Re: [A-List] Re: Return to an old standard

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

I have deep respect for Gunder Frank and find much of his work
insightful and informative.

Yet I do not share his enthusiasm for the berlow mentioned bbok of
Bretton Wood. 50 yers later, the ideological bs has not vanished, it
just takes different forms.

I posted the following to Gang8.

Date: Wed Oct 2, 2002 12:53 pm
Subject: The Keynes Plan

ADVERTISEMENT
HGTV Dream Home Giveaway
<http://rd.yahoo.com/M=241773.2957250.4292467.2848454/D=egroupweb/P=m1109p5b01000100/S=1705909556:LREC/A=1394044/R=0/*http://www.hgtv.com/hgtv/pac_ctnt/text/0,,HGTV_3936_5802,FF.html>



The historical facts in this post are not my original research; they
came from various reference sources, including writings of Edward
Bernstein who served as a key member of the US team on Bretton Woods and
a drafter of the White plan that was finally adopted, as well as
Margaret Garritsen de Vries in Caravan, the newsletter of the
International Monetary Fund's Retirees Association, and The IMF in a
Changing World, 194‹ – 1985 (Washington, D.C.: International Monetary
Fund, 1986); Alfred E. Eckes Jr., A Search for Solvency: Bretton Woods
and the International Monetary System, 1941 – 1971 (Austin and London:
University of Texas Press, 1975); and J. Keith Horsefield, The
International Monetary Fund, 1945 – 1965: Twenty Years of International
Monetary Co-operation (Washington, D.C.: International Monetary Fund,
1967). I am not disciplined enough to cite specific sources, not being
a trained academic. However I take responsibility for my interpretation
in this post of the reported facts and the conclusions drawn from.

The history of exchange rates and of international monetary relationship
since the early nineteenth century were very much on the minds of the
drafters of Bretton Woods, as with the advantages of stable exchange
rates that the automatic classical gold standard had provided from 1876
to 1914. It was generally accepted that the efforts to restore the gold
standard after WWI contributed to the economic collapse that led to
WWII.

An international conference in Genoa, Italy, in 1922, produced a
recommendation that central banks should cooperate in "managing" the
operations of the exchange rate mechanism and make wider use of gold
with currencies such as the pound sterling that were freely convertible
into gold. That conference foreshadowed ideas around the need for
international cooperation and for a "gold exchange standard" that were
later incorporated into the plans for Bretton Woods.

The world economic and monetary conference in London in 1933 failed to
secure international monetary cooperation. In response, France, the UK
and the US issued a Tripartite Declaration that recognized international
responsibility for exchange rates to give international sanction to the
devaluation of the French franc in 1936. The governments of these three
countries agreed to hold consultations on exchange rate action and take
stabilizing action. Belgium, the Netherlands, and Switzerland announced
their adherence to the Tripartite Declaration. This G6 was the
forerunner of the current G7, a grouping that has both the incentive to
preserve currency stability and resources to achieve it. In this way,
the Tripartite Declaration can be viewed as a precedent for a more
comprehensive and inclusive modern international monetary agreement.

Henry Morgenthau Jr., US Secretary of Treasury, in 1936 appointed a
group of international economists, including Jacob Viner and Harry
Dexter White, who had been studying the balance of payments of a number
of key countries, to work on exchange-rate stabilization. Both Viner and
White had been students of Frank W. Taussig of Harvard University, an
internationalist economist and free trade advocate. In fact, it was this
group in the US Treasury that helped put together the Tripartite
Declaration earlier.

In February 1940, an Inter-American Committee, assisted by a group of
experts, including White,
recommended the establishment of the Inter-American Bank. The Harvard
boys under Frank W. Taussig in the 30s were as influential as the
Chicago boys under Milton Friedman in the 70s. The intensive planning
that eventually led to Bretton Woods, however, really began in the early
part of 1941, when White and his associates in the US Treasury started
thinking about a comprehensive international monetary agreement in the
post-war world order. They had in mind two possible organizations, one
to stabilize exchange rates and another to help to provide the long-term
capital that would be needed for post-war reconstruction which was
primarily focused on Europe. They anticipated as inevitable that the US
would replace the British Empire in the new world order as the dominant
economic power and the dollar would replace the pound sterling as the
dominant trade currency. The dispute between Keynes and White were not
technical as much as a mismatch of geo-political perception. Keynes
operated with the increasingly dysfunctional myth that Britain would
continue to be an influential, if not dominant, economic power in the
post-war new world order, while White saw Britain as a submissive ally
in the on-coming Pax Americana.

Cordell Hull, the internationalist Secretary of State, saw the failure
of League of Nations as having been linked to the lack of a liberal
international trade regime. Thus the US envisaged a post-war liberal
world trade regime to replace the British imperial preference system
which American policymakers saw as an obstacle to progress. When John
Maynard Keynes came to Washington in July 1941 representing the British
Treasury to negotiate conditions for US wartime financial aid to
Britain, the State Department gave him a draft agreement for defense aid
that would include a provision for postwar arrangements in which there
would be no discrimination by the US or the UK against imports from any
other country. The provision was essentially anti-British, for the
trade preference within the British empire had much more to lose under
such a liberal open trade regime than the US. Until the death of
Roosevelt, US policy was tolerant but not sympathetic to British
imperialism and colonialism. Truman transform colonialism as an
anti-Communist tool in the Cold War.

Keynes immediately saw the implication. The US proposal would abolish
the British imperial preference system that had been negotiated in
Ottawa with the members of the Commonwealth in 1932. British strategy
was to couple the inevitable retreat from political empire with a
natural trade regime in a Commonwealth held together with British common
law and a solid and sound pound sterling. Keynes, whose views on
monetary and exchange rate problems had ben shaped by events that led to
WWI and who had earned his reputation with his criticisms of the
reparations provisions of the Treaty of Versailles in his Economic
Consequences of the Peace (1919), was inclined, however, to look with
favor on stabilizing exchange rates. He was arguably the most informed
economist on exchange rate at the time, having been baptized by the
exchange rate regime within the British empire of separate but
co-ordinated currencies linked in orderly fashion to the pound
sterling. He had long regarded the gold standard as an unsatisfactory
basis for the monetary system, and the prolonged deflation of the 1930s
had provided evidence to support and reinforce his view that the gold
standard was a "barbaric relic." Hence, he and the Harvard boys shared a
common starting point in believing that it was possible and desirable to
have a high degree of exchange-rate stability without the rigidity of
the gold standard.

Keynes was introduced by Felix Frankfurter to Roosevelt who was looking
for a respectable economic theory that would sanction deficit financing
to achieve full employment. Roosevelt was not particularly interested
in the technical reasoning. Roosevelt and Keynes did not communicate
well, Roosevelt to Secretary of Labor Frances Perkins that Keynes was
"more a mathematician than a political economist" with "a whole
rigmarole of figures", and Keynes remarked to Perkins that he had
supposed the President was "more literate, economically speaking."
Nevertheless, Keynesianism launched the Second New Deal (1937-41) after
the central economic planning efforts of the First New Deal focusing on
government assistance to industry and agriculture was frustrated by the
Supreme Court on constitutional issues. New Deal II approached planning
of the national economy from a different direction: paying attention to
monetary policy: money supply and credit; and fiscal policy of deficit
financing to support social security, unemployment insurance. It was the
legitimization of an income policy and demand management through full
employment.

