Tag: economics

Project Clearinghouse

What’s the value of ten dollars? The question seems obvious. Ten dollars is exactly ten dollars, or a thousand cents. The effect would be much the same as asking how long a meter is.
Except that’s a meaningless tautology, and doesn’t address the core problem. Ten dollars is just a collection of symbols on paper, or more frequently today, a series of numbers on digital records. This would still be true if the United States were on the gold standard, or even used gold coinage directly; gold may restrict the supply of money, the scarcity of which safeguards against the most egregious fluctuations in value, but having money made of shiny metal rather than elaborate paper and plastic sheets, or ones and zeroes does not give it inherent value.
But I digress with my monetary musings. My focus is not on the dollar, but on the ten. What is ten dollars, relative to one, five, or a hundred? All of these are, after all, positive amounts of money which on any given day I would be happy to receive. I could easily spend any of these amounts without much planning. And perhaps most crucially, none of these amounts would make the difference in being able to afford my medication, and hence paying my bills, an activity which happens on the scale of tens of thousands of dollars.
This is, of course, uncoupled from the reality, which is that, whether or not any of those amounts would cover my cost of living entirely, all of them certainly add up, and all need to be accounted for. Losing track of that- losing touch with the value of money as one spends it -is a surefire way to fritter away one’s savings and wind up deep in debt. This maxim remains fundamentally true regardless of the size of one’s own net worth and budget.
Just as I link to think myself intelligent, I like to think myself reasonably adept at money management. After all, with only my $5/month allowance, occasional birthday checks, and sporadic income from babysitting, recycling, and other side ventures, I have managed to amass a nest egg which puts me snugly in the top quartile for net worth in my age group. But this paints a very one-sided picture, particularly given that the prevailing financial strategy which got me to where I am today consists principally of never paying for anything myself for which I can have someone else foot the bill.
As I have mentioned before, our household is chiefly a gift economy, where one’s purchasing power is not so much a matter of labor as social credit. If something is needed, it is bought without question or particular regard for the price. If something is merely wanted, it is considered and debated at length, until either it is bought on some special occasion, or it is forgotten about.
It is expected that in due course each person will be given or will be allowed to purchase out of the common household funds, a certain amount of luxury items or other frivolities. Those who exceed their share, or misbehave, are forbidden from making new purchases, or else receive fewer gifts on the relevant occasions. In comparison to the social credit aspect, the actual dollar price is almost trivial.
The actual finances of the house are handled quietly and efficiently without public discussion. For as much as I know my parents pride themselves on having passed on their frugality and money management skills, I know precious little about the actual financial situation of our household. This creates the awkward situation where money seems to just appear, and expenses charged to credit cards handle themselves.
Naturally, despite the insistence of my parents that I needn’t worry about it, I do keep a budget, meticulously tracking dollars spent, correlating receipts, and ensuring that the bank statements I do see- my personal savings account that I’ve kept since before I could sign my own name -match my own records. But with the stakes only ever as high as the occasional extra milkshake, or upgrade to a larger coffee, this is essentially a kind of pantomime game.
There are two things about this situation that scare me. The first is that a lack of exposure to expenses beyond what can be expressed in playground pocket money terms. I know how much a milkshake costs at the place I usually buy milkshakes, but couldn’t tell you the cost of the groceries that go into making it. I am dimly aware in the abstract that shopping at the grocery store is more cost effective than eating out, but I don’t know what would constitute a bargain in either case. This makes me dangerously vulnerable to price gouging.
I am also concerned that the money I do have saved doesn’t feel real. After all, price has almost never been a primary consideration, and my rigid saving has meant that almost every amount over a hundred dollars has gone into the bank. Though this is obviously the superior financial decision, as in a savings account at least my money can generate interest greater than the dust and lint it accumulates sitting in the house, it also means that I can no longer feel the paper currency in my fingers while spending it, but have to construct an abstraction around digits on a page.
Yes, I can imagine money in terms of the things which I may use it to purchase, but in addition to being merely another layer of abstraction, it is difficult to parse this in a meaningful way. At present there are no expenses, or even products that I feel a particularly pressing need to own, on a scale that is helpful. The primary luxuries I buy for myself are all in the $10-$20 dollar range, and many of these are foodstuffs, which I would buy even if I weren’t financially stable because of my medical diet. Even so, imagining an unusably large number of pizzas is not particularly more helpful than imagining ones and zeroes.
