During the first three weeks of July 1944 more than 700 delegates representing 44 Allied nations — the major economic powers of the world dawning as, a month after D-Day, the end of World War II seemed to come into view — met at the Mount Washington Hotel in Bretton Woods, New Hampshire, to formalize arrangements for the postwar global economic order.
The United States dollar, operating on a gold standard, redeemable by non-American dollar-holders for a fixed amount of gold, was to serve as the international reserve currency; currency convertibility principles were confirmed; and new institutions, including the International Bank for Reconstruction and Development (“the World Bank”) and the International Monetary Fund were brought into existence.
The leader of the American delegation at that conference was Harry Dexter White. The leader of the British delegation was John Maynard Keynes. Remarkably, given the at-least-nominally pro-capitalist objectives of the conference, a delegation from Russia, then the Union of Soviet Socialist Republics under the dictatorship of Joseph Stalin, also attended.
The overall goal of the conference was to establish an international regime promoting a stable monetary system that would serve the needs of a future world characterized by free enterprise, free markets, free trade, and stable and interconvertible currencies.
Some arrangements agreed upon at Bretton Woods came into effect immediately; others were achieved in later years; and some were never realized at all. Whether or not what has come to be called the “Bretton Woods system” has met all or part of its objectives remains subject to debate.
Many features of the Bretton Woods system, including use of the U.S. dollar as the international reserve currency, and the World Bank and the IMF, survive bearing some recognizable relation to the picture painted at Bretton Woods. Other aspects of the system, including the maintenance of the dollar on a gold standard, have receded into history.
To mark the 70th anniversary of the Bretton Woods conference, a major conference will be held at the original venue in New Hampshire on September 2, 3, and 4 of this year — in less than a month. Conferees from all over the world will gather to recall the 1944 conference and the system that was ordained there, and to debate and discuss their history and consequences.
All aspects of the Bretton Woods system, including the on-going use of the dollar as the global reserve currency, and the questions of whether or not a gold standard should be re-established or some modern replacement for it found, remain controversial. At the heart of these discussions is the perennial conversation over whether and how market mechanisms may be substituted for political choices and coercive measures, to regulate the world’s monetary, banking, and trade activities.
Against that background, I offer the following microscopic musing on the price of gold and the value of the dollar. The price of an ounce of gold in London on Friday afternoon (the “P.M. fix” of August 8, 2014) was $1,309.75. The price of an ounce of gold in London one year ago Friday afternoon (the “P.M. fix” of August 8, 2013) was $1,309.00. If all one knew about the price of gold were those two data points, one might assume that the price of gold has been comfortably and reassuringly stable, changing in value against a similarly stable United States dollar by a mere six bits over an entire year.
That would be a lot like walking into Wrigley Field in the bottom of the ninth inning, seeing that the score was tied 0-0, knowing nothing about pitchers’ duels or the finesse that goes into fielding, and saying to oneself, “Oh, I haven’t missed anything.”
In fact, gold had been on a steep dive downward before arriving at that $1,309.00 price per ounce a year ago. For example, just seven months earlier, on January 8, 2013, the price of an ounce at the London afternoon fixing had been $1,657.75. The price dropped $348.75, or a little more than 21 percent, in those seven months.
Meanwhile, in the first seven months of this year, gold has risen from a price per ounce in London on the afternoon of January 8, 2014, of $1,221.00. In short, prior to 2014, gold had been diving and the dollar soaring; during this year gold has risen slightly while the dollar has been on a gildepath downward. The volatility has been remarkable. Seven months ago the year-to-year price differential was nearly $350.00. Yesterday the year-to-year differential was just under a buck.
Whether the price of gold is seen as a measurement of the value of a precious metal or as a report card on the economic, monetary, and fiscal policies that go into determining the value of the dollar, it’s interesting to think about what the trends, short-term and long-term, may mean.
When I was a university student — that is, looking back at a point in my adult lifetime when many memories still seem quite fresh — prior to the time when Richard Nixon, abandoning conservative principle and traditional Republican orientations, imposed wage and price controls and closed the gold window, the fixed price of an ounce of gold was $35.00.
I note, as well, that the standard unit in which the world measures the value of gold, more than 40 years after the demise of “Bretton Woods”, is still the U.S. dollar. One wonders whether or not, and when, that is destined to change, too.[Note: At the time of the Bretton Woods Conference in 1944, Joseph A. Morris was several years from being born. In 1971, when President Nixon “closed” the “gold window”, Morris was an undergraduate at The University of Chicago and Chairman of Students for Capitalism and Freedom (whose faculty advisor was Milton Friedman). Today Morris consults on a variety of legal, economic, and policy matters and observes that, as Gresham said of money, bad advice drives out good.]