Despite the full embrace of Keynesianism by the Roosevelt Brain Trust,
Keynes was nevertheless apprehensive that US domestic conservative
politics might force on its economy a return to the deflationary
policies of the 1930s. For he knew that Keynesianism was never fully
tested by New Deal II before military Keynesianism took over. He favored
a plan that would give the UK freedom to pursue domestic full employment
policies without having to be concerned about its impact on the UK
balance of payments, even after the demise of imperial preference, or
better, to preserve imperial preference as exempt from international
economic law. Keynesianism might even save the empire through full
employment.

In August, 1941, Roosevelt and Churchill agreed to the Atlantic Charter,
which formed the basis of an Anglo-American special relationship, among
other provisions, emphasized British commitment to postwar international
cooperation, including a united front on the formation of and subsequent
dominance in a United Nations. By February 1942, under the Mutual Aid
Agreement [Lend-Lease], the British also agreed to a postwar
multilateral payments system in exchange for a US commitment to maintain
full employment and to continued financial aid to Britain after the war.

One week after Pearl Harbor, Morgenthau asked White to prepare a
stabilization plan that would include all the Allies. Edward M.
Bernstein, one the the Harvard boys, did most of the technical work. The
State Department's proposal of an anti-British trade agreement, which
had drawn negative responses from the British, was thus, in effect,
superseded by a monetary agreement to be worked out by the Treasury.
This was the first version of a strategy by the US to disguise an
imperialist trade policy (albeit against another entrenched but
crumbling imperialist) with an international financial architecture. The
strategy was essentially a new version of the British empire model.
What the British called colonies, the US would call allies and later the
Soviets would call satellites. Half a century later, Clinton/Rubin
revived this strategy with its policy of dollar hegemony - that a strong
dollar is in the national interest as well as a stabilizing force in the
global economy. The difference was that by Clinton's time, the US has
become the world biggest debtor nation, in contrast to the US as the
only creditor nation at the end of WWII. The payment flows have been
reversed. Instead of a trade surplus financing a capital account
deficit at the end of WWII, now the capital account surplus finances the
trade deficit. Both types of flow keep the geo-politically anchored
strong dollar operative in terms of balance of payments.

Keynes, working with Lionel Robbins, James Meade, and others in London,
had gone through several drafts of a currency plan, and on February 11,
1942, circulated his Proposals for an International Currency (or
Clearing) Union. This union was to keep accounts for central banks in
the same way as central banks in each country keep accounts for
commercial banks. The accounts were to be denominated in a new
international currency to be known as bancor. Exchange rates were to be
fixed in terms of bancor and could not be changed without permission of
a governing board. Within limits, member countries could run up debit
balances with the union. The union would charge interest on both debit
and credit balances, a provision that was interpreted negatively by US
creditors to mean that both creditor countries and debtor countries
would share the burden of balance-of-payments adjustment.

Two months later, in April 1942, the White plan, entitled Preliminary
Draft Proposal for a United Nations Stabilization Fund and a Bank for
Reconstruction and Development of the United and Associated Nations, was
circulated. The plan covered not only what eventually became the
International Monetary Fund but the World Bank as well. The common task
of the US Treasury and the UK Treasury was to reconcile the British plan
for the Clearing Union with the US plan for the Stabilization Fund. The
exchange-rate provisions would be easy to reconcile, as Keynes held the
same views as White on the issue. But the financial provisions of the
Clearing Union were not acceptable to the US. The US plan put more
emphasis on exchange-rate stability and less on the generous provision
for international liquidity than did its British counterpart, although
the Fund, under the White plan to be made up of a pool of national
currencies and gold, was to total at least $5 billion, an astronomical
sum in 1942. All members of the United Nations were eligible to join,
provided they were committed both to eliminating controls over foreign
exchange transactions and to establishing fixed exchange rates, to be
altered only with the consent of the Fund. Through US funding of
capital, the US would dominate the proposed Fund and bank, as the
history of the IMF and the World Bank has since confirmed.

While the two plans had many features in common, vital differences
existed. One crucial difference was that the Stabilization Fund was to
be based on a mixed bag of national currencies, while the Clearing Union
was to operate with a new international currency (bancor). The mixed
bag of currencies was essentially dominated by the dollar. Yet the
proposed bancor was not free of the dollar either, by virtue of the
dollar being the only currency issued by a balance-of-payments surplus
nation. The Clearing Union also had less strict rules than did the Fund
for its use by countries with balance-of-payments deficits. Whether the
bancor would threaten dollar hegemony is debatable. My view is that it
would not, since it is not the currency but geo-political power behind
the currency that matters. The US would simply co-opt the bancor as the
tail in the dollar dog.

The US committee was concerned about the potential financial liability
of the US and about the rights of creditor countries (at the time, the
US was the only creditor country on earth), i.e., countries with
balance-of-payments surpluses. It was an unnecessary concern. It took
policymakers until the 1990s to realize, thanks to Robert Rubin who came
to the Treasury from Goldman Sachs, a consummate bond trader, that it
does not matter who owns the dollars, even foreigners or enemies of the
US. All dollars holders soon develop a penchant, indeed a fixation, in
upholding the value of the dollar, thus serving the national interest of
the US. The US can print as many dollars as it wishes and still defy
the quantity theory of money on the issue of inflation. The dollar
standard has replaced the need for the gold standard, and the advantage
was that dollars can be printed faster than gold can be mined and at
declining cost. A $100 bill cost the same to print as a $1 bill and a
$10 million Treasury bond costs no more to print. The dollar standard
actually turns the quantity theory of money upside down. Printing money
in the context of globalized financial markets, instead of causing
inflation, lead to deflation once that money has achieved the general
desirability of gold, i.e., it can buy needed commodities, such as oil,
irrespective of political borders. Globalization of trade and finance
of course fight inflation by the use of low cost labor overseas, the
finance for of which in turn absorbs some of the capital account
surplus. The US can recycle its capital account surplus, essentially
loans from its trading partners, as US investment in the export sector
of its trading partners all over the world.

The US committee had serious reservations about the Keynes plan, which
had generous liquidity provisions and easy access to liquidity for
countries in deficit. That meant that the exclusive privilege of the US
to finance its economy through deficits spending under dollar hegemony
would be challenged. Under the Keynes plan, other countries could
finance their domestic development through deficits as well, if the
bancor ever got away from US control. In addition, the White plan
contemplated the abolition of exchange controls, an important feature
for the US, whereas the Keynes plan did not put much emphasis on the
abolition of exchange controls and even advocated the use of capital
controls, a view increasing operative after the global financial crises
five decades later, although Keynes was at the time thinking mostly of
the British imperial preference system and the exchange rate regime
around the pound sterling.
Britain exercised exchange control until 1979.

Criticism of both plans surfaced in both countries. The US congress was
not, and will never be, free of isolationist influence which remained
suspicious of binding international commitments. Many economists and
business groups objected to government institutions regulating, or worse
interfering with, perceived free operation of exchange markets. Bankers
feared a government-sponsored and subsidized competitive institution
that would be lending money to governments at below market rates. In the
UK, in addition to fears that the US would again fall into self-induced
serious deflation as in the 1930s, there were fears that new
international commitments would jeopardize the economic and monetary
basis of the crumbling empire.

In April, 1942, both plans were published and the public debate became
vigorous in both countries. White sent his revised version to
thirty-seven countries, with an invitation to an informal conference to
discuss the plan. In the summer of 1943, the representatives of
forty-six countries in Washington were invited to discuss the U.S. plan,
and the U.S. authorities began bilateral talks with a number of
countries; namely, Canada, France, Australia, China, Brazil, Mexico, and
Chile.

