THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, August 21, 1994 TAG: 9408190031
SECTION: COMMENTARY PAGE: J4 EDITION: FINAL
TYPE: Editorial
LENGTH: Short : 45 lines
One World War II event that hasn't gotten much attention and deserves more is the 50th anniversary of the Bretton Woods conference, which took place in New Hampshire through most of July 1944. If present-day policymakers would learn some lessons from it, the result could be lower real interest rates and a faster-growing economy.
As the military situation turned ever grimmer for Germany and Japan, the thoughts of Allied leaders turned toward the post-war world. Franklin D. Roosevelt and Winston Churchill both recalled how declining economic conditions in Europe and Asia during the inter-war years helped breed the the Nazi regime and Japanese militarism. They were determined not to repeat the mistake.
The economists who gathered at the Mount Washington Hotel in Bretton Woods, N.H., produced a monetary system that would endure for 25 years. It created a world currency structure in which exchange rates were pegged to the dollar, which in turn was pegged to gold.
Fixing the price of the unit of account created an atmosphere for enhancing growth. In combination with the free-trade system of the General Agreement on Tariffs and Trade, the European Union, the Marshall Plan and the NATO alliance, the world economy recovered rapidly after the war.
Unfortunately, inflationary policies practiced first by Lyndon Johnson and then by Richard Nixon conspired to shatter the system. By 1971, Nixon was forced to choose between scrapping Bretton Woods and sharply cutting federal spending. He chose the former. The great post-war economic expansion ended. Ever since, the world has been whipsawed by higher-than-average interest rates and ever deeper recessions.
Today's economic policy-makers could profit by recalling Bretton Woods. Last year's rise in the gold price was a signal to the Federal Reserve about inflationary pressures. That has led directly to higher interest rates and the pounding the dollar has taken on world markets. A new system of stable currencies pegged to gold would remove a lot of anxiety about inflation and devaluation. It is time for another look. by CNB