Besides which, it ignores the larger point: what stops me from going out and draining my bank account isn’t strictly frugality so much as social pressure. I’m not afraid of starving because I know that for almost any financial trouble I could get into short of setting out to lose money, my parents will bail me out. And if I was suddenly cut off, the meager sum in my account wouldn’t put a dent in my medical expenses for a single month, so I have very little incentive not to squander it before it gets seized by creditors. Rather, what stops me is that household social credit system; I don’t buy more for myself than I do for others because that would unbalance the whole regime.
What scares me isn’t that I can’t handle today’s financial problems. Rather I am afraid that someday off in the future, as I become responsible for handling my own matters more and more, that I will lose my benchmarks for understanding what purchases are necessary and what justifies what amount of spending, and the taboos that keep me in line today will erode and shatter. Then I will find myself with a lot of ones and zeroes, and lots of ways to spend them, and not a whole lot of idea how to manage them.
At some point after that, I fear, with no firm guidelines and only a vague grasp on what things should cost, I will be adrift without a reference point. And if, on that day, I don’t learn up from down and so forth very quickly, I will get a crash course in finance the hard way- by hitting rock bottom. There is then the risk that I will find myself unable to afford my medical regimen, and will either wind up deep in debt which will take an inordinate amount of time to repay, or suffer serious, possibly even fatal, health effects.
This idea of losing everything, despite my starting advantages, because of something that is intrinsic to others, but which I lack, either due to my disabilities or my unusual upbringing, is one of my greatest recurring fears; as is no longer having the resources to pay for my life support. Now, I don’t expect that this scenario is imminent by any stretch of the imagination.but of late it has begun to seem just a little too believable; just slightly too easily imaginable; for comfort. I could perhaps brush these bothersome anxieties off, but for the increase in rhetoric directed at me to the effect that, at my age and stage in life, I ought start making more moves towards future independence.
Being nothing if not prudent, I have already begun implementing measures to hopefully safeguard against the most deleterious effects of this scenario. To start, I have acquired another credit card from my parents, which I intend to use to build up a credit score with which to acquire a credit card under my own name. I have also opened up a checking account under my own name, through which I intend to centralize more of my finances such that I shall be able to more easily review spending habits, and hopefully expand my current budget from a mere exercise to an actual working financial plan.
For the purposes of this particular project, which I have chosen to call Project Clearinghouse for obvious reasons, I am opting to stick with option that are simplified at the possible expense of some small financial benefit. So, for my checking account, I chose a bank that is well known, widespread, and has plenty of online options over one that might possibly give me a better deal in the short term. The reasoning is twofold: first, that I am trying to set up infrastructure that will work for the next several years, and rather than try to divine the future, it is better to stick with options that allow me that strategic flexibility. Secondly, I am attempting to circumvent a scenario in which I become detached from financial reality, and it strikes me as more likely that this will happen if I am made to navigate a byzantine codex of regulations.
There’s a third reason, and that is that over the past few years, I have begun to realize the extent to which I can get in my own way if I am permitted to overthink things, as is my habit. This analysis paralysis is arguably as great a danger as the possibility that I will neglect planning entirely. Even ignoring the long term, if I were to permit myself to agonize over the minute differences in interest or fees for a week, there is a better than even chance that I would defer any decision for another week to think it over, and so forth.
In any case, what’s done is done. The account is set up, the first checks (despite having now spent as long in the United States as I did in Australia, I am still tempted to refer to them as cheques) have cleared and I have managed to, near as I can tell successfully, enable their mobile app and mobile payment system. I’m not entirely sure how the shift towards online payment and electronic checking, which is being openly encouraged by many of the institutions with which I deal, will impact my own designs, but that’s another topic for another time.
Getting my ATM/debit card activated has proven to be quite the ordeal, with the phone tree system not working, and the human operator to whom I was redirected was locked out of making any changes to my account after I gave my phone number, which despite being the very same number at which I have received from them the security codes to log into their app, and which I am quite positive I put down upon opening my account, did not apparently match their records, and therefore my identity was not proven. I was then told that I would have to proceed to activate my card in person.
I am left hoping that I shall one day look back on these present frustrations as worthwhile and helpful. Since I am undertaking this project not to solve a current ill, but to prevent future ones, I can do no more than guess at which is the best course of action. This is particularly troubling to me, as my track record is severely mixed at best. Nevertheless, it seems like the best course at present.