From September 15 to October 9, 1943, Anglo-American negotiations began
formally. Nine meetings on the two plans were held in Washington, with
discussions centering on fourteen points of difference. These meetings
resulted in a joint statement, but it included separate positions on a
number of points. In November and December, eight drafts and redrafts of
the Joint Statement of Experts were exchanged by White and Keynes across
the Atlantic. In January-February 1944, the experts met again in
Washington and redrafted their joint statement three more times, having
reached agreement on another six points of technical difference.

A consensus was now emerging, but the major remaining difference
concerned the nature and use of a proposed international currency:
whether the bancor, as under the Keynes plan, would be a currency to be
issued by the Fund, or whether the unitas, as then discussed in the
White plan, would be used, but only as an accounting unit. On April 4,
1944 the negotiators finally reached agreement on a Joint Statement of
Experts. Among other features of the agreement, the capital of the Fund
was to be $8 billion, solving the structural liquidity dispute with an
accounting cushion. The unitas eventually became the Special Drawing
Rights.

On May 25, 1944, the US secretary of state officially invited forty-four
governments to send representatives to a conference at Bretton Woods,
New Hampshire, beginning July 1, 1944, "for the purpose of formulating
definite proposals for an International Monetary Fund and possibly a
Bank for Reconstruction and Development."

Bretton Woods was selected as the site for this conference because,
among other reasons such as US domestic politics and climate, most
resort hotels in the home of the free at the time were openly
anti-Semitic (the term was "restricted"), and Secretary Morgenthau, a
Jew, could not even make a reservation at most hotels. The Mount
Washington Hotel was not anti-Semitic, possibly because a long-standing
Hasidic (Orthodox) Jewish community was located nearby. The facilities
of the hotel were antiquated even by war-time standards, but the scenery
was spectacular.

By the end of May 1944, when the invitations to Bretton Woods went out,
early victory in Europe appeared quite within reach. In fact, D-Day was
to occur less than two weeks later, on June 6. The Bretton Woods
planners were convinced that they had to take advantage of the wartime
collaboration of the Allied nations. Willingness to collaborate might
suddenly end once the war was over, and there could be a resurgence of
the intense economic nationalism that had prevailed before the war. The
basic long-term problems of global political and economic organization
had to be resolved beforehand, while allies were still allies.

It is interesting that the Bretton Woods Conference was the first of the
major international conferences to be convened for the purpose of
establishing an international organization (the United Nations
conference, at Dumbarton Oaks and San Francisco, did not take place
until 1945 and the conference, resulting in the Food and Agriculture
Organization, in 1943 was relatively small), and Morgenthau regarded
success at Bretton Woods as essential to President Roosevelt's political
fortunes, by preventing a global post-war depression. The economic
dimension of geo-politics occupied centerfold, since it was clear that
the economic prowess of the US was the leading factor in the pending
victory in WWII.

To this end, once the US and the UK had agreed on a joint statement,
Morgenthau undertook to involve the USSR. Roosevelt believed that UK and
USSR participation critically essential for a post-war world order. The
USSR, while wanting to be seen as important players in world affairs,
had no enthusiasm for monetary cooperation in a global capitalist
system. They sent a low level delegation to the Bretton Woods
conference. Britain, facing challenge from Labour, would not send
cabinet-level officials to the conference. And both the British and the
Soviets asserted that participation in the conference in no way
foreclosed their option to reject eventual membership in the Fund. To
gain domestic public support for the proposed Fund and Bank, Roosevelt
and Morganthau chose delegates of high rank who represented diverse
executive, legislative, and public constituencies. Morgenthau himself
was to lead the seven-person delegation, with Fred Vinson (the head of
the Office of Economic Stabilization and later secretary of the treasury
and chief justice of the Supreme Court) as his deputy and, among others,
Dean Acheson (of the State Department) and Marriner Eccles (chairman of
the Federal Reserve Board) plus Harry White, Senator Tobey of New
Hampshire, and Senator Robert F. Wagner, chairman of the Senate
Committee on Banking and Currency. Senator Tobey was the only Senate
Republican/isolationist on the delegation: some Democrats objected to
his selection and even the president was unsure of his choice. (As
events turned out, Senator Tobey became an enthusiastic supporter of
international cooperation, in return administration aides gave him
maximum publicity in his home state during the conference.)

In all there were forty-five U.S. delegates, technical advisers, legal
advisers, assistants to the chairman, and technical secretaries. Several
of these participants were later board or staff members of the Fund.
White was, of course, the first US executive director (undoubtedly
missing the chance to be managing director because even at that
pre-Truman/McCarthy time, rumors were beginning to surface alleging that
he was a Communist and even a Russian spy. White, identified by
Whittaker Chambers (of the Alger Hiss case) as a Soviet espionage agent,
is cited extensively in many US Senate investigations and reports
dealing with Communist activity and subversion in the United States.
The Case against Harry Dexter White: Still Not Proven - W...
http://homepages.nyu.edu/~th15/hdwhite.html
<http://homepages.nyu.edu/%7Eth15/hdwhite.html>

Roosevelt had carefully circumscribed the US delegation's authority, and
he reminded the members that they had the responsibility for
demonstrating to the world that international postwar cooperation was
possible. US Treasury experts prepared extensive background memoranda on
such potentially controversial topics as the allocation of quotas in the
Fund, gold contributions, access to the Fund's
resources, voting structure, and management. To help inform both the
delegation and the general public, the Treasury experts also prepared a
detailed commentary called Questions and Answers on the International
Monetary Fund, which was issued as a public document on June 10, 1944.
This document posed thirty-five questions that delegates and the
general public might ask about the new Fund and then provided detailed
answers.

Some 730 persons attended the conference, a number about three times as
large as had originally been expected. They represented forty-four
countries, most of the Allies of World War II. These countries were now
being referred to, at least by US organizers, as the United Nations. Not
participating were Germany, Japan, and Italy, as well as several in
Europe (Austria, Bulgaria, Finland, Hungary, Portugal, Romania, Spain,
Sweden, and Turkey), in the Middle East (Jordan, Lebanon, Syria, Saudi
Arabia, and, of course, Israel, created only in l948), in Central Asia
(Afghanistan), and in Asia (Burma, Ceylon, Indonesia, and Thailand).
Other than Liberia and South Africa, Ethiopia was the only sub-Saharan
country present and, among the Latin Americans, Argentina was not
present.

Keynes himself was chairman of the UK seven-person delegation,
accompanied by, among others, noted academics Dennis Robertson and
Lionel Robbins. While some countries had fairly large numbers of
representatives (for example, Brazil, China, Cuba, the Netherlands,
Peru, the USSR, the US), other countries had very few participants,
especially some of the Latin American republics, and Ethiopia. Andreas
Papandreou, later to become prime minister of Greece, was also on the
Greek delegation.

Commission I on the Fund was headed by Harry White, since the White plan
was to be the basis of the
Fund`s articles, and Keynes agreed to head Commission II on the Bank
even though the British were not part of the planning for the bank. The
Fund's articles were used as a model for those of the Bank, especially
the provision with regard to the organization and structure of the
executive board, making the Bank the mirror image of the Fund.

Harry White impressed foreign delegates with his fairness, inexhaustible
energy, and leadership and is reported to have functioned effectively on
no more than five hours sleep. Keynes drove himself and the other
delegates mercilessly. But, according to reports of many who attended
the conference and
of entries in Morgenthau's own personal diaries and those of non-Fund
historians, the driving force of the Bretton Woods conference was Edward
Bernstein.

