant on
that point. We have taken the position of absolutely no"(6). Instead he
proposed an International Stabilisation Fund, which would place the
entire burden of maintaining the balance of trade on the deficit
nations. It would place no limits on the surplus that successful
exporters could accumulate. He also suggested an International Bank for
Reconstruction and Development, which would provide capital for economic
reconstruction after the war. White, backed by the financial clout of
the US Treasury, prevailed. The International Stabilisation Fund became
the International Monetary Fund. The International Bank for
Reconstruction and Development remains the principal lending arm of the
World Bank. ("Clearing up this Mess", 18 Nov 2008,
http://www.monbiot.com ).

This is the historical background for Fred Bergsten's proposal which I
posted on OPE-L on Sept 13, 2008.
http://gretl.ecn.wfu.edu/~cottrell/OPE/archive/0809/0071.html Of course,
the total share of the IMF and the World Bank in total international
capital flows is nowadays tiny (a few tens of billions of dollars as
against trillions of dollars), the influence of these institutions is
really more on the policy of political states, than through direct
finance, but obviously in poor countries even just one billion dollars
is still a gigantic amount of capital, which can affect the lives of
millions of people.

The American philosophy to which George Monbiot refers was essentially
that capitalist competition should reward those who are successful,
rather than compensate those who were unsuccessful. The Americans argued
this point of view, in particular because they were successful as
winners of the war and also economically - though in practice of course
a lot of effort went into rebuilding Germany and Italy after world war
2, the argument being that excessive burdens of war reparations after
world war 1 were in good part responsible for the world war that
followed it; economic growth was the best guarantee against war.

So far, what is neglected in the crisis discussions is that the new
economic depression starting this year creates powerful new tendencies
towards war, as whole societies - particularly in the developing world -
start to disintegrate under the impact of the financial problems. The
imperialist countries in the long run have two main ways of responding,
aside from short-term and limited local military interventions: either
by militarizing their own and other societies more, or, when military
intervention becomes too costly or lacks feasibility, by blocking off
conflict-zones from the rest of the world. In this respect, the
high-technology military attack on Gaza, and the military campaigns in
Iraq and Afghanistan are merely "testing grounds" for the assertion of
power in the new world order.

Jurriaan

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Received on Sun Jan 11 13:26:52 2009