From the Great Depression to Bretton Woods: Jacob Viner and international monetary stabilization (1930–1945)

Abstract

This paper examines Jacob Viner's contribution to the debate and the policy decision-making concerning international monetary policy from the Great Depression to the Bretton Woods agreements. An outstanding member of the so-called ‘early Chicago School of Political Economy’, Viner was actively engaged in the debate over the causes and cures of the Depression, emphasizing the important role international economic problems played in producing its onset and in reinforcing its duration. During the 1930s Viner was an outspoken supporter of international monetary cooperation, set up to secure exchange rates stability, which he regarded as a paramount factor in restoring business confidence and fostering recovery. As a close assistant to Secretary of the Treasury Henry Morgenthau, Jr, Viner was able to exert a positive influence on the administration's foreign economic policy, from the Gold Stabilization Act of 1934 to the Tripartite Agreement of 1936. Although not directly involved in the Bretton Woods Conference, he played a role in preparing the ground for the establishment of multilateral agencies such as the International Monetary Fund and the International Bank for Reconstruction and Development. By means of his unpublished papers and other archival sources, as well as his writings, I shall examine Viner's analysis of the Great Depression, his contribution to the debate over American foreign economic policy and his work as economic adviser from 1930 to 1945.

Keywords:

• Great Depression
• Gold Stabilization Act
• Tripartite Agreement
• Bretton Woods
• Jacob Viner

Acknowledgements

The author is much indebted to Pier Francesco Asso and Eric Buyst for their useful comments on a previous version of this work. Two anonymous referees should also be credited for substantial improvement on the final version. The usual disclaimer applies.

Notes

1 This claim is discussed at length in Nerozzi (2009b).

2 On Viner's own recollections concerning his activity as economic adviser, see Fiorito and Nerozzi (2008). Biographical accounts are provided by Samuelson (1972), Baumol and Seiler (1979), Rotwein (1983), Spiegel (1987). The most extensive intellectual profile is Bloomfield (1992). For his studies on the history of economic thought, see Winch (1981, 1983) and Groenewegen (1994).

3 See Choundry and Kochin (1980), Eichengreen (1984, 1992), Eichengreen and Sachs (1985), Hamilton (1988), Temin (1989), and Bernanke and James (1991).

4 Friedman (1972[2003]: 156).

5 See Viner (1936: 117). Viner's views were probably influenced by Lauchlin Currie's studies on the FED policies (Currie 1931[2004], 1933). In 1934 Viner called Currie at the Treasury in order to work out a banking reform. Moreover the two scholars agreed on supporting public expenditures and deficit spending. On Currie, see Sandilands (1990), Laidler (1993), and Laidler and Sandilands (2002).

6 On the evolution of Viner's views as the crisis deepened, see Nerozzi (2007).

7 Viner (1932[1951]: 127 and 129). See also Viner (1937: 388–436).

8 Viner (1932[1951]: 132).

9 Viner (1933c: 109).

10 See Viner (1932[1951]: 131–2).

11 Viner (1932[1951]: 133).

12 Viner (1932[1951]: 139; 1933a: 27; 1933b: 121–122).

13 ‘As best I could judge, what he wanted me to do was to go to London and Paris, to use my own contacts, not going with official credentials of any sort, to talk to people, and find out what they thought about what was going on in the United States. He wanted me to go at once – even that night. I said, “That's impossible. The best I can do is to go tomorrow night”’ (Viner 1953 2009: 94).

14 Viner to Morgenthau, MP, 22 December 1933, Jacob Viner, I.

15 On Viner's activity at the Treasury, see Nerozzi (2007).

16 Viner (1935: 4–5): Among the improvements in the managing of gold reserves Viner highlighted: ‘(1) The devaluations which have already occurred and will occur as part of an international stabilization agreement, (2) the abolition of circulating gold, (3) the flow of gold which has occurred from the hoards in India, the increase in gold production, which is likely to continue for some time […], (4) the movement of privately hoarded gold into bank reserves when definitive stabilization occurs and (5) the lowering of central bank requirements which has occurred’.

17 Viner (1935: 7).

18 Hansen's memorandum was sent to the Treasury on April 15 (Clarke 1977: 11). The arguments provided by Hansen were similar to Viner's, yet his proposal appeared to be less detailed and accurate in figuring out the proper level of exchange rates stabilization. Hansen supported a 20–25% devaluation of the Gold Bloc and felt that a devaluation of the pound ranging from 1/4.86 (which Viner believed to be too high to achieve equilibrium) and 1/4,50 (which Viner regarded as excessive) was acceptable. Hansen's memorandum upset President Roosevelt, who told Morgenthau that Hansen should be fired. This unhappy episode contributed in convincing Roosevelt that the negotiations should be concentrated in the Treasury with the State Department acting only on the side.