Congressional approval was by no means assured. After all, the League of
Nations had failed to win congressional approval, and prior to World War
II the United States had been strongly isolationist. But there were even
more specific worries for those who hoped to obtain congressional
approval for the new IMF. On July 1, 1944, as the Bretton Woods
Conference opened, the New York Times, the Wall Street Journal, and the
Chicago Tribune all ran editorials that condemned government management
of exchange rates. Robert Taft, senator from Ohio, asserted that the
Congress would not approve any plan that placed "American money in a
fund to be dispensed by an international board in which we have only a
minority voice," an unnecessary assertion since the US had a controlling
voice in the proposed IMF. The Keynes plan would never have been
accepted by congress.

In September 1944, Winthrop Aldrich, influential chairman of Chase
National Bank, delivered a searing indictment of the Bretton Woods
accords. The IMF, he said, would become a mechanism for instability
rather than stability since it would encourage exchange-rate
alterations. It is an irony that a version of the same argument is used
half a century later against the IMF by critics of neo-liberal financial
market fundamentalism.

Allan Sproul, president, and John H. Williams, vice president, of the
New York Federal Reserve Bank
favored a much more limited "key-currency" approach instead of the
universal Fund. They called for the Bank, not the Fund, to take
responsibility for exchange-stabilization lending and advocated that the
Bank come into being and that the Fund be postponed.

Supporters of the Fund mounted an extensive public relations campaign,
avoided intricate details about par values or balance-of-payments
adjustment, and instead stressed the more comprehensible need for world
security and expanding trade, relying heavily on two main arguments: the
Monetary Fund was essential for U.S. domestic prosperity and high
employment; and the United States had to show its willingness to be a
world leader in international cooperation in the postwar world.
President Clinton used the same arguments nearly fifty years later to
gain support for the North American Free Trade Agreement [NAFTA] and the
Uruguay Round of the General Agreement on Tariffs and Trade [GATT]
agreement.

The U.S. Bretton Woods Agreement Act was passed. On July 31, 1945,
President Harry S. Truman, signed the Bretton Woods Act in his third
month in office.

On December 27, 1945, twenty-nine countries signed the Articles of
Agreement. By December 31, another six had also signed, so that
thirty-five countries, with quotas representing more than 80 percent of
the total, had given life to the IMF eighteen months after Bretton
Woods.

The signatory countries agreed on the establishment of two permanent
institutions for international cooperation on monetary and financial
problems. They agreed on how to deal with the postwar problems they
expected, but they did not agree on what the problems would be. This
problem still plagues the IMF of today. Thus the IMF almost always
tried to cure the symptoms rather than the disease, simply because it
cannot decide on the identity of the virus. All countries at the end of
WWII were concerned about a recurrence of the economic devastation that
followed the end of WWI - the Great Depression, the sharp contraction of
world trade, the disorderly exchange conditions, and the problems
associated with reparations, inter-allied debts, and defaults on
government foreign loans. A number of conferences were held in the 1920s
and l930s without achieving agreement on how to deal with these
problems. Even at the height of the depression in July 1933, the World
Economic and Monetary Conference in London could not agree on such a
basic question as the appropriate exchange rate for the dollar.

The UK, through Keynes, viewed the Great Depression as mainly due to a
chronic demand deficiency in the US. The depression was transmitted to
other countries through the US balance-of-payments surplus, which
drained other countries of their reserves and compelled them to follow
deflationary monetary policies. Keynes proposed the establishment of an
International Clearing Union as a solution. Members would be required
to fix a par value for their currencies, which could be changed after
consultation with the Clearing Union, and in some cases only with its
approval. Surplus countries would share with deficit countries the
responsibility for balance-of-payments adjustment. They would have to
provide generous credits to the deficit countries through the Clearing
Union and they would pay interest on these credits at the same rate as
the deficit countries. The necessity of some such plan arises from the
unbalanced creditor position of the United States.

Six decades later, The Keynes plan is de facto operational, with the
fiat dollar acting as the bancor and the trade surplus economies issuing
generous credit to finance the US trade deficit. The need for an
International Clearing Union is pre-empted by an unregulated global
financial market that thrives on structured finance instruments and a
new permissiveness of the Bank of International Settlement. Yet Keynes'
world was essentially a two-asset world: stocks and bonds, within
tightly defined political borders. There were no transnational
corporations, no global capital/debt markets and above all no structured
finance. Under such simple conditions, a ICU made some sense. Today,
international balance of payments is almost impossible to aggregate and
address.

Unlike the British, the US Treasury had a quite different view of the
problems of the 1920s and 1930s. It believed that the Great Depression
resulted from the interaction of wartime inflation and the gold
standard. The inflation exhausted the free gold reserves of central
banks. and the reduced gold production after the war and the
insufficient amount of newly mined gold available for the needed growth
of the money supply. The deflation this caused was aggravated by the
restoration of the gold standard in a number of countries at
inappropriate parities, particularly an overvalued rate for the pound
sterling. The US was correct in identifying pound sterling hegemony as
the main culprit, as dollar hegemony is now. The US did not agree that
its balance-of-payments surplus spread the depression to other
countries. US surplus on current account fell considerably in the 1930s.
The large overall surplus in 1938-40 was due to European imports for
rearmament and the capital outflow from Europe just before World War II
was politically induced. The depression was intensified and spread,
however, by competitive devaluations and restrictive trade and exchange
practices. This is still essentially US position now, with the
exception on the effect of the strong dollar.

The US Treasury argued that a similar depression would not occur after
WWII because very few countries would attempt to restore the gold
standard. The greater danger was that the large outlays necessary for
reconstruction would create huge balance-of-payments deficits that might
lead to a renewal
of competitive devaluations and trade and exchange restrictions. To
avoid such disorders, Harry D. White proposed the establishment of an
International Stabilization Fund and an International Bank for
Reconstruction and Development (IBRD). The Stabilization Fund would
have responsibility for maintaining stable exchange rates and orderly
exchange arrangements. It would help finance current account deficits to
enable members to adjust the balance-of-payments without resorting to
measures
destructive of national or international prosperity. The International
Bank for Reconstruction and Development would provide credits for
reconstruction immediately after the war, and later it would assure the
availability of long-term loans for development.

Apart from the financial provisions, the differences between the US plan
for an International Stabilization Fund and the UK plan for an
International Clearing Union were not great. Both plans provided for
international responsibility on changes in the par value of members'
currencies and the elimination of
exchange restrictions on current transactions. Both agreed that
balance-of-payments adjustment had to be made by surplus as well as
deficit countries. The major differences were on the degree of
responsibility that surplus countries had for adjustment and on the
amount and conditions for financial assistance to deficit countries.

The Keynes plan did not deal with the problem of reconstruction. The
White plan called for the establishment of an international bank to help
finance postwar reconstruction and the development of the low-income
countries, which under Truman was turned into an instrument of the Cold
War. There was little discussion with the UK of US plan for the World
Bank.

The exchange rate provisions were much the same as in the White and
Keynes plans. The Fund would have larger resources than proposed in the
White plan but much less than proposed in the Keynes plan. Provision was
made for the possibility of a large and persistent surplus in the United
States balance of payments. If the International Monetary Fund were to
find that this had occurred, members would be authorized to impose
restrictions on dollar payments. In any case, members could continue
wartime restrictions on current transactions during a transition
period. If such protection were available to Indonesia, Argentina,
Korea, Brazil and Russia since 1997, the global financial regime would
be in a better shape.

Neither the World Bank nor the Monetary Fund provided much financial
assistance to Europe in the early postwar years. The World Bank made a
few reconstruction loans immediately after the war. The supplementary
resources that Europe needed for reconstruction came mainly from the
Marshall Plan. The
Monetary Fund engaged in a few transactions with Europe before the
Marshall Plan but none while the plan was in effect.

