Bretton Woods 1.0 : An Essay in Constructive Retrieval

This Article, which brings together two series by the author on financial regulation and the global financial architecture, respectively, retrieves and updates J. M. Keynes’s original International Clearing Union plan for what ultimately became the International Monetary Fund (“IMF,” “Fund”). Its motives are not antiquarian. The Article argues that our current domestic and global financial and macroeconomic troubles are best viewed as products of our not having gone something more like that original Keynesian route with the Fund. Part I tells the tale of Keynes’s original Clearing Union plan. It emphasizes the plan’s basic structure and motivations, as decisively rooted in Keynes’s financially oriented re-conception of what subsequently came to be known as “macroeconomic” theory. It highlights in particular the Clearing Union’s projected role as an institutional lever through which trading nations could jointly prevent financial-stability-imperiling global imbalances in the form of persistent trade surpluses and deficits, hence ensure stable investment, sustained consumer demand, and thus full employment globally as Keynes’s earlier work had shown possible to manage domestically. Part II traces our and the wider world’s recent financial and macroeconomic troubles to our not having adopted something more like the Keynesian IMF. In particular, building on earlier papers, it models our recent spate of recession-inducing asset price bubbles and busts as collective action problems rooted in chronic, uncontrolled, and apparently uncontrollable tendencies toward excess credit-money in the American financial economy. That oversupply in turn stems in significant measure from an excess of global credit-money. And the latter is rooted in massive and still growing industrial overcapacity and consequent trade surpluses enjoyed by a small number of state actors that act “as if” playing by mercantilist monetary rules even when doing so for legitimate prudential reasons – reasons that a Keynesian IMF would preempt. Part III sketches an updated version of Keynes’s Clearing Union arrangement suitable for today’s international monetary and financial order. In effect, it serves as rough blueprint for a new IMF – a Fund more like the “old” one we never gave a go. It does so, moreover, in a manner that makes optimal, albeit modified, use of the principal pillars of the global financial architecture we already have. It also emphasizes that something like this new IMF will be prerequisite to global monetary and financial stability, hence to continued “globalization” itself. The Article concludes with a look ahead to next steps in the direction of fully instituting the revived Global Clearing Union plan that it proposes