A Witch’s Parable

Addendum: Oh good grief. This was supposed to go up at the beginning of the week, but something went awry. Alas! Well, it’s up now.

Suppose we live in colonial times, in a town on an archipelago. The islands are individually small and isolated, but their position relative to the prevailing winds and ocean currents mean that different small islands can grow a wide variety of crops that are normally only obtainable by intercontinental trade. The presence of these crops, and good, predictable winds and currents, has made those islands that don’t grow food into world renowned trade hubs, and attracted overseas investment.

With access to capital and a wide variety goods, the archipelago has boomed. Artisans, taking advantage of access to exotic painting supplies, have taken to the islands, and scientists of all stripes have flocked to the archipelago, both to study the exotic flora and fauna, and to set up workshops and universities in this rising world capital. As a result of this local renaissance, denizens of the islands enjoy a quality of life hitherto undreamt of, and matched only in the palaces of Europe.

The archipelago is officially designated as a free port, open to ships from across the globe, but most of daily life on the islands is managed by the Honorable South India Trading Company, who collect taxes and manage infrastructure. Nobody likes the HSITC, whose governor is the jealous brother of the king, and is constantly appropriating funds meant for infrastructure investment to spend on court intrigue.

Still, the HSITC is entrenched in the islands, and few are willing to risk jeopardizing what they’ve accomplished by attempting insurrection. The cramped, aging vessels employed by the HSITC as ferries between the islands pale in comparison to the new, foreign ships that dock at the harbors, and their taxes seem to grow larger each year, but as long as the ferry system continues to function, there is little more than idle complaint.

In this town, a local woman, who let’s say is your neighbor, is accused of witchcraft. After the debacle at Salem, the local magistrates are unwilling to prosecute her without absolute proof, which obviously fails to materialize. Nevertheless, vicious rumors about men being transmogrified into newts, and satanic rituals conducted at night, spread. Local schoolchildren and off duty laborers congregate around your house, hoping to get a glimpse of the hideous wretch that legend tells dwells next door.
For your part, you carry on with your daily business as best you can, until one day, while waiting at the docks to board a ferry to the apothecary, a spat erupts between the woman in question and the dock guard, who insists that he shan’t allow her to board, lest her witchery cause them to become shipwrecked. The woman is denied boarding, and since the HSITC run all the ferries, this now means that she’s effectively cut off from rest of the world, not by any conviction, but because there were not adequate safeguards against the whims of an unaccountable monopoly.
As you’ve probably guessed, this is a parable about the dangers posed by the removal of net neutrality regulations. The internet these days is more than content. We have banks, schools, even healthcare infrastructure that exist solely online. In my own case, my life support systems rely on internet connectivity, and leverage software and platforms that are distributed through open source code sharing. These projects are not possible without a free and open internet.
Others with more resources than I have already thoroughly debunked the claims made by ISPs against net neutrality. The overwhelming economic consensus is that the regulations on the table will only increase economic growth, and will have no impact on ISP investment. The senate has already passed a bill to restore the preexisting regulations that were rescinded under dubious circumstances, and a house vote is expected soon.
I would ask that you contact your elected representatives, but this issue requires more than that. Who has access to the internet, and under what terms, may well be the defining question of this generation, and regardless of how the vote in the house goes, this issue and variants of it will continue to crop up. I therefore ask instead that you become an active participant in the discussion, wherever it takes us. Get informed, stay informed, and use your information to persuade others.
I truly believe that the internet, and its related technologies, have the potential to bring about a new renaissance. But this can only happen if all of us are aware and active in striving for the future we seek. This call to arms marks the beginning of a story that in all likelihood will continue for the duration of most of our lifetimes. We must consult with each other, and our elected representatives, and march, and rally, and vote, by all means, vote. Vote for an open internet, for equal access, for progress, and for the future.

Shiny

Alright, listen up Pandora, Diamonds International, Tiffany & Co., and other brands of fancy upscale jewelry that I can’t be bothered to recall at this time because I’m a guy. I’m about to talk about an idea that could help you dodge a bullet and get ahead of the next big thing.