The world economy evolved quite differently after the war from what had
been expected in 1943. Instead of a deep depression, as was widely
feared, there was a remarkable growth of output (as a result of Cold War
spending and geo-politically set preferential trade) in the United
States, the war-torn industrial countries, and many of the developing
countries allied with the US. The US viewed the non-communist world as
one integral economy dominated by a US benefiting from Cold War military
Keynesianism. Instead of large surpluses, the US developed a persistent
deficit in its overall balance of payments in capital account.
Ultimately, this made it necessary to amend the IMF Articles of
Agreement.

According to Bernstein, the Fund agreement adopted at Bretton Woods
reflected the preference of its members for an exchange-rate system
based on par values without the rigidity of the gold standard. It was
assumed that, if the United States were to maintain a high level of
output with stable prices, other countries would follow policies that
would enable them to have an appropriate balance of payments and to keep
the dollar exchange rates for their currencies within the 1 percent
margin above and below parity prescribed at Bretton Woods.

The Great Depression of the 30s caused a radical change in the
objectives of economic policy. The gold standard endured for nearly a
hundred years in the British Empire and for more than fifty years in the
US without a change in the par value of the pound and the dollar. That
was possible, despite protracted periods of deflation and depression
marked by occasional monetary crises, because the maintenance of the
gold value of the currency was the primary objective of economic policy.
In the 1930s, after years of deflation and depression, every country
abandoned the gold parity of its currency. The gold standard came to be
regarded as having a deflationary bias.

The members countries of the International Monetary Fund accepted the
obligation to maintain stable exchange rates based on par values, but
not as a primary objective of economic policy. Article I (ii) of the
Fund Agreement states that one of its purposes is to "facilitate the
expansion and balanced growth of international trade, and to contribute
thereby to the promotion and maintenance of high levels of employment
and real income and to the development of the productive resources of
all members as primary objectives of economic policy."

The par value system required all members to give the same importance to
price stability and to the level of output and employment, and to follow
compatible fiscal, monetary, and wage policies. At times, some members
of the Monetary Fund, including the United States, were unable to follow
such policies. Even the European countries with similar social and
economic objectives were unable to maintain the exchange rates for their
currencies within the wider margins from the central rates permitted by
the exchange-rate arrangements of the European Monetary Union. The
central problem of the euro is its anti-inflation bias. It can easily
turn the euro into a currency with a deflationary bias, a deadly
characteristic in a debt-propelled economy.

The U.S. balance-of-payments deficit on an official reserve basis fell
into deficit in the 1960s because of the rise in capital account deficit
caused by large increase in foreign investment from the US. The current
account remained in surplus until 1970, when the Japanese and German
export machines began operating in full throttle. Unable to curb
imports from these tow new allies in the Cold War, the United States
tried to restrain the capital outflow by a tax on purchases of foreign
securities and by restrictions on the transfer of funds for direct
investment in the industrial countries. Investment in the United States
by the European surplus countries and by Japan in the 1960s was
relatively small. Instead, they accumulated large reserves, much of
which was in dollars and converted into gold.

It was thought that one reason for the persistent US deficit on an
official reserve basis was the unavailability of sufficient reserves
other than dollars derived from the US balance-of-payments deficit. It
was hoped that if adequate reserves were available in another way, the
US deficit on an official reserve basis, and the drain on U.S. gold
reserves, would be eliminated. The Fund agreement was amended to
authorize it to create reserve assets, designated as special drawing
rights (SDR), initially equal in value to one gold dollar. The Fund
distributed SDRs to members on the basis of their quotas. This increased
their reserves, but it did not halt the US deficit or the converting of
dollars into gold.

In August 1971, when the payments situation became critical because of a
flight from the dollar, the United States notified the Monetary Fund
that it would no longer convert foreign official dollar holdings into
gold. It also placed a tariff surcharge on most imports. In order to
retain the central role of the dollar in the international monetary
system and to secure the withdrawal of the tariff surcharge, the
exporting industrial countries and the Monetary Fund agreed in December
1971 on a realignment of par values. The dollar was to be devalued and
the strong European currencies and the yen were revalued. Moreover, the
other industrial countries undertook to support the foreign exchange
value of the dollar, although it was no longer convertible into gold.
This was the beginning of dollar hegemony.

Yet dollar hegemony faced a breech birth. Despite the realignment of
par values, the US deficit continued to increase and the dollar fell in
the exchange market. In February 1973, the dollar was devalued again,
but the pressure on the dollar continued. The other industrial countries
stopped supporting the dollar because the accumulation of dollars in
their reserves was causing domestic inflation. In March 1973, the
twice-reduced par value was abandoned and the dollar became a floating
currency, convertible into other currencies through the exchange market.

The floating of the dollar effectively ended the system of fixed but
adjustable par values. Racing to adjust conceptual anchor to fit
reality, the second amendment to the Fund agreement provides a new basis
for international responsibility on exchange rates. When everyone
smokes, the solution was to abandon a ban on smoking and provide a
smoking room. Members are required to cooperate with the Monetary Fund
in maintaining orderly exchange conditions within a free-floating
foreign exchange market. They are allowed to have any exchange-rate
system they want, provided they do not manipulate the exchange rate to
obtain an unfair advantage in international trade or to prevent
balance-of-payments adjustment. Thus, a member can have a floating rate,
or base its exchange rate on another currency, or on the SDR, or on a
basket of currencies, but not on gold. A number of European countries
decided to link the exchange rates for their currencies within a wider
margin around the par value or central rate. The US and most other
members chose to have a floating exchange rate. The SDR has been
redefined to consist of a fixed amount of dollars, yen, deutsche marks,
French francs, and sterling. The SDR officially replaced the dollar as
the accounting unit of the Monetary Fund, but the SDR basket of
currencies consisted of currencies that remained in essence pegged to
the dollar, albeit through the combined effect market volatility and
currency and interest rate derivatives.

The Monetary Fund was originally intended to help finance current
account deficits, mainly of a cyclical character, that could be
corrected within two or three years. For this purpose, annual drawings
of 25 percent of the quota were thought to be adequate. Where adjustment
of the balance of payments required a change in the par value of the
currency and changes in fiscal and monetary policies, the annual quota
drawings would not be sufficient to finance the deficits until the
balance of payments was restored. The Monetary Fund devised a method of
assuring members of financial assistance in excess of the quota limits
through waivers and standby agreements for larger drawings. This was
the land mine that eventually blossomed into full scale earthquakes of
financial crises in subsequent decades.

Experience showed that a balance-of-payments deficit could arise from
causes beyond a member's control. The sharp increase in the cost of oil
imports, for example, caused a difficult payments problem for many
members. The Monetary Fund created special facilities to provide
credits, outside the quota
limits, for dealing with such problems. More recently, the Monetary Fund
and the World Bank have acquired new members from Central and Eastern
Europe, some of them former constituents of the Soviet Union. These
members need technical and financial assistance in converting from a
state-managed economy to a market-oriented economy. For this purpose,
the Monetary Fund has created the systemic
transformation facility. The financing of the credit operations of the
Monetary Fund comes primarily from the quota subscriptions of its
members (capital), now amounting to SDR 145 billion, equivalent to more
than $200 billion. The Monetary Fund can also borrow from its members,
which it has done on occasion.

The broadening of the operations of the Monetary Fund and the World Bank
has been controversial at best in dealing with the critical financial
problems in recent years. IMF financial assistance usually comes with
conditionalities of austerity that exacerbate the crises.

