Remembering Harry Dexter White

The IMF's magazine, Finance & Development, carried this article and this one on one of the two men responsible for the creation of the IMF and the World Bank, known as the Bretton Woods twins after the conference at the site that led to their founding. The two articles are both authored by James Boughton, historian of the IMF. The man we are talking about is Harry Dexter White, then Chief Economist at the US Treasury. The other man was none other than John Maynard Keynes.

Keynes came to his meetings with White with idealistic fervour. He wanted a global central bank that would create an international currency as part of the post- War order. White would have none of it. Since the US was the primary global power and would be  mostly underwriting the expenses of the IMF/World Bank, he was clear that the US would call the shots. The IMF would be, not a central bank, but an entity that would promote global economic stability. And it was the US dollar that would serve as the reserve currency.

There were other differences between the two men. Keynes wanted Britain and the US to write up the charter for the IMF/World Bank. White wanted a large number of countries to be involved. Controversially, he wanted to involve the Soviet Union too in the effort. That hope was dashed by the Cold War. It was not until the dissolution of the Soviet Union in 1991 that White's vision was realised. White wanted to give all countries some say in the governance of the IMF through voting rights. Keynes had wanted the debtor countries, including the UK, to call the shots.  

The world economy, Boughton notes, evolved in ways that neither White nor Keynes could have imagined. The world economy grew much faster than they had expected after WW2. The IMF lacked the resources to cope with the demands made on it. White mooted the idea of a new asset for the purpose. This fructified much later as Special Drawing Rights (SDRs).

White and Keynes, however, agreed on the role of capital flows:

White and Keynes agreed that the IMF should discourage countries from being open to capital flows. The Fund’s charter specified that countries could borrow from the IMF only to finance trade deficits, not to counteract large capital outflows. It also authorized the IMF to require countries to impose capital controls when necessary. But the global economy changed as it grew. Because bank loans and international bonds became more widely used to finance trade between countries, the IMF eventually reversed course and began urging most countries to open their financial markets to foreign competition. Today, the IMF takes a more cautious approach, recognizing both the benefits of openness and the risks of volatility and loss of control.

White's career had an unfortunate end. During the Red Scare of the 1940s, White came under scrutiny for his meetings with Soviet officials during the creation of the Bretton Woods institutions. He was suspected of passing on documents to the Soviet Union.  

During the investigations of the McCarthy era, attacks on his motives ranged from the questionable to the bizarre. His meetings with Soviet officials around the time of Bretton Woods were interpreted as espionage. His efforts during the war to hold the Nationalist government in China accountable for hundreds of millions of dollars in U.S. financial aid were interpreted as an effort to undermine Chiang Kai-shek in favor of Mao Tse-tung

Three days after the hearings, in which White defended himself vigorously, White died of a heart attack. He was again vilified years later during the McCarthy hearings. He was now accused of being a Soviet spy. His reputation was tarnished. Mercifully, he was not around to witness his fall.