Let’s face it, jewelry is seen as feminine. This is true to a place where guys feel out of place in a jewelry store; not just lost, but in many cases subtly unwelcome. This is a problem for you, because, as businesses, you want to be able to appeal to as wide an audience as possible. And perhaps more to the point, you don’t want to be marked as being too much part of traditional gender roles in the minds of the younger generation.
To your credit, you’re clearly trying, with your displays of cuff links, tie clips, and other implements of haberdashery. There’s just one problem- I have only the vaguest idea what a cuff link or a tie clip is supposed to do for me. As far as I know for sure, cuff links are the little pieces that hold the two wrist parts in handcuffs together, and tie clips are part of a wardrobe organizational system that prevent ties from becoming creased in a way that’s noticeable. And I’ll wager a lot that I’m far from the only guy for whom this holds true.
So you need something more obvious in its application. Something that I can walk up to the display and immediately surmise and articulate precisely why it is I need to own that thing, instead of needing a sales representative to explain to me how back in the olden days, fancy shirts didn’t used to come with buttons on their cuffs, and why I should care to replace mine with something more expensive and less practical.
Like, say, a wristwatch. It’s obvious why I would want to have a watch to tell me the time, and if I’m going to be wearing one anyways, a convincing argument can be made that I ought to treat myself to the finest and shiniest, which, I will be told, has been perfectly painstakingly custom engineered by the best in alpine watchmaking tradition. I may not have any use for such a watch today, but at least it’s a defensible reason for me to indulge myself to peruse shiny and expensive objects.
Except wristwatches are dying. Not just fancy and expensive models that use gratuitous amounts of valuable metals and stones, which have been slowly getting replaced by smaller, lighter, digital models that can also tell me the date, weather, set alarms, and act as a stopwatch since the calculator watches of the 1970s, but even these are being edged out. In some cases by smart watches, which can do everything listed previously, and then also take over several functions of a phone. But in most cases, watches are simply disappearing and being replaced by… nothing.
That’s because the need for a watch has been steadily eroded as young people have decided that they can just use their phone to tell the time. The smartphone didn’t kill the wristwatch, but the cultural shift towards having the action of glancing at one’s phone as casually acceptable as looking at one’s watch will. The more accepted having phones out becomes in polite company, the faster watches will disappear.
So, how do watches compete? It is still marginally easier to glance at a watch than to take a phone out from a pocket and look at it. But when a phone can also do so much more, to the point that pulling out a phone is a routine action anyways (to check texts, news alerts, and the like), the watch is still going to lose. The watch has to be able to take over some tasks from the phone in the same way that the phone can from the watch.
Modern smart watches already meet this threshold. On my own pebble smartwatch, I can receive text messages and other notifications, and decided whether I need to respond without ever having to touch my phone. I can screen incoming calls, and route them through my headphones. I can play and adjust my music, all without ever having to unlock my phone. It does exactly what I need it to, which is why it is an essential part of my essential kit.
There’s just one problem. My smartwatch is made of clunky looking, albeit durable and relatively cheap, plastic components. It stands out like a sore thumb in a formal outfit. Moreover, smart watches aren’t accepted in the same way that smartphones are.
So, jewelry companies: you need a trend you can cash in on with young men? Try smart watches. Cast them in silver and gold, with sparkling diamonds on the menu buttons, and custom engravings. Or heck, cut out watches entirely and go straight to phone cases. The important part is embracing this paradigm shift rather than stubbornly insisting that I still need a miniature grandfather clock on my wrist because my wearable computer isn’t fancy enough.

Thoughts on Steam

After much back and forth, I finally have a steam account. I caved eventually because I wanted to be able to actually play my brother’s birthday present to me; the game Cities: Skylines and all of its additional downloadable content packs. I had resisted, what has for some time felt inevitably, downloading steam, for a couple of reasons. The first was practical. Our family’s main computer is now reaching close to a decade old, and in its age does not handle all new things gracefully, or at least, does not do so consistently. Some days it will have no problem running multiple CPU-intensive games at once. Other days it promptly keels over when I so much as try to open a document.

Moreover, our internet is terrible. So terrible in fact that its latest speed test results mean that it does not qualify as broadband under any statutory or technical definition, despite paying not only for broadband, but for the highest available tier of it. Allegedly this problem has to do with the geography of our neighborhood and the construction of our house. Apparently, according to our ISP, the same walls which cannot help but share our heating and air conditioning with the outside, and which allow me to hear a whisper on the far side of the house, are totally impermeable to WiFi signals.