The inability of the United States to restore its balance of payments
after two devaluations of the dollar led to the second amendment to the
Fund agreement, which authorized floating exchange rates. One reason for
adopting floating rates was the belief that it would result in automatic
balance-of-payments
adjustment. The appropriate balance of payments for a country is the
same under a system of floating rates as under a system of par values. A
high-income country that would normally generate more savings than can
be profitably invested at home should have a surplus on current account
offset by net foreign investment. The function of the exchange rate is
to enable a country to maintain an appropriate balance of payments with
policies directed forward stability of prices and a high level of output
and employment. Under a system of par values, such an exchange rate is
presumed to reflect relative prices and costs - purchasing power parity.
This is expected to result in an appropriate balance on trade in goods
and services. Monetary policy should be able to bring about an
offsetting balance on capital flows. Dollar hegemony renders this
mechanics inoperative.

With floating exchange rates, the supply of and demand for a currency
are equated in the foreign exchange market. That does not assure an
appropriate balance of payments. It may merely mean that an
inappropriate surplus or deficit on current account is matched by an
offsetting, but inappropriate, balance
on capital account. And with floating rates, capital flows may be
greatly distorted because of inappropriate differences in interest rates
and speculation on changes in exchange rates. In fact, with floating
exchange rates, capital flows may make it more difficult to achieve an
appropriate balance on current account.

That happened in the United States in the 1980s. A huge inflow of
foreign capital for direct investment and for the purchase of American
securities, augmented by speculative funds, resulted in an enormous
increase in the foreign exchange value of the dollar. Between 1980 and
1985, the dollar rose by over 100 percent against the deutsche mark,
even more against most other European currencies, but less against the
yen and the Canadian dollar. This was one of the major causes of the
large and persistent U.S. deficit on current account. In 1980, the
United States had a current account surplus of $7 billion. Since
then, the current account has been constantly in deficit, reaching a
first peak of $167 billion in 1987 and nearing $350 billion after 1997.
The anomalous appreciation of the dollar in the 1980s and 1990s was not
the only reason for the persistence of the U.S. current account deficit,
but it created conditions that have made it much more difficult to
adjust the U.S. balance of payments.

When the exchange rate for a currency rises and falls considerably in a
short period, it must be either overvalued or undervalued, measured by
relative prices and costs, at some time during the period. This not only
distorts the pattern of international trade but has adverse effects on
the economy. An overvalued currency is like a too-tight monetary policy.
It restrains the rise of prices, but it also holds down the growth of
output and employment. An undervalued currency, on the other hand, is
like a too-easy monetary policy. It stimulates the expansion of output
and employment, but it also facilitates a rise of prices.

For this reason, the exchange rate is an inherent aspect of monetary
policy; and the monetary authorities cannot ignore large changes in the
foreign exchange value of the currency. With floating rates, the foreign
exchange market needs guidance by the monetary authorities, not only
through the usual instruments of monetary policy, but at times also
directly through intervention. The problem is what the objective of
intervention should be and how it should be integrated with other
aspects of monetary policy.

It has been suggested that, with floating rates, the monetary
authorities should establish a target zone with a wide band, within
which they would maintain the exchange rate. If the policy is to
intervene only at the top and bottom of the band, the target zone may
encourage volatility. When the exchange rate begins to fall, speculators
may quickly drive it to the bottom of the target zone, as the monetary
authorities are not expected to intervene before then.

Bernstein maintains that a better policy would be for the monetary
authorities to intervene at any point in the target zone, whenever there
is a large and rapid change in the exchange rate. As intervention in the
exchange market affects other countries, it should be undertaken only
after consultation with the Monetary Fund and in cooperation with the
countries whose currencies are used for intervention. A fall in the
foreign exchange rate may be a signal that the exchange market believes
that a change in monetary
policy is necessary. Therefore, when the monetary authorities intervene
in the exchange market, they should consider whether the intervention
should be accompanied by a change in monetary policy. This is of course
another way of saying that effective intervention is merely an indirect
change of monetary policy and ineffective intervention is a waste of
time and resources.

Intervention itself changes the monetary situation as it affects the
money supply and the reserves of the banking system. Thus, selling
foreign exchange to support the exchange rate has the same effect as
selling Treasury bills in order to tighten the monetary situation. In
the 1930s, some countries established
exchange equalization accounts to insulate the money supply and bank
reserves from transactions in gold and foreign exchange reserves. When
the monetary authorities intervene in the exchange market, they must
consider whether the magnitude of the consequent monetary changes is
consistent with the broader objectives of economic policy. The amount of
intervention is not a proper measure of the change in the
monetary aggregates that is appropriate for the economy. If the
intervention causes too large a change in the money supply and bank
reserves, the monetary authorities may have to undertake open market
operations to offset the excess. The behavior of the exchange rate is
only one, and not the most important, indication that a change in
monetary policy is necessary.

As the U.S. Treasury stated in the Questions and Answers on the
International Monetary Fund submitted to the Bretton Woods Conference:
"It would be a complete inversion of objectives if a high level of
business activity were to be sacrificed to maintain any given structure
of exchange rates."

A complete inversion of objectives is precisely what the IMF policy has
produced for the past five years.

Henry C.K. Liu


Andre Gunder Frank wrote:

> There is an interesting book
> THE BRETTON WOODS-GATT SYSTEM. RETROSPECT AND PROSPECT AFTER FIFTY YEARS		
> edited by Orin Kirshner, M.E.Sharpe 1996.
> ihave two copies. it is the conference p[roceedings of a con held at
> Bretton Woods 50 years after the first one, with all its surviving
> participants.
> As i recall, they now tell it as it really was 50 yeas ago, showing how
> each delegate was defending his state's capital i''natinal'' interests, and
> they spoke/wrote without any longer  the need for the ideological bullshit
> that is usually used to legitimate naked interest.
>
> cheers
> gunder
>
> On
> Tue, 11 Feb 2003, annewilliamson wrote:
>
>
>
> > Date: Tue, 11 Feb 2003 13:21:34 -0500
> > From: annewilliamson <annewilliamson@xxxxxxx>
> > Reply-To: a-list@xxxxxxxxxxxxxxxxxxx
> > To: a-list@xxxxxxxxxxxxxxxxxxx
> > Subject: Re: [A-List] Re: Return to an old standard
> >
> > The exploitation inherent in the gold exchange standard established at
> > Bretton Woods was the work of John Maynard Keynes and Harry Dexter White.
> > It was a specific scheme.....Keynes hoped to favour Britain, but he realized
> > the UK didn't then have the "heft" to counter White's plan which naturally
> > favored the US.  Everybody thought the US would retain dollar/gold
> > conversion, so in that sense they were "suckered" - the progression to 1971
> > internationally (when Nixon slammed shut the gold window) mirrors perfectly
> > the progression historically to fiat money in national economies:  First the
> > govt obtains issuance, then it issues commodity-backed paper money along
> > with legal tender laws, and then, in the fullness of time, renegs on the
> > commodity backing.  This progression is repeated throughout history.  (You
> > might profitably study the Genoa Conference of 1922, and the late 19th
> > century establishment of the Lombard League for historical precursors to
> > Bretton Woods and the euro.  (DeGaulle's Finance Minister) Jacques Rueff's
> > "The Monetary Sin of the West" is an excellent resource, discussing the how
> > and whyfore of the US's "deficit without tears")  There was nothing,
> > absolutely nothing, benign about Bretton Woods - the US knew exactly what it
> > was doing, and it was intentionally doing it. (Congress actually wrote the
> > laws to take the dollar off gold in the 1960s - by then, even the dumb cluck
> > congressmen had figured out the game - or possibly had it explained to
> > them - and prepared legislatively.  In this sense, Nixon was just the
> > unlucky one sitting in the hot seat when the time came, and the US had only
> > 2 weeks' worth of gold reserves left to honor it's dollar committments.)
> > You are being influenced by very old propaganda, utter bullshit.  Bretton
> > Woods was nothing more or less than the internationalization of the Federal
> > Reserve System swindle.  Pick up a copy of "The Creature from Jekyll Island"
> > (G. Edward Griffin) and/or Ferdinand Lips's "Gold Wars," Dr. Franz Pick's
> > "The US Dollar - An Advance Obituary," and to really learn something about
> > the Fed, Edwin Vierra's "Pieces of Eight" is the ultimate resource.  Do not
> > neglect an investigation into the London Gold Pool, BTW.  Again, I highly
> > recommend the work of Murray Rothbard for an understanding of money and
> > banking. -A.
> >
> > ----- Original Message -----
> > From: "Gary Santos" <evs@xxxxxxxxxxx>
> > To: <a-list@xxxxxxxxxxxxxxxxxxx>
> > Sent: Tuesday, February 11, 2003 12:27 PM
> > Subject: Re: [A-List] Re: Return to an old standard
> >
> >
> >
> >
> > > Melvin,
> > >
> > > I shall, of course, defer to your history. Mine was obviously drawn partly
> > > from emotion and the thought that no system today offers the equity we all
> > > seek. We might start off with a revolution, in thought and in deed, but,
> > so
> >
> >
> > > far, it has always led to that level of inequity that leads all of us to
> > > start
> > > asking "Why" just as all of us have done.
> > >
> > > The starting line is always bent just as there are those who are smarter
> > > than others or stronger than others or who are more industrious than
> > others.
> >
> >
> > > And, Melvin, I think we speak of wealth in the same sense. I spoke in the
> > > micro while the wealth you speak of it in a much larger sense.
> > >
> > > Wealth tends to accumulate to those who know how to accumulate it. The
> > > Chinese, out of centuries of experience have a saying, that wealth does
> > not
> >
> >
> > > stay in a family for more than three generations. And, because of these
> > > premises, I tend to think that the discussion here, if we are again to
> > look
> >
> >
> > > for that magic economic general theory, lacks one dimension -- a
> > discussion
> >
> >
> > > of the philosophical basis for the economics. It was not always so that
> > > ethics was a discipline separate from economics. Indeed, economics was
> > "the
> >
> >
> > > attendant and handmaiden" of ethics prior to the advent of Humanism.
> > > Perhaps, if the past ten generations were not so afflicted with being
> > > centered on itself, the present market system of entrpreneurs would have
> > > done a job towards wealth distribution far exceeding any system before it.
> > >
> > > Which bring us to hegemony. It seems to me that the exploitative aspect of
> > > using the dollar as the world currency is not inherent. And, we can go
> > back
> >
> >
> > > to Bretton Woods as, yes, that is the history of using the dollar as the
> > > "swing" currency. What makes the hegemony and trade exploitative to the
> > > working man is the "value for value" exchange when exports are exchanged
> > for
> >
> >
> > > US dollars. It is exploitative because the value of foreign labor is small
> > > compared to the value of US labor -- manifested in the exchange rate. Not
> > > that this is entirely the US's machinations for, after all, Japan, Korea,
> > > China, Taiwan, Thailand, Malaysia, Philippines, etc. all competed amongst
> > > each other for investment and trade. And, certainly, not that this
> > hegemony
> >
> >
> > > and globalization has had no ill effects
> > > on the US given all the complaints on a weakened US manufacturing sector
> > and
> >
> >
> > > loss of IT jobs to India and the like. There is a strategic weakness being
> > > created here if prolonged for decades.
> > >
> > > No, the hegemony did not start out exploitative. It is presently
> > > exploitative but the exploitation, I submit, was due to a confluence of
> > > events rather than the result of some cunning, sinister design. Certainly,
> > > the complicity of all these exporting countries' central banks mitigate
> > the
> >
> >
> > > guilt of the exploiter, don't you think? I figure, it started sometime in
> > > the late 1970's when the export development strategy came into being.
> > Before
> >
> >
> > > that there was protectionism, import substitution and government
> > > industrialization as the paradigm for development -- with the attendant
> > > accumulation of debt of the era.
> > >
> > > On debt, I still can not accept the unlimited borrowing capacity of the
> > > hegemony. There appears to be a good case for an indefinite accumulation,
> > I
> >
> >
> > > have to admit. But, my sense tells me that deficits are planting the seeds
> > > of its destruction. The accumulation of debt is a reckoning that will have
> > > to be
> > > paid. By the nature of its use, money represents an accumulated saving of
> > > prior work. To create it out of thin air only serves to debase its value.
> > >
> > > On labor and technology, I would think that the labor eliminating
> > technology
> >
> >
> > > started not with robotics, etc. but with the Industrial Revolution. That
> > > point marked the change from craftsman to wage earner, from barter to a
> > > pre-fiat environment. The capital that technological change demanded
> > > fostered an environment that led to fiat. I think monetary history will
> > > support this thesis.
> > >
> > > Gary
> > >
> > >
> > >
> > > ----- Original Message -----
> > > From: <Waistline2@xxxxxxx>
> > > To: <a-list@xxxxxxxxxxxxxxxxxxx>
> > > Sent: Tuesday, February 11, 2003 3:27 PM
> > > Subject: Re: [A-List] Re: Return to an old standard
> > >
> > >
> > >
> > >
> > > > In a message dated 2/10/03 8:27:55 AM Pacific Standard Time,
> > > evs@xxxxxxxxxxx
> > >
> > >
> > > > writes:
> > > >
> > > >
> > > >
> > > > > No, the source of prosperity of America has been its openness to
> > > immigrants
> > >
> > >
> > > > who bring with them their capital and strong motivation to succeed where
> > > in
> > >
> > >
> > > > their home countries they found only oppression by an exploitative and
> > > > discriminatory system. The source of prosperity has been the technology
> > > > developed by these immigrants, motivated by what a market based,
> > > > entrepreneurial system had to offer. The source of prosperity has been
> > the
> >
> >
> > > > export of American culture, which leads to owners of US assets
> > eventually
> >
> >
> > > > becoming US citizens. The source of prosperity has been the renewal of
> > > > morality that each wave of immigrants brings with it, reminding the
> > jaded,
> >
> >
> > > > now American immigrant what it was like a generation or two ago. Where
> > > else
> > >
> > >
> > > > in the world can you find such things?
> > > >
> > > > Gary Santos<
> > > >
> > > > Reply
> > > >
> > > > You are mistaken Gary for obvious reasons, although you describe certain
