From Bretton Woods to World Inflation

February 13, 1945

The President’s message to Congress on the Bretton Woods money and banking proposals is conciliatory and statesmanlike in tone. Though he recommends that Congress promptly adopt the plan both for the proposed international Bank and the proposed international Fund, he also discusses the two proposals separately, and each on its own merits.

Congress should accept the proposal for the proposed international Bank as promptly as it can do so consistent with careful study. Such action will insure two good results. It will make it possible for nations to borrow in the near future when their need for loans will be most urgent. And it will indicate to the world that the present Congress is ready to consider every proposal for international cooperation with an open mind and in a non-partisan spirit. At least one amendment to the Bank proposal, however, deserves serious consideration. This would specifically permit the Bank to make loans for currency stabilization purposes as well as for the purposes already outlined in the text of the existing Articles of Agreement.

If the Bank proposal were adopted and this amendment made, Congress could withhold for the present any decision on the Fund. The Fund is open to objections of a serious nature, some of which have already been discussed in these columns. Moreover, it becomes clear upon further study that the Fund is intended primarily as a long-run agency for monetary management. It is not adapted for dealing with some of the most serious problems in the transition period ahead. The text of the Fund Agreement itself seems to contemplate that this period of transitional arrangements will last at least five years. Once we accepted an international Bank authorized to make currency-stabilization loans, therefore, the case for postponing action on the Fund would be even stronger.

The President asks for repeal of the Johnson Act. This could be done promptly by Congress by a resolution of a few lines. The act attempts to prevent American citizens even from lending their own funds at their own risk to some of our present allies. The act has done no good and much harm. The sooner it is repealed, the sooner we will be rid of a pre-war gesture that does us no honor.

The New York State Bankers Association published a sixty-two page report on the Bretton Woods proposals, coming to substantially the same conclusions as the earlier report of the American Bankers Association: the proposed International Bank should be accepted with certain minor changes; action on the proposed Fund should be postponed; the American dollar should be maintained at a fixed value in terms of gold.