Keynes: The Dunkirk Diplomat

Benn Steil argues that John Maynard Keynes had an astute grasp of Britain’s debt situation in 1944 and how it might recover from ‘financial Dunkirk’. Yet his arrogance and ineptitude in negotiating with the Americans at Bretton Woods cost Britain dear and has had repercussions to this day.

US Treasury Secretary Henry Morgenthau Jr (left) and Keynes in conversation at Bretton Woods, July 1944. Getty/Time Life/Alfred Eisenstaedt‘In Washington Lord Halifax once whispered to Lord Keynes, “it’s true they have the money bags but we have all the brains”.’ So went a piece of clever doggerel from the 1940s, neatly framing how Britain’s emissaries saw their country’s financial plight during the Second World War. Halifax having been one of many in the British political establishment who had failed to persuade the Americans to loosen their purse-strings, the brilliant John Maynard Keynes was dispatched to the front lines in Washington in the hope that, if brains were to be the key to British solvency, he might have more success.

Keynes’ financial negotiations with the Americans were important not just to Britain in the 1940s, but to the world long after. The American-dictated terms of the famous 1944 Bretton Woods accords, which enthroned the US dollar as the ‘new gold’ atop the global monetary system, were part of the price Britain paid for American aid. When former prime minister Gordon Brown in 2008 called for ‘a new Bretton Woods’ to rectify the flaws in the current global financial and monetary architecture, it is unlikely he understood to what extent the terms of the original Bretton Woods were determined by power and personal diplomacy rather than good ideas.

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