This fear was initially confirmed when my download told me that it would only be complete in an estimated two hundred and sixty one days. That is to say, it would take several times longer to download than it would for me to fly to the game developer’s headquarters in Sweden and get a copy on a flash drive. Or even to take a leisurely sea voyage.

This prediction turned out, thankfully, to be wrong. The download took a mere five hours; the vast majority of the progress was made during the last half hour when I was alone in the house. This is still far longer than the fifteen minutes or less that I’m accustomed to when installing from a CD. I suppose I ought to give some slack here, given that I didn’t have to physically go somewhere to purchase the CD.

My other point of contention with steam is philosophical. Steam makes it abundantly clear in their terms and conditions (which, yes, I do read, or at least, glaze over, as a general habit), that when you are paying them money to play games, you aren’t actually buying anything. At no point do you actually own the game that you are nominally purchasing. The legal setup here is terribly complicated, and given its novelty, not crystal clear in its definition and precedence, especially with the variations in jurisdictions that come with operating on the Internet. But while it isn’t clear what Steam is, Steam has made it quite clear what it isn’t. It isn’t selling games.

The idea of not owning the things that one buys isn’t strictly new. Software has never really been for sale in the old sense. You don’t buy Microsoft Word; you buy a license to use a copy of it, even if you were receiving it on a disk that was yours to own. Going back further, while you might own the physical token of a book, you don’t own the words on it inasmuch as it is not yours to copy and sell. This is a consequence of copyright and related concepts of intellectual property, which are intended to assist creators by granting them a temporary monopoly on their creations’ manufacture and sale, so as to incentivize more good creative work.

Yet this last example pulls at a loose thread: I may not own the story, but I do own the book. I may not be allowed to manufacture and sell new copies, but I can dispose of my current copy as I see fit. I can mark it, alter it, even destroy it if I so choose. I can take notes and excerpts from it so long as I am not copying the book wholesale, and I can sell my single copy of the book to another person for whatever price the two of us may agree upon, the same as any other piece of property. Software is not like this, though a strong argument can be made that it is only very recently that this new status quo has become practically enforceable.

Indeed, for as long as software has been sold in stores by means of disks and flash drives, it has been closer to the example of the classic book. For, as long as I have my CD, and whatever authentication key might come with it, I can install the contents wherever I might see fit. Without Internet connectivity to report back on my usage, there is no way of the publisher even knowing whether or not I am using their product, let alone whether I am using it in their intended manner. Microsoft can issue updates and changes, but with my CD and non-connected computer, I can keep my version of their software running how I like it forever.

Steam, however, takes this mindset that has existed in theory to its practical conclusion. You do not own the games that you pay for. This is roughly equivalent to the difference between buying a car, and chartering a limo service. Now, there’s nothing inherently wrong with this approach, but it is a major shift. There is of course the shift in power from consumers to providers: rather than you getting to dispose of your games as you see fit, you can have them revoked by Steam if you misbehave or cheat. This is unnerving, especially to one such as myself who is accustomed to having more freedom with things I buy (that’s why I buy them- to do as I please with), but not as interesting as the larger implications on the notion of property as a whole.

I don’t think the average layman knows or even cares about the particulars of license transfers. Ask such a layman what Steam does, and they’ll probably answer that they sell video games, in the same way that iTunes sells music. The actual minutiae of ownership are a distant second to the point of use. I call my games, and digital music, and the information on my Facebook feed mine, even though I don’t own them by any stretch of the imagination.

This use need not be exclusive either, so long as it never infringes on my own plans. After all, if there were a hypothetical person listening to my music and playing my games only precisely when I’m not, I might never notice.

So far I have referred to mostly digital goods, and sharing as it pertains to intellectual property. But this need not be the case. Ridesharing, for example, is already transforming the idea of owning and chartering a vehicle. On a more technical level, this is how mortgages, banknotes, and savings accounts have worked for centuries, in order to increase the money supply and expand the economy. Modern fiat currency, it will be seen, is not so much a commodity that is discretely owned as one that is shared an assigned value between its holder, society, and the government backing it. This quantum state is what allows credit and debt, which permit modern economies to function and flourish.