19 At the time even Keynes was in favour of a de facto stabilization between the pound and the dolla,r which had to be based on an informal agreement between the two Treasuries without involving any legislative measure or official commitment (Eichengreen 1996: 135).

20 Aside from Viner and White, Morgenthau was helped by Herman Oliphant, Wayne C. Taylor, George Hass and Archie Lochhead during the negotiations (Blum 1959: 160–1). Even Herbert Feis (economic adviser of the State Department and one of Viner's closest friends) was called in for advice in the final stages of the negotiations.

21 On that occasion a sharp contrast developed between Viner and Morgenthau. While Viner thought that the French proposal should be discussed with the Fed, Morgenthau was not willing to involve Governor Eccles in the negotiations and recalled the President's view that the governments should be the responsible for the agreement (Blum 1959: 164–5).

22 On the influence of the Council on Foreign Relations on post-war planning, see Ikenberry (1993).

23 Council on Foreign Relations, War and Peace Study Group, in George W. Ball papers, ca. 1933–94, Box 141: 9–10.

24 Both of them were former Presidents of the American Economic Association, respectively in 1939 and 1938. In addition to Viner and Hansen, the EFG counted other distinguished economists among its members: Lauchlin Currie (from January 1943), John H. Williams (only for a few months in 1940), Benjamin V. Cohen, Randolph Flanders (New York Fed), William Diebold Jr. (Junior researcher until 1943), Percy Bidwell, and Winfield Riefler. Many of them were already working with other agencies, and Hansen had been adviser to the National Bureau of Economic Research and the Federal Reserve Board.

25 George W. Ball papers, Council on Foreign Relations, War and Peace Study Group: 10.

26 Nerozzi (2007b).

27 On White's biography see Rees 1973 and Boughton 2004.

28 White to Viner, January 11, 1940, box 28, folder. 11 JVP: see also the draft preserved in box 49, folder 4, JVP.

29 Horsefield (1969, I: 74).

30 Horsefield (1969, I: 75).

31 Gardner (1956[1980]: 74). The plan's first draft was dated 30 December 1941.

32 JVP, Box 16, Folder 21. In 1943 Robertson was appointed economic adviser at the British embassy in Washington.

33 On the economic problems of the transition period see Bordo (1993: 37–48).

34 See Viner 1944 [1951]: 245–246. On this point, Lionel Robbins, one of Viner's closest British friends, recalled that: ‘During the war my own duties as a temporary U.K. official brought me into many Washington contacts; and often, where there were enlightened counsels and sensible policies, I detected traces of his [Viner's] influence. An incident in which he was involved deserves to be placed on permanent record. In early Summer of 1943, Harry White of the US Treasury Department organized an informal international gathering of delegates returning from the Food Conference in Hot Springs. The proceedings however were in the highest degree unfruitful. The US Treasury was not yet used to the organization of international meetings; and, apart from White's own exposition, delivered as it was from the bridge of a ship without a rudder in a stormy sea, there was little of great intellectual interest and much of political confusion. Towards the end, however, Jack, who had been asked in as an observer, was invited to comment. I do not remember the exact words in which he prefaced his candid expression of general disappointment with the perspective of the discussion. But I shall never forget the sentence in which he summed up his view of the irrelevance of the plans under discussion to the problems of the immediately post-war period. “I shall need” he said, “a bombproof shelter and you offer me an umbrella.” Seldom can an economic prognosis have been more accurate.’ (Robbins 1970: 5–6).

35 Keynes asked Viner for some further explanation of the Scarce Currency Clause: ‘Over here we find this feature of S[tabilization] F[und] rather obscure. Are you clear how it would work? Do you think that is a satisfactory way out?’ (Keynes to Viner, JVP, 9 June 1943, Box 16, Folder 21).

36 See Skidelsky (2001: 300–20). On Viner's influence on Keynes in this concern, see Skidelsky (2001: 303–5).

37 See Horsefield (1969, I: 58–77).

38 Viner to Keynes, JVP, 12 July 1943, Box 16, Folder 21.

39 Actually, the formula ‘domestic and social policies’ was inserted later in the negotiations and finally subscribed at Bretton Woods. But the shape of the compromise was in that direction (Skidelsky 2001: 320).

40 On the British discussions following the financial compromise of September 1943, see Pressnell (1986: 137–52) and Skidelsky (2001: 325–36). Concerning the American Debate, see Gardner (1956[1980]: 133–43).

41 Viner 1944 [1951]: 234–5.

42 On Williams views and proposals see Asso and Fiorito 2009.

43 Cfr. Nerozzi 2009a: 36–37.