> > > > valid components of that, which led to American prosperity. It is
> > correct
> >
> >
> > > to
> > >
> > >
> > > > locate the evolution of America's dollar hegemony in the post Second
> > World
> >
> >
> > > > Imperialist War period. Prior to this period it was simply the immense
> > > > productivity capacity of America that shattered the national barriers of
> > > her
> > >
> > >
> > > > competitors. Reasonable quality goods at a low price penetrate barriers
> > > that
> > >
> > >
> > > > military force cannot.
> > > >
> > > > The early immigrants and the vast majority of immigrant to our country
> > did
> >
> >
> > > > not bring any capital but their labor power. Our country is blessed so
> > to
> >
> >
> > > > speak because it was never afflicted with the lingering feudal social
> > and
> >
> >
> > > > economic structures and culture - customs, that to this day afflict many
> > > > countries in the Middle East ands Africa. These "Middle Age" customs and
> > > > traditions attend to act as a brake on economic expansion based on
> > > industrial
> > >
> > >
> > > > production and market exchange - the market relations.
> > > >
> > > > The genesis of American wealth and actually the wealth of the modern
> > world
> >
> >
> > > is
> > >
> > >
> > > > slavery. As a historical period slavery was the basis of the development
> > > of
> > >
> > >
> > > > the capitalist system as it evolved on earth. Better yet, slavery was
> > the
> >
> >
> > > > basis of the development of the industrial system as it evolved on
> > earth.
> >
> >
> > > > American cannot be singled out as "a historic slave power," based on
> > > Southern
> > >
> > >
> > > > slavery.
> > > >
> > > > We forget out history, world history and problems handed to us by
> > history.
> >
> >
> > > > Basically, the United States, up until the Civil War was a Southern
> > > Country.
> > >
> > >
> > > > All the centers of gravity were in the South and they were connected to
> > > the
> > >
> > >
> > > > industrial market of England. This was shown at the Continental
> > Congress.
> >
> >
> > > > While debating the question of slavery, two slaves absolutely held out
> > > saying
> > >
> > >
> > > > they would not join the Confederation if slavery were abolished. One was
> > > > South Carolina, which had the greatest numbers of slaves; the other was
> > > > Massachusetts, whose prosperity was based on the slave trade.
> > > Massachusetts
> > >
> > >
> > > > built and manned the ships that not only brought the slaves from Africa
> > > but
> > >
> > >
> > > > just as importantly, carried the commerce created by the slaves. The
> > whole
> >
> >
> > > > economy was organized around the core Southern states. The industrial
> > > > revolution in England and later New England or rather the Northern
> > States
> >
> >
> > > > relied on slavery.
> > > >
> > > > We are so distinct from slavery that we do not understand its elementary
> > > > economics, social impact and how this sets the basis for the evolution
> > of
> >
> >
> > > > industrial society. Further the color factor blinds us and hurt feelings
> > > > cloud our judgment.
> > > >
> > > > The Northern states evolved as absolute appendage to the South. The
> > slave
> >
> >
> > > > trade was more a foundation of America and the genesis of its wealth
> > than
> >
> >
> > > the
> > >
> > >
> > > > actual physical act of slavery. Modern students of economics have not
> > > > understood this and end up pointing an accusing finger at each other. We
> > > have
> > >
> > >
> > > > to deal with some elementary economic logic and facts.
> > > >
> > > > Manufacturing and industry grew faster than agriculture because
> > > agriculture
> > >
> > >
> > > > in the era of manufacture is ultra labor intensive. Manufacture demand
> > the
> >
> >
> > > > creation of more machines and conglomerations of people under one roof
> > > > producing goods. As this conglomerate expands, their needs and demands
> > act
> >
> >
> > > as
> > >
> > >
> > > > an impetus for further development and machine society slowly beings to
> > > > replace old agrarian relations. In the South it was more profitable to
> > > > purchase a slave and work him to death because the value that could be
> > > > extracted from his was greater than his cost. This logic kills the
> > > incentive
> > >
> > >
> > > > for machine development and rivets economics to intensive labor process.
> > > The
> > >
> > >
> > > > whole economy was based on this terrible expenditure of slave labor.
> > There
> >
> >
> > > is
> > >
> > >
> > > > an old saying in America to describe betrayal that goes, "you sold me
> > down
> >
> >
> > > > the river." Being sold down the river meant being sold to a Mississippi
> > > > cotton planter, where the toil made the life expectancy of the slave 7
> > > years.
> > >
> > >
> > > > Today Bush Jr. is selling the American people down the river . . . back
> > to
> >
> >
> > > > our story.
> > > >
> > > > If you rationalized slavery - agricultural production, with the whole
> > > > introduction of machine production, you were interfering with the ship
> > > > building industry, which was at the heart of the Northern industrial
> > > > development. If you interfered with the ship building industry you were
> > > > interfering with the Universities set up to study astronomy - or other
> > > > sciences, to guild those ships. This in turn meant you were interfering
> > > with
> > >
> > >
> > > > engineering and the science of building better ships. Because America is
> > a
> >
> >
> > > > North to South country - Allegheny Mountains separates East and West,
> > you
> >
> >
> > > > were also messing with road building and transportation or the railway
> > > > system, until the construction of the Erie Canal.  If you messed with
> > > slavery
> > >
> > >
> > > > and the slave trade you were messing with the basis of the industrial
> > > system
> > >
> > >
> > > > as it was evolving in the North.
> > > >
> > > > The "good things" of life - the luxuries, came from England, but all the
> > > > necessaries of life came from the North. Northern industrial development
> > > > began by supplying George Washington and Thomas Jefferson - I mean the
> > > South
> > >
> > >
> > > > in a later period of time, the manufacturing and foodstuff need by the
> > > South
> > >
> > >
> > > > as an economic unit.
> > > >
> > > > The contradiction or absurdity was that it was actually cheaper to have
> > > the
> > >
> > >
> > > > immigrant worker of the North provide these things - necessities, than
> > use
> >
> >
> > > a
> > >
> > >
> > > > good slave.
> > > >
> > > > My point is not to argue you, but debate you and welcome you into an
> > > > exceptionally broad and informed point of view.
> > > >
> > > > Thus when you state:
> > > >
> > > >
> > > >
> > > > > The source of prosperity has been the renewal of
> > > > morality that each wave of immigrants brings with it, reminding the
> > jaded,
> >
> >
> > > > now American immigrant what it was like a generation or two ago. Where
> > > else
> > >
> > >
> > > > in the world can you find such things? <
> > > >
> > > > this is not accurate because one can state the same - to a degree, about
> > > > Germany.
> > > >
> > > > I for one will never deny the impact of the immigrant on economic
> > > development
> > >
> > >
> > > > in our country; after all we are a nation of immigrants - in the main.
> > But
> >
> >
> > > > what you state is wrong as historical fact. Slavery and the slave trade
> > > set
> > >
> > >
> > > > the basis for American prosperity and industrial development. Slavery
> > was
> >
> >
> > > an
> > >
> > >
> > > > indispensable economic category in history.
> > > >
> > > > Do you deny this?
> > > >
> > > > I ask because just as the labor of the slave was important to the
> > societal
> >
> >
> > > > advance, modern technology is important to the societal advance. How
> > this
> >
> >
> > > > labor replacing technology impact our society is what we are
> > experiencing.
> >
> >
> > > > Advance robotics, computerization and digitalized production process
> > > renders
> > >
> > >
> > > > ever-greater quantities of labor superfluous to the production process
> > and
> >
> >
> > > > cheapens the value of labor - what it can fetch in the market through
> > the
> >
> >
> > > > medium of exchange based on possessing money.
> > > >
> > > > Why cannot 47 million people in our country get medical care and the
> > > number
> > >
> > >
> > > > is growing by 2-3 million a year? What is the limit of the free market
> > > > system? Let's be clear. This growth of people unable to access medical
> > > care
> > >
> > >
> > > > under the free market system are working people, many in management who
> > > > cannot afford the cost. Why is this? Why are people getting poorer?
> > > >
> > > > Why?
> > > >
> > > > Melvin P.
>
>
>
>
>    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
>
>               ANDRE    GUNDER      FRANK
>
> Senior Fellow                                      Residence
> World History Center                    One Longfellow Place
> Northeastern University                            Apt. 3411
> 270 Holmes Hall                         Boston, MA 02114 USA
> Boston, MA 02115 USA                    Tel:    617-948 2315
> Tel: 617 - 373 4060                     Fax:    617-948 2316
> Web-page:csf.colorado.edu/agfrank/     e-mail:franka@xxxxxxx
>
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~