This shift in thinking around ownership certainly has the capability to be revolutionary, shifting prices and thinking around these new goods. Whether or not it will remains to be seen. Certainly it remains to be seen whether this change will be a net positive for consumers as well as the economy as a whole.

Cities: Skylines seems to be a fun game that our family computer can just barely manage to play. At the moment, this is all that is important to me. Yet I will be keeping an eye on how, if at all, getting games through steam influencers my enjoyment, for good or for ill.

Bretton Woods

So I realized earlier this week, while staring at the return address stamped on the sign outside the small post office on the lower level of the resort my grandfather selected for us on our family trip, that we were in fact staying in the same hotel which hosted the famous Bretton Woods Conference, that resulted in the Bretton Woods System that governed post-WWII economic rebuilding around the world, and laid the groundwork for our modern economic system, helping to cement the idea of currency as we consider it today.

Needless to say, I find this intensely fascinating; both the conference itself as a gathering of some of the most powerful people at one of the major turning points in history, and the system that resulted from it. Since I can’t recall having spent any time on this subject in my high school economics course, I thought I would go over some of the highlights, along with pictures of the resort that I was able to snap.

Pictured: The Room Where It Happened

First, some background on the conference. The Bretton Woods conference took place in July of 1944, while the Second World War was still in full swing. The allied landings in Normandy, less than a month earlier, had been successful in establishing isolated beachheads, but Operation Overlord as a whole could still fail if British, Canadian, American, and Free French forces were prevented from linking up and liberating Paris.

On the Eastern European front, the Red Army had just begun Operation Bagration, the long planned grand offensive to push Nazi forces out of the Soviet Union entirely, and begin pushing offensively through occupied Eastern Europe and into Germany. Soviet victories would continue to rack up as the conference went on, as the Red Army executed the largest and most successful offensive in its history, escalating political concerns among the western allies about the role the Soviet Union and its newly “liberated” territory could play in a postwar world.

In the pacific, the Battle of Saipan was winding down towards an American victory, radically changing the strategic situation by putting the Japanese homeland in range of American strategic bombing. Even as the battles rage on, more and more leaders on both sides look increasingly to the possibility of an imminent allied victory.

As the specter of rebuilding a world ravaged by the most expensive and most devastating conflict in human history (and hopefully ever) began to seem closer, representatives of all nations in the allied powers met in a resort in Bretton Woods, New Hampshire, at the foot of Mount Washington, to discuss the economic future of a postwar world in the United Nations Monetary and Financial Conference, more commonly referred to as the Bretton Woods Conference. The site was chosen because, in addition to being vacant (since the war had effectively killed tourism), the isolation of the surrounding mountains made the site suitably defensible against any sort of attack. It was hoped that this show of hospitality and safety would assuage delegates coming from war torn and occupied parts of the world.

After being told that the hotel had only 200-odd rooms for a conference of 700-odd delegates, most delegates, naturally, decided to bring their families, an many cases bringing as many extended relatives as could be admitted on diplomatic credentials. Of course, this was probably as much about escaping the ongoing horrors in Europe and Asia as it was getting a free resort vacation.

These were just the delegates. Now imagine adding families, attachés, and technical staff.

As such, every bed within a 22 mile radius was occupied. Staff were forced out of their quarters and relocated to the stable barns to make room for delegates. Even then, guests were sleeping in chairs, bathtubs, even on the floors of the conference rooms themselves.

The conference was attended by such illustrious figures as John Maynard Keynes (yes, that Keynes) and Harry Dexter White (who, in addition to being the lead American delegate, was also almost certainly a spy for the Soviet NKVD, the forerunner to the KGB), who clashed on what, fundamentally, should be the aim of the allies to establish in a postwar economic order.

Spoiler: That guy on the right is going to keep coming up.

Everyone agreed that protectionist, mercantilist, and “economic nationalist” policies of the interwar period had contributed both to the utter collapse of the Great Depression, and the collapse of European markets, which created the socioeconomic conditions for the rise of fascism. Everyone agreed that punitive reparations placed on Germany after WWI had set up European governments for a cascade of defaults and collapses when Germany inevitably failed to pay up, and turned to playing fast and loose with its currency and trade policies to adhere to the letter of the Treaty of Versailles.

