New Information about the Russian Spy who was Architect of the IMF

By Benn Steil

In the wake of the 2008 financial crisis and the ensuing global economic downturn, it has become commonplace for politicians, pundits, and economists to invoke the memory of Bretton Woods. In July 1944, in the midst of World War II, representatives of 44 nations gathered in this remote New Hampshire town to create something that had never before existed: a global monetary system to be managed by an international body. The gold standard of the late nineteenth century, the organically formed foundation of the first great economic globalization, had collapsed during the previous world war. Efforts to revive it in the 1920s proved catastrophically unsuccessful. Economies and trade collapsed; cross-border tensions soared. In the 1930s, internationalists in the U.S. Treasury Department saw a powerful cause and effect and were determined to resolve the flaws in the international economic system once and for all. In the words of Harry Dexter White, a then little-known Treasury official who became the unlikely architect of the Bretton Woods system, it was time to build a "New Deal for a new world."

Working in parallel and in prickly collaboration with his British counterpart, the revolutionary economist John Maynard Keynes, White set out to create the economic foundations for a durable postwar global peace. Governments would be given more power over markets but fewer prerogatives to manipulate them for trade gains. Trade would in the future be harnessed to the service of political cooperation by ending shortages of gold and U.S. dollars. Speculators who stoked and profited from fears of such shortages would be shackled by strictures placed on the frenetic cross-border flows of capital. Interest rates would be set by government experts schooled in the powerful new discipline of macroeconomics, which Keynes had been instrumental in establishing. A newly created International Monetary Fund (IMF) would ensure that exchange rates were not manipulated for competitive advantage. Most important, budding dictators would never again be able to use barriers to trade and currency flows as tools of economic aggression, ruining their neighbors and fanning the flames of war.

Despite having never held any official title of importance, White had by 1944 achieved implausibly broad influence over U.S. foreign and economic policy. Grudgingly respected by colleagues at home and counterparts abroad for his gritty intelligence, attention to detail, relentless drive, and knack for framing policy, White made little effort to be liked. "He has not the faintest conception how to behave or observe the rules of civilized intercourse," Keynes groused. Arrogant and bullying, White was also nerve-ridden and insecure, always acutely conscious that his tenuous status in Washington depended wholly on his ability to keep Treasury Secretary Henry Morgenthau, a confidant of President Franklin Roosevelt with limited smarts, armed with actionable policies. White often made himself ill with stress before negotiations with Keynes, and then exploded during them. "We will try," White spat out during one particularly heated session, "to produce something which Your Highness can understand."

But as the chief architect of Bretton Woods, White outmaneuvered his far more brilliant British counterpart, distinguishing himself as an unrelenting nationalist who could extract every advantage out of the tectonic shift in geopolitical circumstances put in motion by World War II. White installed the groundwork for a dollar-centric postwar order antithetical to long-standing British interests, particularly as they related to the United Kingdom's collapsing colonial empire. Even White's closest colleagues were unaware, however, that his postwar vision involved a far more radical reordering of U.S. foreign policy, centered on the establishment of a close permanent alliance with the new rising European power -- the Soviet Union. And they most surely did not know that White was willing to use extraordinary means to bring it about.

Over the course of 11 years, beginning in the mid-1930s, White acted as a Soviet mole, giving the Soviets secret information and advice on how to negotiate with the Roosevelt administration and advocating for them during internal policy debates. White was arguably more important to Soviet intelligence than Alger Hiss, the U.S. State Department official who was the most famous spy of the early Cold War.

The truth about White's actions has been clear for at least 15 years now, yet historians remain deeply divided over his intentions and his legacy, puzzled by the chasm between White's public views on political economy, which were mainstream progressive and Keynesian, and his clandestine behavior on behalf of the Soviets. Until recently, the White case has resembled a murder mystery with witnesses and a weapon but no clear motive.

Now we have one. The closest thing to a missing link between the official White and the secret White is an unpublished handwritten essay on yellow-lined notepaper that I found buried in a large folder of miscellaneous scribblings in White's archives at Princeton University. Apparently missed by his previous chroniclers, it provides a fascinating window onto the aspirations and mindset of this intellectually ambitious overachiever at the height of his power, in 1944.

Read the rest here.