01/17/07 - the world bank

In today's excerpt - the creation of the World Bank and the IMF (International Monetary Fund):

"The World Bank was conceived six decades before the [9/11] terrorist attacks in the teeth of another violent threat to American security. In December 1941, scarcely a week after the Japanese assault on Pearl Harbor, Roosevelt's long-time friend and treasury secretary, Henry Morgenthau commissioned a blueprint for the postwar economic order. Morgenthau ... turned to Harry Dexter White, a driven, brilliant Harvard PhD, whose service was later rewarded with persecution at the hands of Senator Joseph McCarthy. White's brief was nothing less than to prevent another war, and to do so by forestalling the kind of economic storm that had brought about the current one. As Morgenthau put it a little while later, 'all of us have seen the great economic tragedy of our time. We saw the worldwide depression of the 1930s. We saw currency disorders spread from land to land. ... We saw unemployment and wretchedness. ... We saw bewilderment and bitterness become the breeders of fascism, and, finally of war.'

"White's first priority was to prevent more such 'currency disorders.' The postwar economic system would be anchored by the gold standard, which would shield commerce from the twin evils of exchange-rate shocks and inflation. If this system came under pressure - if a balance of payments deficit exhausted a nation's gold reserves - a new international lender of last resort would bail the country out rather than leaving it to devalue. This new bail-out lender ultimately took shape as the International Monetary Fund, which today stands across the street from the World Bank in Washington, and which still fights financial crises from Argentina to Turkey. But White's creativity did not stop there. He also conceived the idea of a new public bank that would promote the rebuilding of Europe, so ending the 'unemployment and wretchedness' that Morgenthau lamented. ...

"In July 1944, when the Allied forces had still not broken out of their Normandy beachhead, several hundred delegates convened in the sprawling Mount Washington Hotel in Bretton Woods, New Hampshire. ... [T]he conference ended with an agreement on a new International Bank for Reconstruction and Development [later the World Bank] to work alongside the International Monetary Fund.

"The link between security and poverty had been stressed throughout the conference. As White said to his colleagues, 'There is nothing that will serve to drive these countries into some kind of ism - communism or something else - faster than having inadequate capital.' ... Poverty was even worse then than it is now [the author states that today half of the world's 6 billion people live on less than $2 per day]: in India, life expectancy for the poor was twenty-five years, and 90 percent of the population aged ten or older was illiterate."


Sebastian Mallaby


The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations


Penguin Books


Copyright Sebastian Mallaby 2004


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