It was also agreed that even if reparations were entirely done away with, which would leave allied nations such as France, and the British commonwealth bankrupt for their noble efforts, that the sheer upfront cost of rebuilding would be nigh impossible by normal economic means, and that leaving the task of rebuilding entire continents would inevitably lead to the same kind of zero-sum competition and unsound monetary policy that had led to the prewar economic collapse in the first place. It was decided, then, that the only way to ensure economic stability through the period of rebuilding was to enforce universal trade policies, and to institute a number of centralized financial organizations under the purview of the United Nations, to oversee postwar rebuilding and monetary policy.

It was also, evidently, the beginning of the age of minituraized flags.

The devil was in the details, however. The United States, having spent the war safe from serious economic infrastructure damage, serving as the “arsenal of democracy”, and generally being the only country that had reserves of capital, wanted to use its position of relative economic supremacy to gain permanent leverage. As the host of the conference and the de-facto lead for the western allies, the US held a great deal of negotiating power, and the US delegates fully intended to use it to see that the new world order would be one friendly to American interests.

Moreover, the US, and to a lesser degree, the United Kingdom, wanted to do as much as possible to prevent the Soviet Union from coming to dominate the world after it rebuilt itself. As World War II was beginning to wind down, the Cold War was beginning to wind up. To this end, the news of daily Soviet advances, first pushing the Nazis out of its borders, and then steamrolling into Poland, Finland, and the Baltics was troubling. Even more troubling were the rumors of the ruthless NKVD suppression of non-communist partisan groups that had resisted Nazi occupation in Eastern Europe, indicating that the Soviets might be looking to establish their own postwar hegemony.

Although something tells me this friendship isn't going to last
Pictured: The beginning of a remarkable friendship between US and USSR delegates

The first major set piece of the conference agreement was relatively uncontroversial: the International Bank for Reconstruction and Development, drafted by Keynes and his committee, was established to offer grants and loans to countries recovering from the war. As an independent institution, it was hoped that the IBRD would offer flexibility to rebuilding nations that loans from other governments with their own financial and political obligations and interests could not. This was also a precursor to, and later backbone of, the Marshal Plan, in which the US would spend exorbitant amounts on foreign aid to rebuild capitalism in Europe and Asia in order to prevent the rise of communist movements fueled by lack of opportunity.

The second major set piece is where things get really complicated. I’m massively oversimplifying here, but global macroeconomic policy is inevitably complicated in places. The second major set-piece, a proposed “International Clearing Union” devised by Keynes back in 1941, was far more controversial.

The plan, as best I am able to understand it, called for all international trade to be handled through a single centralized institution, which would measure the value of all other goods and currencies relative to a standard unit, tentatively called a “bancor”. The ICU would then offer incentives to maintain trade balances relative to the size of a nation’s economy, by charging interest off of countries with a major trade surplus, and using the excess to devalue the exchange rates of countries with trade deficits, making imports more expensive and products more desirable to overseas consumers.

The Grand Ballroom was thrown into fierce debate, and the local Boy Scouts that had been conscripted to run microphones between delegates (most of the normal staff either having been drafted, or completely overloaded) struggled to keep up with these giants of economics and diplomacy.

Photo of the Grand Ballroom, slightly digitally adjusted to compensate for bad lighting during our tour

Unsurprisingly, the US delegate, White, was absolutely against Keynes’s hair brained scheme. Instead, he proposed a far less ambitious “International Monetary Fund”, which would judge trade balances, and prescribe limits for nations seeking aid from the IMF or IBRD, but otherwise would generally avoid intervening. The IMF did keep Keynes’s idea of judging trade based on a pre-set exchange rate (also obligatory for members), but avoided handing over the power to unilaterally affect the value of individual currencies to the IMF, instead leaving it in the hands of national governments, and merely insisting on certain requirements for aid and membership. It also did away with notions of an ultranational currency.

Of course, this raised the question of how to judge currency values other than against each other alone (which was still seen as a bridge too far in the eyes of many). The solution, proposed by White, was simple: judge other currencies against the US dollar. After all, the United States was already the largest and most developed economy. And since other countries had spent the duration of the war buying materiel from the US, it also held the world’s largest reserves of almost every currency, including gold and silver, and sovereign debt. The US was the only country to come out of WWII with enough gold in reserve to stay on the gold standard and also finance postwar rebuilding, which made it a perfect candidate as a default currency.

US, Canadian, and Soviet delegates discuss the merits of Free Trade

Now, you can see this move either as a sensible compromise for a world of countries that couldn’t have gone back to their old ways if they tried, or as a master stroke attempt by the US government to cement its supremacy at the beginning of the Cold War. Either way, it worked as a solution, both in the short term, and in the long term, creating a perfect balance of stability and flexibility in monetary policy for a postwar economic boom, not just in the US, but throughout the capitalist world.

The third set piece was a proposed “International Trade Organization”, which was to oversee implementation and enforcement of the sort of universal free trade policies that almost everyone agreed would be most conducive not only to prosperity, but to peace as a whole. Perhaps surprisingly, this wasn’t terribly divisive at the conference.

The final agreement for the ITO, however, was eventually shot down when the US Senate refused to ratify its charter, partly because the final conference had been administered in Havana under Keynes, who used the opportunity to incorporate many of his earlier ideas on an International Clearing Union. Much of the basic policies of the ITO, however, influenced the successful General Agreements on Tarriffs and Trade, which would later be replaced by the World Trade Organization.

Pictured: The main hallway as seen from the Grand Ballroom. Notice the moose on the right, above the fireplace.

The Bretton Woods agreement was signed by the allied delegates in the resort’s Gold Room. Not all countries that signed immediately ratified. The Soviet Union, perhaps unsurprisingly, reversed its position on the agreement, calling the new international organizations “a branch of Wall Street”, going on to found the Council for Mutual Economic Assistance, a forerunner to the Warsaw Pact, within five years. The British Empire, particularly its overseas possessions, also took time in ratifying, owing to the longstanding colonial trade policies that had to be dismantled in order for free trade requirements to be met.

The consensus of most economists is that Bretton Woods was a success. The system more or less ceased to exist when Nixon, prompted by Cold War drains on US resources, and French schemes to exchange all of its reserve US dollars for gold, suspended the Gold Standard for the US dollar, effectively ushering in the age of free-floating fiat currencies; that is, money that has value because we all collectively accept that it does; an assumption that underlies most of our modern economic thinking.

There’s a plaque on the door to the room in which the agreement was signed. I’m sure there’s something metaphorical in there.

While it certainly didn’t last forever, the Bretton Woods system did accomplish its primary goal of setting the groundwork for a stable world economy, capable of rebuilding and maintaining the peace. This is a pretty lofty achievement when one considers the background against which the conference took place, the vast differences between the players, and the general uncertainty about the future.

The vision set forth in the Bretton Woods Conference was an incredibly optimistic, even idealistic, one. It’s easy to scoff at the idea of hammering out an entire global economic system, in less than a month, at a backwoods hotel in the White Mountains, but I think it speaks to the intense optimism and hope for the future that is often left out of the narrative of those dark moments. The belief that we can, out of chaos and despair, forge a brighter future not just for ourselves, but for all, is not in itself crazy, and the relative success of the Bretton Woods System, flawed though it certainly was, speaks to that.

A beautiful picture of Mt. Washington at sunset from the hotel’s lounge

Works Consulted

IMF. “60th Anniversary of Bretton Woods.” 60th Anniversary – Background Information, what is the Bretton Woods Conference. International Monetary Fund, n.d. Web. 10 Aug. 2017. <http://external.worldbankimflib.org/Bwf/whatisbw.htm>.

“Cooperation and Reconstruction (1944-71).” About the IMF: History. International Monetary Fund, n.d. Web. 10 Aug. 2017. <http://www.imf.org/external/about/histcoop.htm>

YouTube. Extra Credits, n.d. Web. 10 Aug. 2017. <http://www.youtube.com/playlist?list=PLhyKYa0YJ_5CL-krstYn532QY1Ayo27s1>.

Burant, Stephen R. East Germany, a country study. Washington, D.C.: The Division, 1988. Library of Congress. Web. 10 Aug. 2017. <https://archive.org/details/eastgermanycount00bura_0>.

US Department of State. “Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1-22, 1944.” Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1-22, 1944 – FRASER – St. Louis Fed. N.p., n.d. Web. 10 Aug. 2017. <https://fraser.stlouisfed.org/title/430>.

Additional information provided by resort staff and exhibitions visitited in person.